About Public Private Partnership (PPP)

A. Definition :

‘Public Private Partnership (PPP)’ means an arrangement between a public agency and a private sector participant for the provision of infrastructure through investment made or through design, development, construction, maintenance or operation undertaken by the private sector participant, where risks are allocated between them such that the private sector participant takes on the risk beyond the stage of design and construction and the payment for the services are performance linked, in the form of user charges, annuities or unitary payments.

 

B. Identifying and Screening PPP Projects

The first step towards a successful PPP is identifying a potential PPP project. Since a PPP is a public investment, most successful PPP projects originate from the broader public investment planning process. During this process, priority public investment projects can be screened for their potential to achieve better value for money if implemented as PPPs. Several governments have established tools and checklists to support this screening.

The following factors are to be considered for screening PPP Projects:

  • a. Scale of the Project
  • b. Outputs capable of clear specification
  • c. Opportunities for risk transfer
  • d. Market capability and appetite

 

C. Factors for Implementation of PPP Projects

The following are some of the key success factors to be considered for implementation of PPP projects

  • a. Strong Legal and Regulatory Framework
  • b. Adequate PPP Law
  • c. Sound Economic Policies and Stable Macroeconomic Conditions
  • d. Strong institutions with appropriate resources
  • e. Competitive and transparent procurement process
  • f. Selecting the right projects for PPP
  • g. Extensive technical and financial feasibility of identified projects
  • h. Whole Life Costing Approach
  • i. Appropriate structuring of PPP projects
  • j. Appropriate risk allocation:Risks are allocated to the party that could best manage them at the lowest cost. Some of the key risks that needs to be allocated and managed to ensure the success of PPP projects are:
  • o i. Construction and Completion Risk
  • o ii. Operating Risks
  • o iii. Demand Risk
  • o iv. Force Majeure and Change in Law
  • o v. Political and Regulatory Risk and Expropriation and Nationalization Risk
  • o vi. Environmental Risk
  • o vii. Tenor and Refinancing Risk
  • o viii. Currency Exchange Risk
  • o ix. Interest Rate Risk
  • k. Reliable consortium with strong technical strength

 

D. PPP Models and Risk Sharing Matrix:

 

Investment or Financing related Agreements:

Model Asset ownership during contract Capital investment responsibility Private partner revenue Sources Private partner role Asset Transfer

Build-Operate-Transfer (BOT)

Public

Private

Tolls, fees, rentals and other charges

Finance, Construct, O&M, Transfer

Yes

Build-Own-Operate (BOO)

Private

Private

Tolls, fees, rentals and other charges

Finance, Construct, Own,  O&M

No

Build-Own-Operate-Transfer (BOOT) 

Private

Private

Tolls, fees, rentals and other charges

Finance, Construct, Own,  O&M, Transfer

Yes

Build-Transfer-Operate (BTO)

Public

 

Private

 

Tolls, fees, rentals and other charges

Finance, Construct, Transfer, O&M

Yes

Design-Build-Finance-Operate- Transfer (DBFOT)

Public

 

Private

 

Tolls, fees, rentals and other charges

Design, Build, Finance, O&M, Transfer

 

Yes

 

Operations and Maintenance Related Agreements:

Model Asset ownership during contract Capital investment responsibility Private partner revenue Sources Private partner role Asset Transfer

Management Agreement

Public

Public

Management Fee from Government

Management of all aspects of operation and maintenance

No

Lease Management  Agreement

Public

Public

Fees, rentals and other charges from Users

Lease and O&M

No

Build-Lease-Transfer (BLT) 

Public

Private

Fees, rentals and other charges from Users

Construct, Finance, Lease, O&M and Transfer

Yes

Rehabilitate - Operate - Transfer (ROT)

Public

 

Private

 

Fees, rentals and other charges from Users

 

Invest, Refurbish, O&M and Transfer

Yes

Rehabilitate –Own - Operate (ROO)

Private

 

Private

 

Fees, rentals and other charges from Users

Invest, Refurbish, Own and  O&M

 

No