Public-private partnership (ppp)

Public-private partnership (ppp)Presented by:-Somya Shukla 57

jdfhjsdjkhfsnmdfsueiufejkf1overviewPublic Private Partnership means an arrangement between a government / statutory entity / government owned entity on one side and a private sector entity on the other, for the provision of public assets and/or public services, through investments being made and/or management being undertaken by the private sector entity, for a specified period of time, where there is well defined allocation of risk between the private sector and the public entity and the private entity receives performance linked payments that conform (or are benchmarked) to specified and pre-determined performance standards, measurable by the public entity or its representative.IMF (2004)the transfer to the private sector of investment projects that traditionally have been executed or financed by the public sector Public-private partnership (PPP) is emerging as the new success route in Indias attempts to build world-class infrastructure. Over the last decade, the PPP concept has expanded across key infrastructure segments ranging from roads and communications to power and airports. Policymakers at both central and state levels have been increasingly focusing on infrastructure investments so as to enable fast paced economic growth. They believe PPP could be the key to create the requisite infrastructure for enabling double-digit GDP growth and enhancing peoples welfare.In fact, the Planning Commission expects private investments to contribute 50 per cent to total infrastructure investments (worth USD 1 trillion) in India during the 12th FiveYear Plan (FY1217). It will be no surprise if a large chunk of these investments are directed through the PPP route. A PPP or public-private partnership is a collaboration between public bodies, such as central government or local authorities, and private companies to finance, build, and in some cases operate or maintain an infrastructure project such as a road, school or hospital.

2Essential conditionsArrangement with private sector entityPublic asset or service for public benefitInvestments being made by and/or management undertaken by the private sector entity Operations or management for a specified periodRisk sharing with the private sector Performance linked payments Conformance to performance standards

The asset and/or service under the contractual arrangement will be provided by the Private Sector entity to the users. An entity that has a majority non-governmental ownership, i.e., 51 percent or more, is construed as a Private Sector entity.The facilities/ services being provided are traditionally provided by the Government, as a sovereign function, to the people.The arrangement could provide for financial investment and/or non-financial investment by the private sector; the intent of the arrangement is to harness the private sector efficiency in the delivery of quality services to the users.The arrangement cannot be in perpetuity. After a pre-determined time period, the arrangement with the private sector entity comes to a closure. Once the asset is built, it is maintained for usually between 20 and 30 years by the private sector contractor, after which it returns to public ownership.PPPs are meant to transfer certain risks to the private sector, such as construction risk, which it is felt are better borne by the private contractors and are therefore able to reduce the costs to the public purse. Mere outsourcing contracts are not PPPs.The central focus is on performance and not merely provision of facility or service.The focus is on a strong element of service delivery aspect and compliance to pre-determined and measurable standards to bespecified by the Sponsoring Authority.3Evolution of pppsThe PPP model has been practiced in India for quite some time now. However, adoption of the concept on a larger scale took place only post liberalization, especially after 2006. As the years have passed, the share of PPP in infrastructure investments have shot up, aided by favorable policies and key reforms. 4Current status of ppps in IndiaAccording to the Department of Economic Affairs (DEA), around 758 PPP projects with a total value of USD71.7 is awarded/underway status (i.e., in operational, constructional or in stages wherein at least construction/implementation is imminent). There exists significant untapped potential for the use of the PPP model in e-governance, health and education sectors.Karnataka, Andhra Pradesh and Madhya Pradesh are the leading states in terms of number and value of PPP projects.At the center level National Highway Authority Of India (NHAI) is the leading user of the PPP model.

PPP MODELS ACROSS SECTORS

With growing acceptance of the PPP concept in large scale investments, respective government have formulated specific PPP models addressing the needs of different sectors. Overall, a PPP model requires private sector participation for design, construction, operating, maintaining and finance. However, control of the asset under contract vests with the public entity during the contract period and once the project is complete, entire ownership is transferred to public entity. Schemes and Modalities of PPPschemesmodalitiesBuild-own-operate (BOO)Build-develop-operate (BDO)Design-construct-manage-finance (DCMF)The private sector designs, builds, owns, develops, operates and manages an asset with no obligation to transfer ownership to the government. These are variants of design-build-finance-operate (DBFO) schemes.Buy-build-operate (BBO)Lease-develop-operate (LDO)Wrap-around addition (WAA)The private sector buys or leases an existing asset from the Government, renovates, modernizes, and/ or expands it, and then operates the asset, again with no obligation to transfer ownership back to the Government.Build-operate-transfer (BOT)Build-own-operate-transfer (BOOT) Build-rent-own-transfer (BROT)Build-lease-operate-transfer (BLOT)Build-transfer-operate (BTO)The private sector designs and builds an asset, operates it, and then transfers it to the Government when the operating contract ends, or at some other pre-specified time. The private partner may subsequently rent or lease the asset from the Government.Source:Public Private Partnership, Fiscal Affairs Department of the IMF. ppp models in India

Turnkey/modified Under this approach, the project sponsor retains a third party to design and build the project to the sponsors specifications. If the sponsor owns the land, it may conduct a competition to select the builder from a list of qualified firms. If the builder owns the land, there is no competition to select the builder. A turnkey project is one in which the builder pays all costs from the outset and is paid in full by the project sponsor upon completion. A modified turnkey project is one in which payment is made by the sponsor at specified milestones throughout the development process.A turnkey/modified turnkey approach is often used in projects that need to be completed within a tight timeframe. Performance-Based Management and Maintenance Contract is one in which services are provided not on a unit basis (e.g. a fee perpotholefilled in a road) but based on an agreed-upon standard that the contractor is to maintain (e.g. all potholes bigger than 75mm x 100mm must be filled within a certain length of time) in order to collect the full fee.

9OPPORTUNITY TO BENEFIT FROM UNTAPPED FAST GROWING INDIAN SECTORS THROUGH PPP

Currently, PPP in India has been largely concentrated in sectors such as power, telecom, roads and airports. However, opportunities exist in other segments as well with education and health likely to emerge most lucrative in the coming decades. Higher education: In 2011, PPP in higher education accounted for a mere 2.2 per cent of the total PPP projects. Currently, private higher education constitutes 80 per cent of professional higher education and 33 per cent of overall education. Healthcare: As the Indian healthcare industry is gearing to become an USD 75.0-billion industry by 2015a steep rise from the current USD 40.0 billion there is a need for significant participation from the private sector to cater to the rising demand for healthcare.After education, healthcare is another sector where PPP is still at a nascent stage. Of the total PPP projects in the country, healthcare accounts for just 1.1 per cent.Currently, several central- and state run hospitals as well as pathology and radiology services are outsourced to private firms. PPP can serve as a mode to finance healthcare services and if regulated, it has the potential of reaping significant benefits for the country.

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