INTRODUCTION OF PUBLIC PRIVATE

PARTNERSHIP (PPP MODE)

Public-private partnership (PPP) is a funding model for a public

infrastructure project such as a new telecommunications system, airport or
power plant. The public partner is represented by the government at a local,
state and/or national level. The private partner can be a privately-owned
business, public corporation or consortium of businesses with a specific area
of expertise.

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. PPP arrangements are useful for large projects
that require highly-skilled workers and a significant cash outlay to get
started. They are also useful in countries that require the state to legally own
any infrastructure that serves the public.
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PPP is a mode of providing public infrastructure and services by
Government in partnership with private sector. It is a long term arrangement
between Government and private sector entity for provision of public
utilities and services.

A public–private partnership (PPP, 3P or P3) is a cooperative arrangement

between two or more public and private sectors, typically of a long-term
nature. Governments have used such a mix of public and private endeavors
throughout history. However, the late 20th century and early 21st
century have seen a clear trend towards governments across the globe
making greater use of various PPP arrangements.

PPP mechanism is a major element of India’s infrastructure creation efforts

as there is huge level of investment requirement in the sector. The twelfth
plan targets to spend $1000 bn to expand infrastructure. Conventional form
of finance – the budgetary allocation by the government is not enough to
meet this big investment size. So the government at present is making
several efforts to modify and energize the PPP (Public Private Partnership)
mode of infrastructure generation. A committee chaired by Kelkar also
made valuable recommendations to empower the PPP mechanism.

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 DIFFERENT TYPES OF PPP MODELS
DESIGN BUILD (DB)

The private-sector partner designs and builds the infrastructure to

meet the public-sector partner's specifications, often for a fixed
price. The private-sector partner assumes all risk.

OPERATION AND MAINTENANCE CONTRACT (O&M)

The private-sector partner, under contract, operates a publicly-owned

asset for a specific period of time. The public partner retains
ownership of the assets.

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 DESIGN BUILD FINANCE OPERATE (DBFO)

The private-sector partner designs, finances and constructs a new

infrastructure component and operates/maintains it under a long-
term lease. The private-sector partner transfers the infrastructure
component to the public-sector partner when the lease is up.
BUILD OWN OPERATE (BOO)

The private-sector partner finances, builds, owns and operates the

infrastructure component in perpetuity. The public-sector partner's
constraints are stated in the original agreement and through on-going
regulatory authority.
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 BUILD OWN OPERATE TRANSFER (BOOT)

The private-sector partner is granted authorization to finance, design,

build and operate an infrastructure component (and to charge user
fees) for a specific period of time, after which ownership is
transferred back to the public-sector partner.

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 (BOLT)

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.

OPERATION LICENSE

The private-sector partner is granted a license or other expression of

legal permission to operate a public service, usually for a specified
term. (This model is often used in IT projects.)
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 FINANCE ONLY

The private-sector partner, usually a financial services company,

funds the infrastructure component and charges the public-sector
partner interest for use of the funds.

ADVANTAGES AND DISADVANTAGES OF PPP

ADVANTAGE

 Ensure the necessary investments into public sector and more

effective public resources management.

 Ensure higher quality and timely provision of public services;

 Mostly investment projects are implemented in due terms and

do not impose unforeseen public sectors extra expenditures;

 A private entity is granted the opportunity to obtain a long-term

remuneration;

 Private sector expertise and experience are utilized in PPP

projects implementation;

 Appropriate PPP project risks allocation enables to reduce the

risk management expenditures;

 In many cases assets designed under PPP agreements could be

classified off the public sector balance sheet.
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DISADVANTAGE

 Infrastructure or services delivered could be more expensive;

 PPP project public sector payments obligations postponed for the

later periods can negatively reflect future public sector fiscal
indicators;

 PPP service procurement procedure is longer and more costly in

comparison with traditional public procurement;

 PPP project agreements are long-term, complicated and

comparatively inflexible because of impossibility to envisage and
evaluate all particular events that could influence the future
activity.

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PPP
IN INDIA

The public–private partnership (PPP or 3P) is a commercial legal

relationship defined by the Government of India in 2011 as "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

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payments that conform (or are benchmarked) to specified and pre-

determined performance standards, measurable by the public entity

or its representative".

The Government of India recognizes several types of PPPs,

including: User-fee based BOT model, Performance based
management/maintenance contracts and modified design-build
(turnkey) contracts. Today, there are hundreds of PPP projects in
various stages of implementation throughout the country.

As outlined in its XII Five Year Plan (2012–2017), India has an

ambitious target of infrastructure investment (estimated at US$1
trillion). In the face of such an enormous investment requirement,
the Government of India is actively promoting PPPs in many
sectors of the economy. According to the World Bank, about 824
PPP projects have reached financial closure since 1990 in India.

PPP POLICIES
The Ministry of Finance centralizes the coordination of PPPs,

through its Department of Economic Affairs' (DEA) PPP Cell. In

2011, the DEA published guidelines for the formulation and

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approval of PPP projects. This was part of an endeavor to

streamline PPP procedures and strengthen the regulatory framework

at the national level to expedite PPP projects approval, reassure

private parties and encourage them to enter into PPPs in India. This

was one of the main roles of the Public Private Partnership

Appraisal Committee (PPPAC) which is responsible for PPP project

appraisal at the central level.

The Government also created a Viability Gap Funding Scheme for

PPP projects to help promote the sustainability of the infrastructure
projects. This scheme provides financial support (grants) to
infrastructure projects, normally in the form of a capital grant at the
stage of project construction (up to 20 percent of the total project).
The Government has also set up India Infrastructure Finance
Company Limited (IIFCL) which provides long-term debt for
financing infrastructure projects. Set up in 2006, IIFCL provides
financial assistance in the following sectors: transportation, energy,
water, sanitation, communication, social and commercial
infrastructure.
To help finance the cost incurred towards development of PPP
projects (which can be significant, and particularly the costs of
transaction advisors), the Government of India has launched in

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2007 the 'India Infrastructure Project Development Fund ' (IIPDF)
which supports up to 75 % of the project development expenses.
Finally, the PPP Cell has produced a series of guidance papers and a
'PPP Toolkit' to support project preparation and decision-making
processes. The objective is to help improve decision-making for
infrastructure PPPs in India and to improve the quality of the PPPs
that are developed. The tookit has been designed with a focus on
helping decision-making at the Central, State and Municipal levels.

START OF PPP

In August 2012, the Prime Minister of India , Manmohan Singh,

lifted the ban on the transfer of government-owned land, relaxed
land transfer policy and did away with the need for Cabinet
approval for 3P projects in order to accelerate the building of
infrastructure.
ROADS

Sixty percent of 3P projects are for road building and they represent
forty-five percent of 3P monetary value. They are a part of
the National Highways Development Project (NHDP).[4] Examples
of 3P road building projects are the Golden Quadrilateral and
the North–South and East–West Corridor . About 14,000 km

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(8,700 mi) of India's national highways are being converted to four-
lane highways.
PORTS

Port building projects account for ten percent of projects and thirty
percent of the value of 3P.As of 2011, India had twelve major
seaports and 185 minor seaports along its coast line of 7,517 km
(4,671 mi). Seaports constructed via the 3P model increased the
handling of cargo in India by ten percent between 2008 and 2011.
[6] Examples of port building projects include the Jawaharlal Nehru
Port Trust (JNPT) in Mumbai and Chennai port in association
WATER

In India, no city yet offers continuous (24/7) water supply. The

quality of the water supply service is low, with non-revenue water
being as high as 40 percent in most cities. The poor are particularly
affected by this situation and end up paying more for a liter of water
than their wealthier counterparts. With the objective of widening
access to water services and making water services more
sustainable, the Government of India promoted PPPs in the water
sector in the 1990s. However, this attempt failed as the Government
did not manage to create a good enabling environment for private
investment and poor project preparation. Furthermore, there was
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important opposition to private sector involvement in water
delivery.

However, after this failed first attempt, a decade later some cities
tried different types of PPP arrangements, such as management
contracts. The allocation of risks between the public and the private
sectors was more balanced. The public sector provided part of the
initial funding and focused on efficiency gains. The mindsets of
policymakers and politicians also started to evolve, with a better
understanding of the role of private sector companies and less
opposition to their involvement in the water space. Both the 2002
and 2012 National Water Policy recognized the importance of PPPs.

SUCCESSFUL PPP MODELS IN INDIA

SECOND VIVEKANANDA BRIDGE (now Sister Nivedita
Bridge) in Kolkata

 This bridge is one the first BOT projects, undertaken in 1995.

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BOT was one of the earliest model of PPP. Other than sharing
project cost, the private bidder was to build, maintain, operate the
road and collect toll on the vehicular traffic. The bid was given to
private company offering to share max. toll revenue to the govt.
 The concession agreement was signed in September;2002.
 The consortium members are from USA, UK, Mauritius and
India.
 Though the financial close was delayed by one year, the
construction thereafter was almost on time and the bridge was
commissioned on July4, 2007.
 This bridge also won award for excellence for the year 2007
under the Foreign Bridge Project Category from the American
Segmental Bridge Institute. Total project cost of INR 640 (USD
128 millions). The concession period of the project is 30 years.
MUMBAI METRO

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 First MRTS project in India being implemented on Public
Private Partnership (PPP) format.
 DMRC (Delhi Metro Rail Corporation) prepared the master
plan for Mumbai Metro.
 The Private party involved was- Reliance Energy Ltd.
 Total Project cost- Rs. 2356 Crores
First phase-2006-1011. Mass transit corridor from Andheri to
Ghatkopar.

FAILURE OF PPP MODELS IN INDIA

NEW CHENNAI AIRPORT

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 In the case of the new Chennai airport, the tussle between
Airports Authority of India (AAI) and the private consortium on
controlling rights became a case in point.
 The impediments faced while inaugurating the new Chennai
airport throw open more questions than answers.
 The government’s decision to hand over the terminals to private
parties has made the AAI extremely dissatisfied because they
were and are striving for having a complete control! Further
ubiquitous red tape played its usual role in delaying the project
that consequently failed to meet deadlines not once or twice but
over a dozen times.
 And running parallel to this, corruption has no lesser a role to
play either. From power companies to telecom giants, wherever
there is involvement of private companies in sync with the
government, the unholy trail of corruption can be seen decaying
the best of models.

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