What are the different models of PPP? How has been India’s experience so far with PPP? What are the changes required to make it more efficient? (250 Words)

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. It is often done for the provision of public assets 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. The private entity who is chosen on the basis of open competitive bidding, receives performance linked payments that conform (or are benchmarked) to specified and pre-determined performance standards, measurable by the public entity or its representative.

Models of Public Private Partnership (PPP)
Commonly adopted model of PPPs include Build-Operate-Transfer (BOT) ,Build-Own-Operate (BOO), Build-Operate-Lease-Transfer (BOLT), Design-Build-Operate-Transfer (DBFOT), Lease-Develop-Operate (LDO), Operate-Maintain-Transfer (OMT), etc.
These models are different on level of investment, ownership control, risk sharing, technical collaboration, duration, financing etc.

BOT: It is conventional PPP model in which private partner is responsible to design, build, operate (during the contracted period) and transfer back the facility to the public sector.
Private sector partner has to bring the finance for the project and take the responsibility to construct and maintain it.
Public sector will allow private sector partner to collect revenue from the users. The national highway projects contracted out by NHAI under PPP mode is a major example for the BOT model.
BOO: In this model ownership of the newly built facility will rest with the private party.
On mutually agreed terms and conditions public sector partner agrees to ‘purchase’ the goods and services produced by the project.
BOOT: In this variant of BOT, after the negotiated period of time, project is ransferred to the government or to the private operator.
BOOT model is used for the development of highways and ports.
BOLT: In this approach, the government gives a concession to a private entity to build a facility (and possibly design it as well), own the facility, lease the facility to the public sector and then at the end of the lease period transfer the ownership of the facility to the government.
DBFO: In this model, entire responsibility for the design, construction, finance, and operation of the project for the period of concession lies with the private party.
LDO: In this type of investment model either the government or the public sector entity retains ownership of the newly created infrastructure facility and receives payments in terms of a lease agreement with the private promoter. It is mostly followed in the development of airport facilities.

India’s experience so far with PPP:
India has systematically rolled out a PPP program for the delivery of high-priority public utilities and infrastructure and, over the last decade, developed one of the largest PPP programs in the world.
With close to 1500 PPP projects in various stages of implementation, according to the World Bank, India is one of the leading countries in terms of readiness for PPPs. As per the 2015 Infrascope Report of the Economist Intelligence Unit, “Evaluating the environment for PPPs in Asia-Pacific 2014”, India ranks first in the world in “Operational Maturity” for PPP projects, third for sub-national PPP activity and fifth overall in terms of having an ideal environment for PPP projects.
Public-Private Partnerships (PPPs) in infrastructure provides for the creation of public asset and service by a private partner who has been conceded the right (the “Concession”) for the purpose, for a specified period of time, on the basis of market-determined revenue streams, that allows for a commercial return on investment.
PPPs in infrastructure represent a valuable instrument to speed up infrastructure development in India. This speeding up is urgently required for India to grow rapidly and generate a demographic dividend for itself and also to tap into the large pool of pension and institutional funds from aging populations in the developed countries.
India offers today, the world’s largest market for PPPs. It has as such accumulated a wealth of experience in getting to this premier position.

Challenges in these scenarios:
Better identification and allocation of risks between stakeholders (i.e the Govt., the Public, and the investors) is one of the major challenges in PPP projects.
The PPP route has been criticized for not meeting the supply-demand gap exactly in the infrastructure facilities.
Six key hurdles faced by PPPs projects are as follows: policy and regulatory gaps; inadequate availability of long-term finance; inadequate capacity in public institutions and public officials to manage PPP processes; inadequate capacity in the private sector-both developer/investor and technical manpower; inadequate shelf of bankable infrastructure projects that can be bid out to the private sector; and inadequate advocacy to create greater acceptance of PPPs by stakeholders.
The most important challenge for PPP projects, however, has emerged as delays in achieving commercial operation dates (COD) which lead to time and cost overruns. It has occurred partly due to land acquisition issues, willful default by promoters, irrational biddings, huge difference between project costs as approved by the Govt. and ones that are given to lenders.
On the land acquisition front, issues related to the huge difference between the registered value offered and the actual market value have been very disputing. Moreover, valuations are conducted on the basis of the current status of land, and the system does not capture the appreciation after the construction of the project.

Changes required to make it more efficient:
The better understanding of risk perceptions of investors and lenders and mitigating the aforementioned challenges, along with installing adequate safeguards against windfall profits, are essential for success in designing workable PPPs.
Genuine and transparent stakeholder consultation at the project and contract design stage with an open pragmatic approach would naturally help. Inadequate risk mitigation and faulty design may well be the major cause of the default by IL&FS which has been the leading investor in PPP projects.
In addition to changing mindsets, there is an urgent need to rebuild India’s PPP capacities. Structured capacity building programmes for different stakeholders including implementing agencies and customized programmes for banks and financial institutions and the private sector need to be evolved.
Investments for treatment of sewage, augmentation of water supply for cities, completing the canal network for large irrigation projects, are all examples of needed investments which cannot be made financially viable through the recovery of user charges. Such projects have, therefore, been considered as not being suitable for PPPs. However, if the state, or, a public institution came in as an intermediary by agreeing to pay user charges after a transparent and fair bidding process, private investment could be brought into these non-traditional areas.
For infrastructure like hotels, hospitals, schools etc., providing land free through a reasonable lease rent and revenue-sharing arrangement in somewhat developed and promising locations will boost development greatly.
In undeveloped sites, a two-tier PPP structure may be needed. A private builder (e.g a civil contractor) could on a rental basis do the bare structure of a hotel, hospital etc for a development agency (like NDMC and Delhi Development Authority). The agency could then get a hotelier, like the Taj or Hyatt, or for hospitals get Apollo or Fortis, to do the finishing and furnishing and then run the hotel on lease rent with revenue sharing.

The potential for additional investment in PPP is therefore enormous. The challenge only lies in having the ambition and pragmatism to actually get large projects going with private investmen

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Shivangi Uliana
Shivangi Uliana
4 years ago

Q3. MOJO9710800D30462641

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4 years ago

Very good answer.
You have covered all the necessary elements of the questions.
Both the parts have good structure, flow and discussion.
The only improvement you can have here is that you should have explained the dimensions of these models in a couple of statements rather than simply mentioning them in the flow chart. That would have taken this answer to another level.
Apart from that, very good discussion.

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4 years ago

India’s initial path as Socialist Economy made all the Investment Models by Public (State) alone which had it’s own limitations. With the New Economic Policy in 1991, Private Investment was allowed in many sectors which also facilitated a unique Investment Model called as PPP – Public Private Investment in which both Public (State) & Private collaborate for development.

PPP is very flexible which can be deciphered by the different Models in which it can be done
1. BOT (Build Operate Transfer): The Private player Builds the Infrastructure, Operates it for the due contract period & Transfers it to Government.
2. V-BOT (Variable BOT): In some BOT, Private gets profits even before Contact ends & continues to amass huge profits by different means. While in some other BOT, Private player may be still in losses even after contract ends. In such case, Transferring isn’t feasible. Variable BOT allows flexibility of contracts wherein, based on profits & other facts, Contracts of BOT’s can be varied.
3. BLOT: Private player Builds & the leases to some other to Operate who Transfer it to Government
4. BOO: Private player Builds & he OWNS the infra & Operates.
5. In addition, Private can also take Management Contract of an already Build infra, Can LEASE an infra etc..

Funding of PPP:
1. HAM: Hybrid Annuity Model lets State pay annually for some % like 40%.
2. In VGF (Viability Gap Funding), Govt pays some minimum amount which makes the Infra viable.
3. In EPC, Government pays everything & takes care of contracts etc. Private does design, Build.
4. Plug & Play: Government provides all contracts while Private designs, builds with their own Money

Indian Experience:
India’s path towards a 5 trillion Economy needs various things especially a robust Infrastructure & it’s funding cannot be done by State alone. Private Funding is crucial but India being a Mixed Economy, PPP model is the best bet. India’s experience with PPP is so far good with investments flowing in for various projects.
Finance Minister announced that Plug & Play Model alone can attract 1 Lakh Crore Investments. The development attained in Roads&Tolls, Airports, Shipping, Energy infra is paving way for India’s future.

However, there are Negatives too. Many Projects are left unfinished during the Contract. Dhabola Power Project in Ratnagiri is a fine example. Quality of some Projects is also a concern.

Changes required:
1. Various Ministry’s are involved in different PPP’s. An effective collaborative mechanism can be developed for its successful strategies & implementations
2. No single PPP model can satisfy all sectors. How PPP models vary across sectors should be extensively studied & applied accordingly. Like what projects can be made Viable using VGF etc.
3. Not just PPP, but PPPP (People Public Private Partnership) in which Peoples views are also taken must be implemented so that ideals of democracy & citizen centric governance can be achieved.

If effectively implemented, PPP could prove to be a game changer in development of India.

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4 years ago
Reply to  Ruthvik

Sir, i’m not finding upload option in comment section. That is why, I’m typing.

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4 years ago
Reply to  Ruthvik

Hi Ruthvik.
After intro, briefly explain what is PPP. It doesn’t have to be in length explanation. Just a brief one.
Good discussion in the 1st part. Your coverage and explanation is perfect.
But in the 2nd part where you were discussing India’s experience regarding PPP, you have to come out with more points and arguments for both sides. read the model answer.
In the way forward, do mention the Kelkar committee and its recommendations.
https://www.civilsdaily.com/news/kelkar-chalks-out-rules-for-ppp-revival/
Take help from this link.

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4 years ago

Not checked

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4 years ago
Reply to  sourav singh

Very good intro.
The 1st part is OK but would have been better if you would have explained the dimensions of these models in a couple of statements.
In the 2nd par, do not simply mention issues with PPP model. Instead discuss the India’s experience with PPP. What is the background? What are the benefits and challenges that India faced? Read the model answer.
Decent way forwards.
But do mention the recommendations of Kelkar committee in your way forward.
Good conclusion.
Take help from this:
https://www.civilsdaily.com/news/kelkar-chalks-out-rules-for-ppp-revival/

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4 years ago

2

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4 years ago

Q3

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New Doc 2019-08-04 00.00.04_9.jpg
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4 years ago
Reply to  avani k

Avani very good answer.
Discussion is excellent.
Explanation is short yet simple and crisp.
Your structyre has the perfect balance.
The only improvement you can add is that in the way forwards, you should mention Kelkar Committee recommendations. Take help from this article for future references:

https://www.civilsdaily.com/news/kelkar-chalks-out-rules-for-ppp-revival/

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