ASSIGMENT ON PUBLIC PRIVATE PARTNERSHIP (PPP)

)

PUBLIC PRIVATE PARTNERSHIP (PPP)

PPP means an enterprise in which a project or service is financed or operated through a partnership of Government and Private enterprises .

PPP is a long term partnership between Public and Private Sectors .

LEASE CONTRACTS In lease contract, the private partner is responsible for the service and undertake obligation for quality and service standard, except for major capital investment.

Greater the risk, longer the contract.

ADVANTAGESSeparate the

use of the facility from

the ownership.Allow flexibility

Stable stream of cash flow

DISADVANTAGES

•No private investment capital is mobilized.

•Private sector cannot increase infrastructure on its own.

CONCESSIONSThe private sector i.e. concessionaire is responsible for the full delivery of services.The assets are under the ownership of the government and returned to them at the end of concession period.The public sector is to ensure the performance standard meet by concessionaireThe concessionaire is responsible for financing capital investment and working capital.Contract is valid for much longer period than other contracts.

ADVANTAGESIncrease the financial resources of the government.

Initial capital construction cost may be reduced due to private sector’s expertise

Motivate the private sector.

DISADVANTAGESComplexity in formation and operations.

Require continuous performance monitoring.

Benefits of competition are limited to the initial bidding process as a private sector has a monopoly of the service and contracts cannot be terminated easily.

TYPES OF CONCESSIONS

BUILD-OPERATE TRANSFER (BOT)

BUILD TRANSFER OPERATE (BTO)

BUILD OWN OPERATE AND

TRANSFER(BOOT)BUILD OWN OPERATE SHARE

TRANSFER(BOOST)BUILD OWN LEASE TRANSFER

MODEL(BOLT)BUILD AND

TRANSFER ( BT)

1.BUILD OPERATE TRANSFER (BOT)

Under BOT arrangement, the concessionaire undertake the construction including financing and agrees to operate it for a fixed time period, after the expiry of fixed time, it is transferred to the government.Till the concessionaire operate the facility, he is allowed to charge facility users appropriate toll, fee charges etc.If the contract is in form of BOT annuity, then the private partner does not collect any charge from the users. His return on investment is paid to him by the government through annual payment.

FEATURES OF BOT The private partner undertake the responsibility to build the infrastructural facility and also brings in money for its construction.The quality standards for the constructions are specified by the government.The private party is given the right to operate the facility for some fixed time period after which it is transferred to the public sector.The private contractor charges the fees from the users of the facility to recover the money invested in it.The ownership of facility remain with the public sector.The key driver is transfer of operating, design and construction risk.

MODEL STAGES

Design-Bid-Award

Design Build (DB)

Build Operate (BO)

Build-Operate-Transfer(BOT)

MAJOR PARTICIPANTPRINCIPAL- The principal is usually a government agency that recognize the need for public facility but unable to financially support the project.THE CONCESSIONAIRE- it is a consortium of companies, undertake the financing and development of the project.INVESTORS- the investors include both shareholder and lenders from the private sectors who finance the concessionaire

CONTRACTOR- the contractor is entrusted the task of the construction of the facility. He is appointed by the concessionaire.OPERATOR- the operator is also in the concessionaire’s services and manages the operational stage of the facility.

SUITABILITY

Suitable for projects involving a significant operating content.Particularly suitable for water & waste projects and roads etc.

STRENGTHS•Design, constructions & operating risk is transferred to the private partners.•Potential to accelerate constructions.•Promote private sector innovation and value for money.•Improved quality of operations & maintenance.•Initial capital constructions may be reduced due to private sector’s expertise.•Relieve government to focus on core public sector responsibility.

WEAKNESSESComplex and longer contracts

Continuous performance monitoring system

Monopoly of services

Cost of re-entering the business

Do not attract private finance

2.BUILD-TRANSFER-OPERATE (BTO)

It is a new version of the BOT model

In the BTO model on the completion of the project, first the facility is transferred to the government and then government allow the private partner to operate the same.

3. BUILD-OWN-OPERATE-AND-TRANSFER (BOOT)The private partner is responsible for the construction, financing, operation and maintenance of the facility over the period of the concession.After the expiry of the period, the facility is transferred to the government at no cost.Till the expiry of the contract, the ownership of the facility rests with the private party.

4.BUILD-OWN-OPERATE-SHARE-TRANSFER (BOOST)

It is a contractual obligation in which concessionaire is responsible for financing and constructing the facility which its own, operate and maintain, share a part of the revenue and transfer the infrastructural facility at the end of period.

5.BUILD-OWN-LEASE-TRANSFER (BOLT) MODEL

It is a type of lease contract.

It is a non-traditional procurement method of project financing whereby the government gives a concession to a private entity to build and design a facility, own the facility, lease the facility to the government once it is built, then at the end of the lease period transfer the ownership of the facility to the government.

ADVANTAGES Separation of use and ownership of facility

Reduce burden of finance

Facilitate tough management decision

Stable stream of cash flow

6. BUILD AND TRANSFER (BT)Concessionaire undertake the financing and construction of a given facility and once the construction is complete, it is transferred to the government which make payment to the private partner for financing along with reasonable rate of return.

PPP IN INFRASTRUCTURE DEVELOPMENT IN INDIA

INITIATIVE GOVERNMENT

* Setting up of a Committee on Infrastructure (COI) in August , 2004

In July 2009 , COI was replaced by Cabinet Committee on Infrastructure (CCI)

*In January 2013 , the Govt. constituted the Cabinet Committee on Investment (CCI)

* Cabinet Committee on Investment (CCI) has also been abolished and presently all the decisions taken by the Cabinet Committee on Economic Affairs

1. INSTITUTIONAL FRAMEWORKTwo important bodies set up to deal with PPP’s in India are :a)Public Private Partnership Appraisal

Committee (PPPAC) and Empowered Committee / Institution (EI)

b)PPP Cell

a)Public Private Partnership Appraisal Committee (PPPAC) and Empowered Committee / Institution (EI) :

PPPAC was setup in January , 2006 under the chairmanship of the Secretary , Department of Economic Affairs . The members of the committee consists of Planning Commission , Department of Legal Affairs and the Administrative Department .

Empowered Committee ( EC) consists of Secretaries of Economic Affairs , Planning Commission , Expenditure and the Secretary of line Ministry.

FUNCTIONS OF THE COMMITTEE : 1.Sanction of Viability Gap Funding up to Rs.200 crore for each project subject to the budgetary ceilings indicated by the Finance Ministry . 2.Avoids pre- empting of funds 3.Provide clarifications relating to eligibility of a project

Empowered Institution (EI) : EI is authorized to sanction Viability Gap Funding up to Rs. 100 crore for each project , indicated by the Finance Minister .

b) PPP Cell : A PPP Cell has been set up in the Department of Economic Affairs (DEA) , Ministry of Finance (MOF) . Functions of the cell :

1. To deal with matters and proposals relating to clearance by Public Private Partnership Appraisal Committee (PPAC).

2.To look into matters relating to examination and approval of all central sector PPP projects, in all sectors costing more than Rs. 100 crore and less than Rs. 250 crore.

3. India infrastructure Project Development Fund.

4.Matters relating to management of PPP related information.

2. FINANCING SCHEME :

Various schemes have been started to provide financing to PPPs. The important schemes are:

a) Viability Funding schemeb) Indian Infrastructure Finance Company (IIFCL)c) India Infrastructure Project Development Fund (IIPDF)

a)Viability Gap Funding Scheme: The VGF Scheme was notified in 2006 to enhance the financial viability of infrastructure projects.

• VGF Scheme has been formulated which provide financial supports in form of grants to infrastructure projects through PPP.

• Grant assistance of up to 20% of capital costs is provided by the central government to PPP projects.

• Empowered committee approves the financial assistance to such projects which satisfies all the eligibility criteria indicated in the scheme.

b) India Infrastructure Finance Company Limited (IIFCL):

IIFCL has been set up in 2006 for providing long term loans for financing infrastructure that involve long period. •IIFCL provides financial assistance up to 20% of the project cost.• Raises funds from both domestic and overseas market on the strength of government guarantees

c) India Infrastructure Project Development Fund: IIPDF has been launched to finance cost incurred towards the development of PPP projects.•IIPDF supports up to 75% of the projects developing expenses.

d) Infrastructure Debt Fund(IDF): IDFs has been set up for channelizing long-term debt from domestic and foreign pension and insurance funds, as well as from other sources. •IDF will also carry adequate credit enhancement in terms of government guarantees for repayment of debt.

3. STANDARDISED DOCUMENTS AND PROCESSES :

The Government had also formulated standard document for biding and award of PPP concessions to ensure transparency in the allocation of risks and costs.

•Model concessions agreement (MCAs) are published by the Secretariat for PPP and infrastructure at the planning commission .• MCAs for PPPs in electricity distribution , power generation , modern storage facilities , hospitals , school education, drip irrigation and industrial training institutes are under preparation.

BOTTLENECKS IN THE IMPLEMENTATION OF PPP PROJECTS :

1.Lack of enabling regulatory environment

2.Lack of database

3.Lack of clarity

4.Non-availability of finance

5.Lack of single window service

6.Inadequate enforcement and monitoring mechanism

7.Rigid model concession agreements (MCAs)

8.Social pressures

9.Political factors

10.Dispute resolution mechanism.

SPECIAL ECONOMIC ZONES

Sez is a geographical region that has economic laws different from country’ typical economic laws.The goal is to increase the foreign investments.Sez’s have established in several countries , including China , India , Jordan , Poland , kazakhstan and Russia In order to boost her exports,India recognized the effectiveness of EXPORT PROCESSING ZONES(EPZ’s)

The special economic zones act 2005,supported by special economic zones rules çame into effect on 10th february, 2006. THE OBJECTIVES ARE:• Generation of additional economic activity.•Promotion of exports of goods and services;•Promotion of investment from domestic and foreign sources;•Creation of employment oppurtunities;•Development of infrastructure facilities;

INCENTIVES AND FACILITIES OFFERED TO THE SEZs:

The GOI is providing incentives and facilities for attracting investments in SEZs at two levels:

• To the units in SEZs and • To the developers of SEZs

1. The incentives and facilities offered to the units in SEZs include:

• Duty free Import/ domestic procurement of goods for the development , operation and maintenance of SEZs units

• 100% income tax exemption on export income for SEZs units

•Exempion from CST.•Exemption from service tax.•Single window clerance for central and state level approvals.

2. The main incentives and facilities available to SEZs devlopment include:•Exemption from custom/ excise duties.•Exemption from CST.• Exemption from service tax.•Income tax exemption on income derived from the business of development of the SEZs .