7/27/2019 Swapsushias.blogspot.in-types of Public Private Partnership Models in India Gtgt Economic Geography

1/4

swapsushias.blogspot.in http://swapsushias.blogspot.in/2013/09/types-o f-public-private-partnership.html

swapnil patil

Types of Public Private Partnership Models in India ---->>

Economic Geography

PPPs broadly refer to long term, contractual partnerships between the

public and private sector agencies, specially targeted t owards f inancing,

designing, implementing, and operating infrastructure f acilit ies and services

that were traditionally provided by the Government and/or its agencies.

These collaborative ventures are built around the expertise and capacity of

the pro ject partners and are based on a cont ractual agreement, which

ensures appropriate and mutually agreed allocation of resources, risks,

and returns. This approach of developing and operating public utilities and

infrastructure by the private sector under terms and conditions agreeableto both the government and the private sector is called

PPP.

Types of PPP::

Service Contract :

Under a service contract, the Government (public

authority) hires a private company or entity to

carry out one or more specif ied tasks or services

f or a period, typically 13 years.

The public authority remains the primary provider of

the infrastructure service and cont racts out only

portions o f its operation to the private partner.

The private partner must perf orm the service at the agreed cost and must typically meet perf ormance

standards set by the public sector.

The Government pays t he private partner a predetermined fee f or the service, which may be a one

time f ee, based on unit cos t, or some other basis.

Management Contract :

A management contract expands the services to be contracted out to include some or all of the

management and operat ion of the public service (i.e., utility, hospital, port autho rity, etc.).

Although ult imate obligation f or service provisio n remains in the public sector, daily management

contro l and authority is assigned to the private partner or contractor. In mos t cases, the private

partner provides working capital but no f inancing f or investment.

The private contracto r is paid a predetermined rate f or labour and other anticipated operating cos ts .

Management contract variants include supply and service cont ract, maintenance management and

operational management.

http://swapsushias.blogspot.in/2013/09/types-of-public-private-partnership.htmlhttp://swapsushias.blogspot.in/

7/27/2019 Swapsushias.blogspot.in-types of Public Private Partnership Models in India Gtgt Economic Geography

2/4

Lease contract :

Under a lease contract, the private partner is responsible for the service in its entirety and

undertakes o bligations relating to quality and service standards.

Except f or new and replacement investments , which remain the responsibility of the public autho rity,

the operator provides the service at his expense and risk.

The duration of the leasing cont ract is typically for 10 years and may be renewed for up to 20 years.

Responsibility f or service provision is transf erred f rom the public sector to the private secto r and

the f inancial risk for operation and maintenance is borne entirely by the private sector operato r.

In particular, the operator is responsible for losses and for unpaid consumers' debts .

Leases do not involve any sale of assets to the private secto r.

Concessions :

A concessio n makes the private sector operator (co ncessionaire) responsible f or the f ull delivery o f

services in a specif ied area, including operat ion, maintenance, collection, management, and

const ruction and rehabilitat ion of the system.

Importantly, the o perator is now responsible f or all capital investment. Although the private sector

operato r is responsible f or providing the assets , such assets are publicly owned even during the

concession period.

The public sector is responsible for establishing performance standards and ensuring that the

concessionaire meets them. In essence, the public secto r s ro le shif ts f rom being the service

provider to regulating the price and quality o f service.

The concessionaire collects the tariff directly f rom the system users.

The tarif f is typically established by the concession contract, which also includes provisions on how

it may be changed over t ime.

In some cases, the government may choose to provide f inancing support to help the concess ionaire

f und its capital expenditures.

The concessionaire is responsible f or any capital investments required to build, upgrade, or expand

the system, and f or f inancing those investments out of its resources and from the tariff s paid by

the system users.

A concessio n contract is t ypically valid f or 2530 years so that the operator has suf f icient time to

recover the capital invested and earn an appropriate return over the lif e of the concession.

Government may contribute to the capital investment cost by way of subsidy (Viability Gap Funding -

VGF) to enhance commercial viability of the concession.

The concessions are eff ective contracts to provide investment f or creation of new f acilities o r

rehabilitation f acilities.

Build Operate Transfe r (BOT ) :

BOT and similar arrangements are a kind of specialized concession in which a private f irm or

conso rtium finances and develops a new inf rastructure project or a major component according to

7/27/2019 Swapsushias.blogspot.in-types of Public Private Partnership Models in India Gtgt Economic Geography

3/4

performance standards set by the government.

Under BOTs, the private partner pro vides the capital required to Build the new facility, Operate &

Maintain (O&M) for t he contract period and then return the f acility to Government as per agreed

terms.

Importantly, the private operator now owns the assets f or a period set by contractsuff icient to

allow the developer t ime to recover investment cost s through user charges.

BOTs generally require complicated f inancing packages to achieve the large f inancing amounts and longrepayment periods required. At the end of the cont ract, the public sector assumes ownership but can opt to

assume operating responsibility, contract the operation responsibility to the developer, or award a new

cont ract to a new partner. The main characteris tic of BOT and similar arrangements are given below:-

Design Build (DB) : Where Private sector designs and const ructs at a f ixed price and transf ers the

f acility.

Build Transfer Operate (BTO) : Where Private sector designs and builds the f acility. The transf er

to the public owner takes place at the conclusion o f const ruction. Concessionaire is given the right

to operate and get the return on investment.

Build-Own-Operate (BOO) : A contractual arrangement whereby a Developer is authorized to

f inance, construct, own, operate and maintain an Inf rastructure or Development f acility f rom which

the Developer is allowed to recover his t ot al investment by collecting user levies f rom f acility users.

Under this Project, the Developer owns the assets of the f acility and may choose to assign its

operation and maintenance to a f acility operator. The Transf er of the f acility to the Government,Government Agency or the Local Authority is not envisaged in this st ructure; however, the

Government, may terminate its obligations af ter specif ied time period.

Design-Build Operate (DBO) : Where the ownership is involved in private hands and a single

contract is let out f or design construction and operation of the inf rastructure project.

Design Build Finance Operate (DBFO) : With the designbuildf inanceoperate (DBFO) approach,the respons ibilit ies f or designing, building, f inancing, and operat ing & maintaining, are bundled

to gether and transf erred to private secto r partners. DBFO arrangements vary greatly in terms of the

degree of f inancial responsibility that is transf erred to the private partner

Build- Operate- Transfer (BOT) : Annuity/Shadow User Charge : In this BOT Arrangement, private

partner does not co llect any charges f rom the users. His return on to tal investment is paid to him by

public authority through annual payments (annuity) f or which he bids. Other option is that the private

developer gets paid based on the usage of the created facility.

Joint Venture:

7/27/2019 Swapsushias.blogspot.in-types of Public Private Partnership Models in India Gtgt Economic Geography

4/4

Joint ventures are alternatives to f ull privatizat ion in which the inf rast ructure is co- owned and

operated by the public sector and private operators .

Under a joint venture, the public and private sector part ners can either f orm a new company (SPV) or

assume joint ownership of an existing company through a sale of shares to one or several private

investors.

A key requirement o f this s tructure is good corporate governance, in part icular the ability of the

company to maintain independence from the government, because the government is both part

owner and regulator.

From its pos ition as shareholder, however, the government has an interest in the prof itability and

sustainability of the company and can work to smoothen political hurdles.