PROJECT REPORT

ON

PUBLIC-PRIVATE-PARTICIPATION IN INDIA
MASTERS OF COMMERCE DEGREE
SEMESTER- 2
ACADEMIC YEAR: 2015-16
SUBMITTED BY
MR: ODIYAR SUMANRAJ
ROLL NO: 36

N.E.S. RATNAM COLLEGE OF ARTS, SCIENCE AND COMMERCE,

N.E.S. MARG, BHANDUP (WEST), MUMBAI-400078

PROJECT REPORT ON
PUBLIC-PRIVATE-PARTICIPATION IN INDIA
MASTERS OF COMMERCE DEGREE
SEMESTER- 2
ACADEMIC YEAR: 2015-16
SUBMITTED BY
IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD
OF MASTER DEGREE OF COMMERCE
MR: ODIYAR SUMANRAJ
ROLL NO: 36

N.E.S. RATNAM COLLEGE OF ARTS, SCIENCE AND COMMERCE,

N.E.S. MARG, BHANDUP (WEST), MUMBAI-400078

N.E.S. RATNAM COLLEGE OF ARTS, SCIENCE

AND COMMERCE,
N.E.S. MARG, BHANDUP (WEST), MUMBAI- 400078
CERTIFICATE
This is to certify that the project report on PUBLIC-PRIVATEPARTICIPATION IN INDIA is bonafide record of project work done by
MR. ODIYAR SUMANRAJ submitted in partial fulfillment of the requirement
of the award of the Master of Commerce Degree University of Mumbai during
the period of his study in the academic year 2015-16

INTERNAL EXAMINER:

EXTERNAL EXAMINER:
Principal

DECLARATION

Mrs. Rina Saha

I hereby declare that this Project Report entitled PUBLIC-PRIVATEPARTICIPATION IN INDIAsubmitted by me for the award of Masters

of Commerce Degree; University of Mumbai is a record of Project

work done by me during the year 2015-16. This is entirely my own
work.
NAME:ODIYAR SUMANRAJ

ROLL NO: 36

Place: Mumbai, Bhandup (W)

Date:

Signature:

ACKNOWLEDGEMENT

I owe a great many thanks to great many people who helped and
supported me doing the writing of this book.
My deepest thanks to lecturer, Prof. Janhavi.v.Rao of the project for
guiding and correcting various documents of mine with attention and care. He
has taken pains to go through my project and make necessary corrections as and
when needed.
I extend my thanks to the principal of NES Ratnam College of Arts
Science and Commerce, Bhandup (w), for extending her support.
My deep sense of gratitude to Principal Mrs. Rina Saha of NES Ratnam
College of Art, Science and Commerce for support and guidance. Thanks and
appreciation to the helpful people at NES Ratnam College of Arts, Science and
Commerce , for their support.

I would also thank my institution and faculty members without whom this
project would have been a distant reality. I also extend my heartfelt thanks to
my family and well-wishers.

Candidate Name:

ODIYAR SUMANRAJ

INDEX

SR.
NO.

DESCRIPTION

INTRODUCTION

Methodology

Types of Public Private Partnership Models in

India

What are benefits/advantages of ppp?

Examples of Successful Public-private

Partnerships

Public Private Partnership (PPP) projects in

India A view on top Engagement Models and
related statistics
CONCLUSION& BIBLIOGRAPHY

Public private-partnership
CH:1
Introduction:
A publicprivate partnership (PPP or 3P or P3) is a
government service or private business venture that is funded and
operated through a partnership of government and one or more private
sector companies.
PPP involves a contract between a public sector authority and a
private party, in which the private party provides a public service or
project and assumes substantial financial, technical and operational
risk in the project. In some types of PPP, the cost of using the service
is borne exclusively by the users of the service and not by the
taxpayer.[1] In other types (notably the private finance initiative),
capital investment is made by the private sector on the basis of a
contract with government to provide agreed services and the cost of
providing the service is borne wholly or in part by the government.
Government contributions to a PPP may also be in kind (notably the
transfer of existing assets). In projects that are aimed at creatingpublic
goods like in the infrastructure sector, the government may provide a
capital subsidy in the form of a one-time grant, so as to make the
project economically viable. In some other cases, the government may
support the project by providing revenue subsidies, including tax
breaks or by removing guaranteed annual revenues for a fixed time
period. In all cases, the partnerships includes a transfer of significant
risks to the private sector, generally in an integrated and holistic way,
minimizing interfaces for the public entity. An optimal risk allocation
is the main value generator for this model of delivering public service.
There are usually two fundamental drivers for PPPs. Firstly, PPPs are
claimed to enable the public sector to harness the expertise and
efficiencies that the private sector can bring to the delivery of certain
facilities and services traditionally procured and delivered by the
public sector. Secondly, a PPP is structured so that the public sector
body seeking to make a capital investment does not incur any

borrowing. Rather, the PPP borrowing is incurred by the private sector

vehicle implementing the project.
On PPP projects where the cost of using the service is intended to be
borne exclusively by the end user, the PPP is, from the public sector's
perspective, an "off-balance sheet" method of financing the delivery
of new or refurbished public sector assets.
On PPP projects where the public sector intends to compensate the
private sector through availability payments once the facility is
established or renewed, the financing is, from the public sector's
perspective, "on-balance sheet"; however, the public sector will
regularly benefit from significantly deferred cash flows. Generally,
financing costs will be higher for a PPP than for a traditional public
financing, because of the private sector higher cost of capital.
However extra financing costs can be offset by private sector
efficiency, savings resulting from an holistic approach to delivering
the project or service, and from the better risk allocation in the long
run.
Typically, a private sector consortium forms a special company called
a "special purpose vehicle" (SPV) to develop, build, maintain and
operate the asset for the contracted period. In cases where the
government has invested in the project, it is typically (but not always)
allotted an equity share in the SPV.
The consortium is usually made up of a building contractor, a
maintenance company and equity investor(s).
It is the SPV that signs the contract with the government and with
subcontractors to build the facility and then maintain it. In
the infrastructure sector, complex arrangements and contracts that
guarantee and secure the cash flows make PPP projects prime
candidates for project financing.

A typical PPP example would be a hospital building financed and

constructed by a private developer and then leased to the hospital
authority.
Defining Public Private Partnerships:
1.1 Public 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
1.2 Essential conditions in the definition are as under: i.Arrangement
with private sector entity: 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
entity1. ii.Public asset or service for public benefit: The facilities/
services being provided are traditionally provided by the Government,
as a sovereign function, to the people. To better reflect this intent, two
key
concepts
are
elaborated
below:
(a)Public Services are those services that the State is obligated to
provide to its citizens or where the State has traditionally provided the
services
to
its
citizens.
(b)Public Asset is that asset the use of which is inextricably linked to
the delivery of a Public Service, or, those assets that utilize or
integrate sovereign assets to deliver Public Services. Ownership by
Government need not necessarily imply that it is a PPP.

iii. Investments being made by and/or management undertaken

by the private sector entity:
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.
iv. Operations or management for a specified period:
The arrangement cannot be in perpetuity. After a pre-determined
time period, the arrangement with the private sector entity comes
to a closure.

v. Risk sharing with the private sector:

Mere outsourcing contracts are not PPPs.

vi. Performance linked payments:

The central focus is on performance and not merely provision of
facility or service.

vii. Conformance to performance standards:

The focus is on a strong element of service delivery aspect and
compliance to pre-determined and measurable standards to be
specified by the Sponsoring Authority.

1.3 The above definition puts forth only the essential conditions for
an arrangement to be designated as a Public Private Partnerships
(PPP). In addition to these, some of the desirable conditions or good
practices for a PPP include the following:

a. Allocation of risks in an optimal manner to the party best

suited to manage the risks;
b. Private sector entity receives cash flows for their investments
in and/or management of the PPP either through a performance
linked fee payment structure from the government entity and/or
through user charges from the consumers of the service provided;
c. Generally a long term arrangement between the parties but can
be shorter term dependent for instance on the sector or focus of
PPP;
d. Incentive and penalty based structures in the arrangement so as
to ensure that the private sector is benchmarked against service
delivery;
e. Outcomes of the PPP are normally pre-defined as output
parameters rather than technical specifications for assets to be built,
though minimum technical specifications might be identified.
Such a structure is expected to leave room for innovation and
technology
transfer in project execution / implementation by the
private sector entity.

What is Public-private partnership (PPP)?

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.
Different models of PPP funding are characterized by which partner is
responsible for owning and maintaining assets at different stages of
the project. Examples of PPP models include:

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 & 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.

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.

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 (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.

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.)

PPP Models supported by the Government:

User-Fee Based BOT models - Medium to large scale PPPs have
been awarded mainly in the energy and transport sub-sectors (roads,
ports and airports). Although there are variations in approaches, over
the years the PPP model has been veering towards competitively bid
concessions where costs are recovered mainly through user charges
(in some cases partly through VGF from the government).

Annuity Based BOT models In sectors/projects not amenable for

sizeable cost recovery through user charges, owing to socio-politicalaffordability considerations, such as in rural, urban, health and
education sectors, the government harnesses private sector
efficiencies through contracts based on availability/performance
payments. Implementing annuity model will require necessary
framework conditions, such as payment guarantee mechanism by
means of making available multi-year budgetary support, a dedicated
fund, letter of credit etc. Government may consider setting-up a
separate window of assistance for encouraging annuity-based PPP
projects. A variant of this approach could be to make a larger upfront
payment (say 40% of project cost) during the construction period.

Performance Based Management/ Maintenance contracts In an

environment of constrained economic resources, PPP that improves
efficiency will be all the more relevant. PPP models such as
performance based management/maintenance contracts are
encouraged. Sectors amenable for such models include water supply,
sanitation, solid waste management, road maintenance etc.
Modified Design-Build (Turnkey) Contracts: In traditional DesignBuild (DB) contract, private contractor is engaged for a fixed-fee
payment on completion. The primary benefits of DB contracts include
time and cost savings, efficient risk-sharing and improved quality.
Government may consider a Turnkey DB approach with the payments
linked to achievement of tangible intermediate construction
milestones (instead of lump-sum payment on completion) and short
period maintenance / repair responsibilities. Penalties/incentives for
delays/early completion and performance guarantee (warranty) from
private partner may also be incorporated. Subsequently, as the market
sentiment turns around these projects could be offered to private
sector through operation-maintenance-tolling concessions.

CH:2
Methodology:
Over the past decade or so, so-called "publicprivate partnerships" (PPPs) have been of increasing importance all
over the world in extending the ability of governments to provide
services in difficult economics. According to the U.S. State
Department, "Such partnerships have leveraged the creativity,
innovation, and core business resources of private partners for greater
impact on global issues. To date, the Department has worked with
over 1,100 partners and mobilized more than $650 million in public
and private resources to support key foreign policy objectives
including climate change mitigation, women's empowerment,
economic growth, and human rights." The State Department's
participation in PPPs represents only a small portion of PPPs
worldwide.
In most countries these PPP arrangements have been aimed at
overcoming broad public sector constraints in relation to either a lack
of public capital; and/or a lack of public sector capacity, resources and
specialized expertise to develop, manage and operate infrastructure
assets. Public Private Partnerships are now commonly used to
accelerate economic growth, development and infrastructure delivery
and to achieve quality service delivery and good governance.
The need for PPPs in many countries has been accelerated by the
public sector's recognition of the vital role of modern infrastructure in
economic growth, and PPPs are now accepted as an important avenue
for funding major public sector infrastructure projects. PPPs are joint
ventures in which business and government co-operate, each applying
its strengths to develop a project more quickly and more efficiently
than government could accomplish on its own. The private sector may
be responsible for the designing, financing, constructing, owning
and/or operating the entire project.

The private sector may want to be assured that the public-private

partnership structure is designed to provide competitive rates of return
commensurate with a financial rate of return that they could earn on
alternative projects of comparable risk.
In the case of the eLearning Cafe/Washoe County Libraries
discussion, the Library Board's counsel delivered an opinion that the
PPP could not happen because of a peculiarity of Nevada Law.
Under the Nevada Revised Statutes (NRS) anything of this sort that is
not explicitly enabled or permitted in the Statutes is considered to be
prohibited. Not surprisingly, PPPs are not included in the NRS, which
was originally formulated in 1861.
The provision that effectively prohibits anything not explicitly
permitted is particularly problematic in a state where the Legislature
only sits every two years and then only for a few months.
PPPs are proving to be an especially effective vehicle in the
environmental area as recognition increases that a focus on the
environment in isolation from the larger picture is in most cases
ineffective.
Current thinking in the mainstream of the environmental movement is
that there is a "triple bottom line" that requires attention to
environmental, economic, and social factors, and this lends increasing
importance to looking beyond government for solutions.
The TRPA Regional Plan Update depends on such PPPs that are
represented in part by developments such as Homewood, Boulder
Bay, and Edgewood on a large scale, and also partnerships such as
that between TRPA and the Tahoe Resource Conservation District for
boat inspections in service of keeping aquatic invasive species under
control.
The 2013 Regular Session of the Nevada Legislature began Monday,
and while it is too late to hope for new legislation to enable PPPs, it is
possible to attach such a measure to existing legislation being
introduced.

CH:3
Types of Public Private Partnership Models in India
PPPs broadly refer to long term, contractual
partnerships between the public and private sector agencies, specially
targeted towards financing, designing, implementing, and operating
infrastructure facilities and services that were traditionally provided
by the Government and/or its agencies.
These collaborative ventures are built around the expertise and
capacity of the project partners and are based on a contractual
agreement, which ensures appropriate and mutually agreed allocation
of resources, risks, and returns.
This approach of developing and operating public utilities and
infrastructure by the private sector under terms and conditions
agreeable to both the government and the private sector is called PPP.

Types of PPP:
Service Contract :
Under a service contract, the Government (public authority)
hires a private
company or entity to carry out one or more
specified tasks or services for a period, typically 13 years.
The public authority remains the primary provider of the
infrastructure service and contracts out only portions of its
operation to the private partner.

 The private partner must perform the service at the agreed cost
and must typically meet performance standards set by the public
sector.
The Government pays the private partner a predetermined fee
for the service, which may be a one time fee, based on unit cost,
or some other basis.
Management Contract :
A management contract expands the services to be contracted
out to include some or all of the management and operation of
the public service (i.e., utility, hospital, port authority, etc.).
Although ultimate obligation for service provision remains in
the public sector, daily management control and authority is
assigned to the private partner or contractor. In most cases, the
private partner provides working capital but no financing for
investment.
The private contractor is paid a predetermined rate for labour
and other anticipated operating costs.
Management contract variants include supply and service
contract,
maintenance
management
and
operational
management.
Lease contract :
Under a lease contract, the private partner is responsible for the
service in its entirety and undertakes obligations relating to
quality and service standards.
Except for new and replacement investments, which remain the
responsibility of the public authority, the operator provides the
service at his expense and risk.

 The duration of the leasing contract is typically for 10 years and

may be renewed for up to 20 years.
Responsibility for service provision is transferred from the
public sector to the private sector and the financial risk for
operation and maintenance is borne entirely by the private sector
operator.
In particular, the operator is responsible for losses and for
unpaid consumers' debts.
Leases do not involve any sale of assets to the private sector.
Concessions :
A concession makes the private sector operator (concessionaire)
responsible for the full delivery of services in a specified area,
including operation, maintenance, collection, management, and
construction and rehabilitation of the system.
Importantly, the operator is now responsible for all capital
investment. Although the private sector operator is responsible
for providing the assets, such assets are publicly owned even
during the concession period.
The public sector is responsible for establishing performance
standards and ensuring that the concessionaire meets them. In
essence, the public sectors role shifts from being the service
provider to regulating the price and quality of service.
The concessionaire collects the tariff directly from the system
users.
The tariff is typically established by the concession contract,
which also includes provisions on how it may be changed over
time.

 In some cases, the government may choose to provide financing

support to help the concessionaire fund its capital expenditures.
The concessionaire is responsible for any capital investments
required to build, upgrade, or expand the system, and for
financing those investments out of its resources and from the
tariffs paid by the system users.
A concession contract is typically valid for 2530 years so that
the operator has sufficient time to recover the capital invested
and earn an appropriate return over the life of the concession.
Government may contribute to the capital investment cost by
way of subsidy (Viability Gap Funding - VGF) to enhance
commercial viability of the concession.
The concessions are effective contracts to provide investment
for creation of new facilities or rehabilitation facilities.

Build Operate Transfer (BOT) :

BOT and similar arrangements are a kind of specialized
concession in which a private firm or consortium finances and
develops a new infrastructure project or a major component
according to performance standards set by the government.
Under BOTs, the private partner provides the capital required to
Build the new facility, Operate & Maintain (O&M) for the
contract period and then return the facility to Government as per
agreed terms.

 Importantly, the private operator now owns the assets for a

period set by contractsufficient to allow the developer time to
recover investment costs through user charges.
BOTs generally require complicated financing packages to achieve
the large financing amounts and long repayment periods required. At
the end of the contract, the public sector assumes ownership but can
opt to assume operating responsibility, contract the operation
responsibility to the developer, or award a new contract to a new
partner. The main characteristic of BOT and similar arrangements are
given below:-

Design Build (DB) : Where Private sector designs and

constructs at a fixed price and transfers the facility.
Build Transfer Operate (BTO) : Where Private sector designs
and builds the facility. The transfer to the public owner takes
place at the conclusion of construction. Concessionaire is given
the right to operate and get the return on investment.
Build-Own-Operate (BOO) : A contractual arrangement
whereby a Developer is authorized to finance, construct, own,
operate and maintain an Infrastructure or Development facility
from which the Developer is allowed to recover his total
investment by collecting user levies from facility users. Under
this Project, the Developer owns the assets of the facility and
may choose to assign its operation and maintenance to a facility
operator. The Transfer of the facility to the Government,
Government Agency or the Local Authority is not envisaged in
this structure; however, the Government, may terminate its
obligations after specified time period.

 Design-Build Operate (DBO) : Where the ownership is

involved in private hands and a single contract is let out for
design construction and operation of the infrastructure project.
Design Build Finance Operate (DBFO) : With the design
buildfinanceoperate (DBFO) approach, the responsibilities for
designing, building, financing, and operating & maintaining, are
bundled together and transferred to private sector partners.

DBFO arrangements vary greatly in terms of the degree of

financial responsibility that is transferred to the private partner

Build- Operate- Transfer (BOT) : Annuity/Shadow User

Charge : In this BOT Arrangement, private partner does not
collect any charges from the users.
His return on total investment is paid to him by public authority
through annual payments (annuity) for which he bids. Other
option is that the private developer gets paid based on the usage
of the created facility.
Joint Venture:
Joint ventures are alternatives to full privatization in which the
infrastructure is co-owned and operated by the public sector and
private operators.

Under a joint venture, the public and private sector partners can
either form a new company (SPV) or assume joint ownership of
an existing company through a sale of shares to one or several
private investors.

 A key requirement of this structure is good corporate

governance, in particular the ability of the company to maintain
independence from the government, because the government is
both part owner and regulator.

From its position as shareholder, however, the government has

an interest in the profitability and sustainability of the company
and can work to smoothen political hurdles.

CH:4
What are benefits/advantages of ppp?

It is increasingly clear that governments cannot

meet the constantly growing demand for services by acting on their
own, and that there is a need to look for support from other sectors of
society.
Government revenues are usually not sufficient to meet spending
demands. Partnerships can provide a continued or improved level of
service at reduced costs. By developing partnerhips with privatesector entities, governments can maintain quality services despite
budget limitations.
Public-private partnership is one of the most promising forms of such
collaboration. It is based on the recognition that both public and
private sectors can benefit from pooling their financial resources,
know-how and expertise to improve the delivery of basic services to
all citizens.
If properly designed and implemented, PPPs can bring real benefits
in terms of helping governments to finance infrastructure investment
in a more efficient way, freeing up scarce resources to allocate them
to other national spending priorities.
The advantages of PPP in a competitive environment are considered
as follows:

to remove the responsibility of funding the investment from the

governments balance sheet;
to introduce competition;

to adopt managerial practices and experience of the private

sector;

to restructure public sector service by embracing private sector

capital and practices;

Disadvantages of PPPs:

PPP contracts are typically much more complicated

than conventional procurement contracts. This is principally because
of the need to anticipate all possible contingencies that could arise in
such long-term contractual relationships. Each party bidding for a
project spends considerable resources in designing and evaluating the
project prior to submitting a tender.
In addition, there are typically very significant legal costs in contract
negotiation. Having several bidders do this involves a cost which can
add up in total to tens of millions.
It has been estimated that total tendering costs equal around 3% of
total project costs as opposed to around 1% for conventional
procurement.The cost of both successful and unsuccessful bids is, in
effect, built into total project costs.
The Australian Council for Infrastructure Development has expressed
the view that unless tendering processes are well run it is possible
that the benefits of using a PPP for delivering the project may be
outweighed by the tendering costs.
Under conventional procurement, the sunk costs of private
contractors are much smaller and contracts (e.g. for operations) often
do not exceed 5 years. The risks to be covered off in the contract are
therefore significantly less.

Contract renegotiation: Given the length of the relationships created

by PPPs and the difficulty in anticipating all contingencies, it is not
unusual for aspects of the contracts to be renegotiated at some stage.
Wherever possible, provisions are included in the contract that spell
out how variations are to be priced. But, given the length of time

spanned by the contract, it is almost inevitable that circumstances will

arise which cannot be foreseen.
Where the need for renegotiation comes from the public agency
(which, it appears, is often the case, perhaps as a result of a change in
government policy) and no pricing rule is contained in the contract,
the Crown can end up paying a heavy price, since the price is not
determined in a competitive bidding context. The cost of such
changes is difficult to factor into the original project evaluation, since
by definition it is unanticipated.

Performance enforcement: One of the difficulties with performance

specification in the area of service delivery is that performance
sometimes has dimensions which are hard to formulate in a way that
is suitable for an arms-length contract.

Examples include maintaining good customer relations, and not

creating public relations blunders which rebound on the government.
In the case of building a motorway through a dense urban setting, a
public roading authority will sometimes find it difficult to specify all
performance elements in service level terms.

The reputation effect and the prospect of repeat business can

sometimes provide incentives to achieve soft performance targets.
For example, unsatisfactory performance by a prison management
company will affect its reputation and therefore its ability to obtain
contracts elsewhere.

However, in other cases neither reputation effects nor contractual

remedies will be sufficient. A command relationship or masterservant relationship, such as exists within an organisation, may be

more efficient. In essence, if for whatever reason one isnt able to

clearly specify the required services, then a master-servant
relationship enables one to change the service requirement as one
goes along, at relatively little cost.

At the construction stage, a project alliance approach may be most

appropriate, while at the infrastructure operation stage a series of
short-term contracts may be acceptable as they provide the
opportunity for the public agency to take corrective action if it finds
that some performance dimensions were inadequately specified or no
longer appropriate given changing public expectations.

Political acceptability: Given the difficulty in estimating financial

outcomes over such long periods, there is a risk that the private sector
party will either go bankrupt, or make very large profits. Both
outcomes can create political problems for the government, causing it
to intervene. Examples of the former include the National Air Traffic
Services (NATS), which encountered financial difficulties after 11
September 2001.

The British government bailed it out rather than let NATS bankers
take it over. Another example is Melbournes tram and train services,
contracted out in 1999. Patronage didnt increase to the levels
expected, causing the operator to threaten to fail. The government
agreed to increase the operating subsidy.

CH:5
Examples of Successful Public-private Partnerships:

There is growing awareness in both the developed and

developing world that alleviating the infrastructure gap, i.e., the
difference between needed and extant infrastructure and services, is a
monumental requirement, well beyond the financial capacity of the
public sector. This awareness has led to an increased focus on privatesector participation in infrastructure projects and, in particular, the use
of public-private partnerships (PPPs).
This volume presents examples of PPP projects, with a particular
emphasis on PPPs designed to achieve development goals. The
intention is not to provide rigid models since each partnership must be
crafted to meet the local conditions and needs. Rather, the aim is to
convey the range of possibilities offered by this unique tool, which
can be of substantial help in providing services and infrastructure
where government financing options may be limited.
The 23 case studies presented in this volume were prepared by the
National Council for Public-Private Partnerships (NCPPP).

The case studies in this publication focus on:

healthcare (for hospital infrastructures and improved delivery of
services),
power (including renewable and more efficient delivery of
traditional power),
transportation (both urban and transnational),
water/wastewater infrastructure
metropolitan areas) and

(for

urban

and

major

environment (such as eco-friendly and financially feasible

approaches).
This publication on examples of public-private partnership for
development would not have been possible without the lessons
learned from selected projects. The case studies in this volume
include not only experiences from developing countries but also a
few from developed parts of the world. In this way, a clearer picture
can be presented as to when and where PPPs can provide an
appropriate response to a public need. For this same reason, both
successes and failures have been included since the latter can often
provide critical insights into how to develop a successful partnership.
Chapte
Chapter Title
r

Country

Hospital
CoSouth
location,
Africa
Bloemfontein

Malaria Control Mali

ThematicAre
MDG
a
Combat
HIV/AIDS,
Public-private
Malaria and
Partnerships
other
Diseases
Combat
HIV/AIDS,
Public-private
Malaria and
Partnerships
other
Diseases

10

11

12
13

Environment
Public-private
al
Partnerships
Sustainability
Environment
Rural
Public-private
Guatemala
al
Electrification
Partnerships
Sustainability
Environment
Public-private
Solar Power
Morocco
al
Partnerships
Sustainability
Public Market,
Environment
Public-private
Mandaluyong
Philippines
al
Partnerships
City
Sustainability
James F. Oyster
Bilingual
Elementary
United
CapacityUniversal
School,
States
building
Education
Washington,
D.C.
Union Station,
Environment
United
CapacityWashington,
al
States
building
D.C.
Sustainability
Environment
Martin
Garcia Argentina, Capacityal
Channel
Uruguay
building
Sustainability
Bus
Rapid
Environment
CapacityTransit Project, Colombia
al
building
Bogot
Sustainability
Environment
Port Expansion,
CapacitySri Lanka
al
Colombo
building
Sustainability
Mixed-use
Environment
CapacityTunnel,
Kuala Malaysia
al
building
Lumpur
Sustainability
North
Luzon Philippines CapacityEnvironment
Expressway,
building
al
Nationwide
Gabon
Water and Power

Luzon

Sustainability
South
Africa,
CapacityMozambiqu building
e

14

N4 Toll Road

15

East Coast Road,

India
Tamil Nadu

16

17

18

19

New
York
Avenue
Metro
Station,
Washington,
D.C.
Urban
Water
Expansion,
Cantagena
Urban
Water
Expansion,
Cochabamba
Urban
Water
Expansion,
Dakar
Tsunami

Capacitybuilding

Environment
al
Sustainability

United
States

Capacitybuilding

Environment
al
Sustainability

Colombia

Capacitybuilding

Bolivia

Capacitybuilding

Senegal

Capacitybuilding

East Asia

Capacitybuilding

20

2004
Relief

21

Water/Wastewate
Capacityr Improvements, Philippines
building
Manila

22

Urban
Jakarta

23

Chesapeake
United
Forest, Maryland States

Water,

Environment
al
Sustainability

Indonesia

Capacitybuilding
Capacitybuilding

Environment
al
Sustainability
Environment
al
Sustainability
Environment
al
Sustainability
Environment
al
Sustainability
Environment
al
Sustainability
Environment
al
Sustainability
Environment
al
Sustainability

CH:6
Public Private Partnership (PPP) projects in India A
view on top Engagement Models and related
statistics:
A partnership between the public and
private sectors with clear agreement on shared objectives for the
delivery of public infrastructure and/or public services.
Public 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.
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.
There is no single PPP engagement model that can satisfy all
conditions concerning a projects location setting and its technical and
financial features.
The most suitable model should be selected taking into account the
countrys political, legal and socio-cultural circumstances, maturity of
the countrys PPP market and the financial and technical features of
the projects and sectors concerned. This has led to innovation in the
engagement models.

The below are the top ten prevalent PPP Engagement Models in India:

1. BOT-Toll (Build Operate Transfer Toll) - The private entity meets

the upfront cost of design, construction and recurring cost on
operation and maintenance.
The Private entity recovers the entire cost along with the interest from
collection of user utilization during the agreed concession period.
Capital infusion is available from the public entity. A risk sharing
model is predominant in this model.
2. BOOT (Build Operate Own Transfer) - This engagement model is
similar to the Build Operate Transfer model except that the private
entity has to transfer the facility back to the public sector.
In BOOT model the government grants a private entity to finance,
design, build and operate a facility for a specific period of time before
the transfer.
This is a variation of the BOT model, except that the ownership of the
newly built facility will rest with the private party and during the
period of contract.

This will result in the transfer of most of the risks related to planning,
design, construction and operation of the project to the private entity.
The public sector entity will however contract to purchase the goods
and States and their area of development in PPPs services produced
by the project on mutually agreed terms and conditions.. The facility
built under PPP will be transferred back to the government
department or agency at the end of the contract period, generally at

the residual value and after the private entity recovers its investment
and reasonable return agreed to as per the contract. Status of PPP
Projects in India
3. Joint Venture (JV) - In a PPP arrangement commonly followed in
our country (such as for airport development), the private sector body
is encouraged to form a joint venture company (JVC) along with the
participating public sector agency with the latter holding only
minority shares.

The private sector body will be responsible for the design;

construction and management of the operations targeted for the PPP
and will also bring in most of the investment requirements. The public
sector partners contribution will be by way of fixed assets at a predetermined value, whether it is land, buildings or facilities or it may
Public Private Partnership (PPP) projects in India A view on top
Engagement Models and related statistics 2 contribute to the
shareholding capital.
It may also provide assurances and guarantees required by the private
partner to raise funds and to ensure smooth construction and
operation. The public service for which the joint venture is established
will be provided by the entity on certain pre-set conditions and subject
to the required quality parameters and specifications. Examples are
international airports (Hyderabad and Bangalore), ports etc.
4. Management Contract (MC) - A management contract is a
contractual arrangement for the management of a part or whole of a
public enterprise by the private sector. Management contracts allow

private sector skills to be brought into service design and delivery,

operational control, labour management and equipment procurement.
However, the public sector retains the ownership of facility and
equipment. The private sector is provided specified responsibilities
concerning a service and is generally not asked to assume commercial
risk. The private contractor is paid a fee to manage and operate
services. Normally, payment of such fees is performance-based.
Usually, the contract period is short, typically two to five years. But
longer period may be used for large and complex operational facilities
such as a port or airport. Top 10 active states in PPP
5. BOT (Build Operate Transfer) - The private business builds and
operates the public facility for an agreed period of time.
Once the facility is operational as agreed, or at the end of the time
period, the private entity transfers the facility ownership to the public,
here it may be construed as Government.

Under this category, the private partner is responsible to design, build,

operate (during the contracted period) and transfer back the facility to
the public sector.

The private sector partner is expected to bring the finance for the
project and take the responsibility to construct and maintain it. The
public sector will either pay a rent for using the facility or allow it to
collect revenue from the users. The national highway projects
contracted out by NHAI under PPP mode is an example.
This model is a classic example for IT industry. Public Private
Partnership (PPP) projects in India A view on top Engagement
Models and related statistics 3
6. BOT Annuity (Build Operate Transfer Annuity) This model
though is globally accepted one does not have the favour of the
Planning Commission of India.
In case of annuity model, the cost of building the entity is paid to the
private entity or the developer annually after the starting commercial
operations of the facility. payments etc. It may be noted that most of
the project risks related to the design, financing and construction
would stand transferred to the private partner.
The public sector may provide guarantees to financing agencies, help
with the acquisition of land and assist to obtain statutory and
environmental clearances and approvals and also assure a reasonable
return as per established norms or industry practice etc., throughout
the period of concession

7. DBFOT (Design Build Finance Operate Transfer) - These are other

variations of PPP and as the nomenclatures highlight, the private party
assumes the entire responsibility for the design, construct, finance,
and operate or operate and maintain the project for the period of
concession.

These are also referred to as Concessions. The project will recover

its investments (ROI) through concessions granted or through annuity
PPP Projects categorized based on development areas Public Private
Partnership (PPP) projects in India A view on top Engagement
Models and related statistics .
8. BOO (Build Own Operate) - In a BOO project, ownership of the
project usually remains with the Private entity. The government grants
the rights to design, finance, build, operate and maintain the project to
a private entity, which retains ownership of the project. In BOO the
private entity is usually not required to transfer the facility back to the
government
9. PPP (Public Private Partnership) - A partnership between the
public and private sectors with clear agreement on shared objectives
for the delivery of public infrastructure and/or public services. There
exists well defined allocation of risk between the private and the
public entities and the private entity receives performance linked
payments that conform to specified and pre-determined performance
standards, measurable by the public entity or its representative.

10. BOOST (Build Operate Own Share Transfer) This model is very
similar to the BOOT model, except that there exists an arrangement or
sharing the revenue to the private entity for a longer time even after
the rights of the private entity is transferred to the public entity.

Example:
Vinayak Chatterjee: PPP in India:
t is difficult to determine when exactly the public-private partnership,
or PPP, movement started in India, considering that we use the term
rather loosely.
Private investment and involvement in infrastructure occurs through
the following three routes:

Full private provision, or FPP: In this case, the government

allows complete ownership of the asset to private players. The

government assumes no responsibility or risk for example, the

Hyderabad
Metro,
telecom
and
so
on.
PPP schemes: In the case of PPPs, the investment is funded
and operated through a partnership between the government and one
or more private sector players. For example, Delhi and Mumbai
airports.
Private finance initiative, or PFI: These schemes introduce
the benefits of private sector management and finance into public
sector projects. This differs from privatisation since the responsibility
of providing essential services to the public is not transferred to the
private sector; nor is the asset-ownership transferred. As, for example,
in solid waste management, electricity distribution franchising and so
on.
Today, in India, PPP is generally used to broadly connote all these
models of private sector involvement in the infrastructure arena. This
is, holistically, PSP or private sector participation. PPP, though
technically a subset of PSP, will be used in this article to denote PSP
generally. It is too early in the game to split hairs on this issue when
bigger issues are waiting to be resolved.
It could be argued that the PPP story began with private sterling
investments in Indian railroads in the latter half of the 1800s. By
1875, about 95 million was invested by British companies in Indian
guaranteed railways. Or we could trace it to the early 1900s, when
private producers and distributors of power emerged in Kolkata
(Calcutta Electric Supply Corporation) and Mumbai, with the Tatas
playing a prominent role in starting the Tata Hydroelectric Power
Supply Company in 1911.
PPP INVESTMENTS IN INFRA ($ Billion)
Approx infra
Estimated
Estimated
Period
sector
PPP
PPP %
investments
investments
10th Plan
222
25
56

11th
Plan
500
(Estimated)
12th
Plan
1,000
(Projection)

37

185

50

500

Cut to the early 1990s, and one could postulate that it was then that
the new-wave PPP movement started. A policy of opening electricity
generation to private participation was announced by the central
government in 1991, which set up the structure of independent power
producers, or IPPs. The National Highways Act, 1956, was amended
in 1995 to encourage private participation. In 1994, through a
competitive bidding process, licences were granted to eight cellular
mobile telephone service operators in four metro cities and 14
operators in 18 state circles.
But if one were to choose a date that would capture the essence of a
clear historic shift, one could zero in on January 30, 1997, when the
Infrastructure Development Finance Company was incorporated in
Chennai under the initiative of the then Finance Minister P
Chidambaram. The firm, promoted by the government of India, was
set up on the recommendations of the Expert Group on
Commercialisation of Infrastructure Projects under the chairmanship
of Rakesh Mohan. And Deepak Parekh was chosen as the first
chairman. The idea was that this would signal the governments
seriousness in channelling private sector capital, expertise and
management in the nations infra development.
The period between 1997 and 2012, thus, marks a decade and a half
of PPP.
So, what is it that we should be celebrating?
One, the huge contributions of the warp and weft of PPP into Indias
infrastructure fabric. The table (see PPP investments in infra) shows
the giant strides made.
Had someone in the late eighties asked about the future role of private
capital and enterprise in Indian infra (when the state ran close to 100

per cent of public utilities and core infra) he would have received a
look of bemused incredulity at such a possibility. Today, while
Chinas economy may be four times larger than Indias, our PPP
market is 10 times larger than that of Chinas. In fact, India is today
easily the worlds largest PPP market. Across various shades of
politicalopinion and different party lines, our political leadership,
supported by a near-converted bureaucracy, managed to affect this
tectonic shift across the geo-plates of Indias economy. Surely, on this
score, they deserve our appreciation. So does the private sector that
rose admirably to the occasion and responded with entrepreneurial
energy, conviction and capital.
Two, let us acknowledge and salute the huge efforts made to create
the right enabling environment for the PPP story to unfold rapidly.
These relate to enacting new legislation for example, the
Electricity Act, 2003; the amended National Highways Authority of
India Act, 1995; the Special Economic Zone Act, 2005; and the Land
Acquisition Bill. As also the creation of new institutions like
regulatory authorities in telecom, power and airports, implementing
authorities like the National Highways Authority of India (NHAI),
and financial institutions like the Infrastructure Development Finance
Company, the India Infrastructure Finance Company and so on. A
slew of model concession agreements across sectors created the
template for private participation.

Conclusion:
PPP involves a contract between a public sector authority and a
private party, in which the private party provides a public service or
project and assumes substantial financial, technical and operational
risk in the project.

Typically, a private sector consortium forms a special company called

a "special purpose vehicle" (SPV) to develop, build, maintain and
operate the asset for the contracted period.

The asset and/or service under the contractual arrangement will be

provided by the Private Sector entity to the users.

This volume presents examples of PPP projects, with a particular

emphasis on PPPs designed to achieve development goals. The
intention is not to provide rigid models since each partnership must be
crafted to meet the local conditions and needs.

Rather, the aim is to convey the range of possibilities offered by this

unique tool, which can be of substantial help in providing services
and infrastructure where government financing options may be
limited.

BIBLIOGRAPHY:

ppp.worldbank.org Home PPP Overview

searchcio.techtarget.in ... Managing the IT budgeting
www.pppinindia.com/Defining-PPP.php
abstracts.aetransport.org/paper/download/id/1466
www.treasury.govt.nz/publications/researchpolicy/ppp/2006/06.../06.ht..

www.afd.fr/webdav/shared/PORTAILS/PAYS/.../PPP.../AFDFrancoz.pdf
www.ibef.org/download/PublicPrivatePartnership
academy.ssc.undp.org/GSSDAcademy/SIE/VOL15.aspx