PPP Models

PPP Models

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Public-private partnerships, or PPPs, are formal agreements between private & public parties to share rewards and risks in the public services & infrastructure delivery. When private sector innovation and technology meet public sector incentives to finish work on time and within budget, these partnerships work well. PPP does not amount to privatization because it requires the government to keep full control over providing the services. The private entity is selected through open competitive bidding and receives payments tied to performance. In developing nations where governments are restricted in their ability to borrow money for significant projects, the PPP route may be an alternative.

Models of Public-Private Partnership (PPP) - The most common kinds of PPP models are:

1. The Management Contract Model - In this model, a private company is given a contract to manage a public service or facility, either entirely or in part. In this model, the public entity (the government) retains ownership of the asset or facility; while the Private entity takes over the facility's day-to-day operations. Since the private entity is permitted to collect a predetermined fee and is not required to make any capital investments, its risk exposure is low.

2. Lease Contact Model - The Asset is leased, depending on the circumstance, either to the Private entity or to the Public entity under the Lease Contract Model. The private entities are permitted to acquire income from activities. The following are the model's variations:

               a. The Build-Lease-Transfer model, in which a Private entity owns the Asset and leases it to a Public entity for a medium period of time The capital investment in this case is the responsibility of a public entity.

               b. BOT or, the Build-Operate-Transfer model: In this model, the Private entity is in charge of construction (usually a greenfield project), while the Public entity keeps ownership.

               c. BOT Annuity - This model is taken on for the structure thruways, chiefly for those ventures where the potential for creating incomes is restricted, by the NHAI. The Asset is designed, constructed, managed, and maintained by the Private entity. However, because the Private Entity receives a predetermined sum as an annuity from the Public Entity at regular intervals throughout the duration of the Contract, the Private Entity faces little risk.

Other related PPP models include:

               • EPC or, the Engineering-Procurement-Construction Model - in which the Private entity is in charge of the Asset's design, financing, and construction. The Asset is given to the Public entity, whose owner it remains after it has been built. The Private entity receives a lump sum from the Public entity for its role, but it does not have control over operations or management. The NHAI is utilizing this model for highway construction.

               • HAM or, the Hybrid Annuity Model: In this model, the Private entity must finance the remaining 60% of the project's cost, while the Public entity covers 40% of the cost. The Private entity is only required to provide engineering expertise, while the Public entity continues to be in charge of operations and ownership.