Home General Knowledge GENERAL KNOWLEDGE BOOSTER : PUBLIC- PRIVATE PARTNERSHIP
GENERAL KNOWLEDGE BOOSTER : PUBLIC- PRIVATE PARTNERSHIP
Friday, 12 December 2014 02:31

 

 

GENERAL KNOWLEDGE BOOSTER

PUBLIC- PRIVATE PARTNERSHIP

 

Public–Private partnership (PPP) describes a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies.

PPP is a broad term that can be applied to anything from a simple, short term management contract (with or without investment requirements) to a long-term contract that includes funding, planning, building, operation, maintenance and divestiture. It is a funding model basically for a public infrastructure project such as a new telecommunications system, airport or power plant.

Why the government gets engaged with private sector?

• To harness private sector efficiencies in asset creation, maintenance and service delivery;

• To provide focus on life cycle approach for development of a project, involving asset creation and maintenance over its life cycle;

• To create opportunities to bring in innovation and technological improvements; and,

• To enable affordable and improved services to the users in a responsible and sustainable manner.

PPP Models supported by the Government

• Build Operate and Transfer (BOT) Toll basis: The concessionaire (private sector) is required to meet the upfront cost and the expenditure on annual maintenance. The concessionaire recovers the entire upfront cost along with the interest and a return on investment out of the future toll collection.

• Build Operate and Transfer (BOT) Annuity basis: In an BOT (Annuity) Model, the Concessionaire (private sector) is required to meet the entire upfront/construction cost (no grant is paid by the client) and the expenditure on annual maintenance. The Concessionaire recovers the entire investment and a pre-determined cost of return out of the annuities payable by the client every year. The selection is based on the least annuity quoted by the bidders (the concession period being fixed).The client (Government/NHAI) retains the risk with respect to traffic (toll), since the client collects the toll.

• Design-Build

It is a traditional public sector procurement model for infrastructure facilities. Generally, a private contractor is selected through a bidding process. The private contractor designs and builds a facility for a fixed fee, rate or total cost, which is one of the key criteria in selecting the winning bid. The contractor assumes risks involved in the design and construction phases. The scale of investment by the private sector is generally low and for a short-term. Typically, in this type of arrangement there is no strong incentive for early completion of a project. This type of private sector participation is also known as turnkey.

• Buy-Build-Operate (BBO): This publicly-owned asset is legally transferred to a private-sector partner for a designated period of time.

• Build-lease-operate-transfer (BLOT): The private-sector partner designs, finances and builds a facility on leased public land. The private-sector partner operates the facility for the duration of the land lease. When the lease expires, assets are transferred to the public-sector partner.

Implementation of projects under Public Private Partnership (PPP) has the following advantages-

(a) Better quality since the concessionaire (private sector) is to maintain the road for the period of concession.

(b) Early completion of the project, since the concessionaire could save interest and earn early toll (in the case of BOT project) / additional annuity installments (in the case of Annuity project).

(c) No cost overruns (price escalation).

(d) The Client (Government/NHAI) does not have the burden of maintaining the highways.

(e) Involving the private sector leads to greater efficiency.

(f) The private sector has more flexible procurement and decision-making procedures and therefore, it can speed up implementation efforts.

 

 

 

Last Updated on Friday, 12 December 2014 11:12