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Public Private Partnership

in Agriculture in India

Submitted To Submitted By
Dr. Rajshree Upadhyay Shalini Pandey
Professor, Deptt. Of HECM M.Sc. Final, Deptt. Of HECM
College of Home Science, Udaipur College of Home Science, Udaipur
Meaning
 A public-private partnership is a contractual agreement between a public
agency (federal, state or local) and a private sector entity.
 Through this agreement, skills and assets of each sector (public and private)
are shared in delivering a service or a facility for the use of the general public.
 Each party shares risks and rewards potential in the delivery of the service
and/or the facility.
 The public partners in a PPP are government entities, including Ministries,
departments, municipalities, or state-owned enterprises.
 The private partners could be local or international and may include businesses
or investors with technical or financial expertise relevant to the project.
 PPP broadly refers to long term, contractual partnerships between public and
private sector agencies, specially targeted towards financing, designing,
implementing, and operating infrastructure facilities services that were
traditionally provided by the public sector.
 PPPs may also include non-government organizations (NGOs) and/or
community-based organizations (CBOs) who represent stakeholders directly
affected by the project.
 Effective PPPs recognize that each of the partners -the public and the private
sectors have their comparative advantages in performing specific tasks.
 The government‘s contribution to a PPP may take the form of capital for
investment (available through tax revenue), a transfer of assets, or other
commitments or in-kind contributions that support the partnership. The
government also provides social responsibility, environmental awareness, local
knowledge, and an ability to mobilize political support.
 The private sector‘s role in the partnership is to make use of its expertise in
commerce, management, operations, and innovation to run the business
efficiently. The private partner may also contribute investment capital
depending on the form of contract. The structure of the partnership should be
designed to allocate risks amongst the partners based on their capabilities to
manage those risks and thus, minimize costs while improving performance.
In a PPP, each partner, usually through legally binding contract(s) or some other
mechanism, agrees to share responsibilities related to implementation and/or operation
and management of a project.
This collaboration or partnership is built on the expertise of each partner that meets
clearly defined public needs through appropriate allocation of:
 Resources
 Risks
 Rewards
 Responsibilities
Common elements of PPP includes:
 a contract or an arrangement;
 the provision of public infrastructure or services;
 the transfer of risk from the public sector to the private sector;
 a reward system based on performance or output; and
 a focus on service delivery.
Definition
According to IMF(International Monitory Fund):
“Public-private partnerships refer to the private sector financing, designing,
building, maintaining and operating infrastructure assets traditionally provided by the
public sector.”

According to National PPP Policy, 2011


“Public Private Partnership means an arrangement between a government or statutory
entity or 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.”
 The Planning Commission of India has defined the PPP in a generic
term as “the PPP is a mode of implementing government
programmes/schemes in partnership with the private sector. It
provides an opportunity for private sector participation in financing,
designing, construction, operation and maintenance of public
sector programme and projects”.
PPP Model on the basis of
Participation

Different
Models of PPP

Supply and
Turnkey
management Lease Concessions
projects
contracts

Supply or BOT model


Maintenance Operational
service and its
management management
contract variations
Supply and management
contracts
 Supply of equipment, raw materials, energy and power, and labour
are typical examples of supply or service contract.
 Government provide license for supply of particular services/inputs.
 The main purpose of such licensing is to ensure the supply of the
relevant service at the desired level of quantity and quality.
 Examples of such an arrangement include, catering services for
passengers on railway systems (the Indian Railways).
Turnkey projects
 Turnkey is a traditional public sector procurement model for
infrastructure facilities.
 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.
 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 Design-Build.
 The primary benefits of DB contracts include time and cost savings,
efficient risk-sharing and improved quality.
Lease types of arrangements

 In this category of arrangement an operator (the leaseholder) is


responsible for operating and maintaining the infrastructure facility
and services, but generally the operator is not required to make any
large investment.
 In this types of arrangements, the operator takes lease of both
infrastructure and equipment from the government for an agreed
period of time. Generally, the government maintains the
responsibility for investment and thus bears investment risks.
 The operational risks are transferred to the operator.
 Under a lease, the operator retains revenue collected from
customers/users of the facility and makes a specified lease fee
payment to the contracting authority.
Concessions type

 In this form of PPP, the Government defines and grants specific rights
to an entity (usually a private company) to build and operate a
facility for a fixed period of time.
 The Government may retain the ultimate ownership of the facility
and/or right to supply the services.
 In concessions, payments can take place both ways:
concessionaire pays to government for the concession rights and
the government may also pay the concessionaire, which it provides
under the agreement to meet certain specific conditions.
 Example of this type of agreement is BOT (Build-Operate-Transfer)
and its variation
BOT (Build-Operate-Transfer)

 A model that entails a concession company providing the finance,


design construction, operation, and maintenance of a privatized
infrastructure project for a fixed period, at the end of which the
project is transferred free to the host government.
 The granting of a concession by the government to a private
promoter, known as the concessionaire, who is responsible for the
financing, construction, operation, and maintenance of a facility
over the concession period before finally transferring the fully
operational facility to the government at no cost
Variation of BOT model includes:
 BOO = Build-Own-Operate
 BLT = Build-Lease-Transfer
 BOOM= Build-Own-Operate-Maintain
 BOOT = Build-Own-Operate-Transfer
 BOOTT = Build-Own-Operate-Train-Transfer
 BTO = Build-Transfer-Operate
 DBFO = Design-Build-Finance-Operate
 DBO = Design-Build-Operate
 DBOM = Design-Build-Operate-Maintain
 DOB = Design-Operate-Transfer
 ROO = Rehabilitate-Own-Operate
 ROT = Rehabilitate-Operate-Transfer
Preference of PPP Model in India
• Used for two-thirds of the total PPP projects in India
• User-fee based BOT model: Widely used in medium- to large-scale
BOT (Built-Operate- projects, especially in energy and transport (road, ports and airports)
pre-liberalisation
 Transfer) model • Annuity-based BOT model: Commonly used in sectors/projects not
meant for cost recovery by levying a fee on sectors such as health and
education

Modified
design-build • Contracts yield time and cost saving benefits; also enable efficient risk-
(turnkey) sharing and improve quality

contracts

Performance
based • Suitable for sectors (water supply, sanitation, solid waste management
management/ and road maintenance) constrained by the availability of economic
maintenance resources to improve efficiency
contacts
Need of PPP in Agriculture
 Slow growth rate of agriculture in India (average growth rate of
2.7% per year)
 Agriculture is the primary source of livelihood for about 58 per
cent of India’s population
 the country accounted for 2.07 percent of global agricultural
trade in 2012
 India, the second-most populated country in the world, has to
meet food consumption needs of around 1,210 million people.
This is a key demand driver of agricultural growth in the country.
 India’s consumption expenditure is likely to reach USD3.6 trillion
by 2020, up from an estimated USD1.0 trillion in 2010
 Development of Hybrid and genetically, modified seeds,
mechanisation, irrigational facilities needed which requires more
institutional credits.

Source: Census of India 2011, Asian Development Bank


Need of PPP in Agriculture
 Challenge to make agriculture and allied sectors more profitable, and to
ensure that rural population has a larger income to share..
 The role of technology in meeting challenge is critical. So the need for new
technologies with potential to provide holistic solutions, and the issues that
relate to their dissemination and commercialization.
 Government has limited resources.
 Innovation and knowledge are critical factors for achieving sustainable
competitiveness. We become involved in partnerships to gain access to
knowledge and technologies and to develop innovations that otherwise
would be more costly for us to obtain or develop.
 The growing complexity of technologies, the knowledge necessary to
develop chains and segments, and the scarcity of resources mean research
cannot be carried out in isolation, whether by science and technology
organizations or enterprises from the productive sector.
 Teamwork increases the quality and relevance of the results and the synergic
effects that occur when we collaborate with actors who have knowledge
and resources that we do not.
Need of PPP in Agriculture
There is a need of PPP in agriculture sector for following reasons:
 Increasing focus on research and Development in agriculture
 Rising MSP incentivize farming
 Institutional credit for farmers
 Growing yield and use of quality seeds
 Increasing mechanization of farming
 Growing area under irrigation
 Food securing for increasing population
 Agricultural inputs (Crop protection, Agricultural services, Seeds and
fertilizers)

“What takes the government 50 years to achieve can be done by


the private sector in a tenth of the time”
- Milton Friedman.
Advantages

On‐time delivery

Maximizes the use of each sector’s strength

Help in to modernize agriculture and revitalize rural economies

benefit to small-scale, resource-poor and marginalized farmers

efficient and cost effective delivery of projects

Increased efficiency
Advantages

Creation of added value

Leads to innovation

Alleviation of capacity constraints and bottlenecks

Competition and greater construction capacity

Increased accountability

Helps in providing better public services


Advantages

A way of developing local private sector capabilities

Creating diversification in the economy

Supplementing limited public sector capacities

Shared risk

Shared responsibility so more effectiveness

Integration of resources
Challenges of PPP

Misperceptions between public and private sectors with regard to intentions, goals
and credibility of achievements.

Lack of accurate mapping of proprietary assets and responsibilities between


these sectors for effective functioning.

Lack of appreciation and follow-up of best practices

Lack of political leadership, vision and strategy.

Risky investment for private organization.


Challenges of PPP

Gap between private sector and government ideology

lack of legal and policy framework.

Cost in PPP projects are likely to be greater than for traditional government
procurement processes

There is a cost attached to debt

politically or socially challenging projects


Challenges of PPP

Private sector will do what it is paid to do and no more than that , Government
responsibility continues

After taking expertise private sector may take advantage in the data relating to
project..

it is difficult to identify all possible contingencies during project development

Inappropriate definition of project goals and scope

Inadequate attention to monitoring and evaluation


Present Status

 According to the Department of Economic Affairs (DEA), around


758 PPP projects with a total value of USD71.7 billion were operative
in India by mid-2011 across various sectors.
 India Infrastructure Finance Company Limited (a non-banking
financial company) was established to provide financial support for
projects with long gestation period.
 To further simplify the compliance process, a Public Private
Partnership Committee (PPPAC) was formed. Since 2006 till date,
PPPAC has granted approval to 204 projects with a total project
cost of USD37.5 billion.
PPP in India : pre-liberalisation to
the present time
pre- • The Great Indian Peninsular Railway Company (1853)
• The Bombay Tramway Company's tramway services in Mumbai (1874)
liberalisation • PPP models in power generation and distribution in Mumbai and Kolkata

• Just 86 PPP projects worth USD157.1 billion were awarded until 2004
1991-2006 • Large-scale private financing has been limited to Vishakapatnam and
Tirupur

• Growth in PPP to 758 projects costing USD70.1 billion by July 2011 from
After 2006 450 projects costing USD45.7 billion in November 2009

Source: The Department of Economic Affairs (DEA)


Sector wise PPP projects in India

Source: 12th Five Year Plan Document, PPP India database


Some examples of PPP Project

 Project Golden Ray


PPP between the Government of Rajasthan and MIL which aims at
improving economic self-sufficiency of tribal maize farmers by
enhancing maize yields and incomes in five districts; Banswara,
Dungarpur, Udaipur, Pratapgarh and Sirohi.
 e-Choupal,
(run by ITC, a private sector entity) shows how mutual cooperation
between ITC, rural entrepreneurs, state agricultural universities and the
Indian government's extension machinery has served to bolster the
farmer's expertise and day-to-day awareness of what needs to be
done to cope with myriad agricultural needs.
 Project Management Agency (PMA): Small Farmer’s Agri-business
Consortium (SFAC), an organization promoted by Ministry of
Agriculture, Govt. of India has appointed AFC as a Project
Management Agency for Publicity and Awareness Building Plan to
support Venture Capital Assistance Scheme (VCAS) during XII Five
Year Plan(2012-2017).
 To promote organic farming, AFC India Limited has been given the
opportunity to implement the organic farming project named as
“Adoption and Certification of Organic Management System with
online Traceability for Facilitation Domestic Retail Chains and Export
in Gujarat, Chhattisgarh, Orissa and Haryana”.
 Maharashtra government has initiated a Private-Public Partnership
(PPP) for Integrated Agriculture Development (PPP-IAD) project
under the World Economic Forum’s (WEF) “New Agriculture
Initiative”. The idea is to create a value-chain in agriculture by
involving corporates that will work with farmers’ groups or
associations from production to marketing stage. Twenty-two
companies, 12 of them private sugar mills, have been selected and
have agreed to partner with such group in everything — from inputs
and processing to marketing. They will be working in seven
categories of produces — sugar, cotton, oilseed, pulses, fruits,
vegetables and poultry.
PPP in Health

 Public-Private Partnership or PPP in the context of the health sector is


an instrument for improving the health of the population.
 PPP is to be seen in the context of viewing the whole medical sector
as a national asset with health promotion as goal of all health
providers, private or public.
 The Private and Non-profit sectors are also very much accountable
to overall health systems and services of the country.
 Therefore, synergies where all the stakeholders feel they are part of
the system and do everything possible to strengthen national
policies and programmes needs to be emphasized with a proactive
role from the Government.
Health Project on PPP mode

 Yeshasvini Health scheme in Karnataka


 Arogya Raksha Scheme in Andhra Pradesh
 Contracting in Sawai Man Singh Hospital, Jaipur
 The Uttaranchal Mobile Hospital and Research Center (UMHRC)
 Emergency Ambulance Services scheme in Tamil Nadu
 Urban Slum Health Care Project, Andhra Pradesh
 Rajiv Gandhi Super-specialty Hospital, Raichur, Karnataka
 Community Health Insurance scheme in Karnataka
PPP in Education
 In the case of education, PPP has been proposed as an important strategy in the Eleventh
Five Year Plan.
 Among many things, the Eleventh Plan has proposed the setting up of 6,000 new model
schools in secondary education, affiliated to the Central Board of Secondary Education.
 Of these, 2,500 are to be under the PPP model. The intention is to set up these schools in
the backward regions and remote areas where good schooling facilities do not exist, so
that quality education is accessible in the backward regions as well.
 According to the model finalised by the Planning Commission in consultation with the
private sector, these schools will be set up by 2014 and will have the capacity to educate
65 lakh students, of whom 25 lakh will be from the deprived sections.
 Each school will have about 2,500 students, 1,000 of whom will be from deprived sections
and charged a token fee. Fifty per cent of the 1,000 students will be from the Scheduled
Castes, the Scheduled Tribes and the Other Backward Classes.
 They will be required to pay a monthly fee of Rs.25 each. The rest of the children, who will
be from other deprived sections — non-income tax paying families — will be required to
pay a fee of Rs.50 a month . The remaining costs of these students, estimated to be
Rs.1,000 to Rs.1,200 a head per month, will be reimbursed by the Union government to the
schools.
Suggestion for further:
 Need to introduce a course on agricultural regulations at graduation
level so that student are familiarized with the complexities of managing
agricultural business.
 Need for transparency and trust for mid-term review and for bilateral
agreement for developing new technologies.
 Clear laws for transfer of technology and sabbatical provisions for
scientists to work with industry need to be established.
 There is a need to create awareness among the stakeholders regarding
various Government Schemes.
 Moreover, to mitigate high risk in the sector, the investment
proposal/schemes should include sufficient incentives to attract private
entrepreneurs.
 Collective action is needed for fulfill the needs of resource poor farmers
and food‐insecure consumers.
 In order to increase this share, policymakers should look at setting up an
independent institutional structure for PPP handling, sector-specific
regulatory mechanisms and higher level of transparency of information
for PPP.