By Krishna Kant Choubey
Published on: February 4, 2024 at 21:21 IST
Public-private partnerships are collaborations between government agencies and private-sector companies to finance, build, and operate projects like public transportation networks, parks, and convention centers. These partnerships often involve concessions of tax or operating revenue, protection from liability, or partial ownership rights over public services and property to private sector, for-profit entities. They work well when private sector technology and innovation combine with public sector incentives to complete work on time and within budget.
Typically, public-private partnerships have contract periods of 20 to 30 years or longer, with financing partly coming from the private sector but requiring payments from the public sector and/or users over the project’s lifetime. The private partner participates in designing, completing, implementing, and funding the project, while the public partner focuses on defining and monitoring compliance with objectives. Risks are distributed between the public and private partners through negotiation, ideally based on each’s ability to assess, control, and cope with them.
Private-government partnerships enhance operational efficiency and economic diversity, while promoting private sector technology and innovation. However, they also carry construction, availability, and demand risks, which may be transferred to the public partner. Public-private partnerships also pose risks for the public and taxpayers, including liability for service quality and increased fees.
As India is emerging as a global leader in climate action, with its public-private partnerships being recognized as exemplary. The country, with the world’s largest population and the 5th largest economy, is addressing the climate challenge through innovative collaborations between the government and the private sector. Notably, India’s railways, one of the busiest in the world, is aiming for net zero emissions by 2030, showcasing its commitment to sustainability.
At COP28 in Dubai, India rose to the 7th position in the Climate Change Performance Index, signaling its progress in climate initiatives. The nation has set ambitious goals, including achieving net zero emissions by 2070 and reducing carbon intensity by 45% by 2030.
India’s approach involves proactive government initiatives, innovative policies, and increasing cooperation between the public and private sectors.
India’s journey towards achieving its climate goals is seen as a model for the world, highlighting the importance of government-business collaboration in driving sustainable growth. The article delves into different public-private partnerships model.
Models of Public-Private Partnerships
There are several models of Public-Private Partnership which depends on nature of the projects, that will be discussed below
● Build Operate Transfer Model
Build-Operate-Transfer (BOT) is a public-private partnership (PPP) strategy that allows the private sector to participate in the building of public infrastructure. Private businesses finance, design, build, and run projects for a set length of time, typically for large-scale projects such as toll highways, bridges, airports, and power plants. BOT invites private investment, transfers construction and operating risks, and promotes efficiency. Successful BOT projects necessitate a well-defined legislative framework, open risk allocation, and a balance between private sector profit motives and public service goals.
● Build Own Operate Model
Build-Own-Operate (BOO) is a Public-Private Partnership (PPP) model in which a private corporation manages the whole life cycle of a public infrastructure project. The private sector participates in the construction, design, and construction phases and keeps ownership throughout the project’s life cycle. This varies from other PPP models in that ownership is given back to the public sector. The private organization often recoups its investment and profits by operating the facility and generating income streams such as user fees or service costs. BOO projects are widespread in infrastructure industries such as power production, where private corporations construct, own, and operate power plants. Successful BOO projects need a well-structured legal framework, unambiguous risk distribution, and a balanced approach to addressing both the private and public sectors.
● Build Own Operate Transfer Model
The Build Own Operate, and Transfer (BOOT) model is a PPP framework for facilitating infrastructure projects. It entails a private entity designing, funding, building, and operating the infrastructure for a set time. This concept allows the private sector to invest in and manage large-scale projects, while the public sector reaps the advantages of the completed project without incurring any upfront costs. It is widely employed in projects such as toll highways, airports, power plants, and water treatment facilities.During the operational phase, the private operator oversees day-to-day operations, maintenance, and service provision, collecting user fees
or charges to pay their investment and operational costs. At the end of the contract time, ownership and operation of the infrastructure are handed to the public sector or government for free or at a low cost, depending on the parameters of the build-own-operate-transfer agreement. Both parties benefit from the private sector’s knowledge, technology, and efficiency in project delivery and management, while the private organization collects long-term revenue through user fees before finally handing over the infrastructure to the public sector.
● Build Own Lease Transfer
Build Own Lease Transfer (BOLT) is a Public-Private Partnership (PPP) strategy in which public and private sector entities work together to achieve mutual profits and benefits. It enables the public entity to gain access to and use the building immediately following construction, as well as contribute to the design. BOLT agreements are long-term contracts for large projects such as public infrastructure, government buildings, or commercial facilities that include a lease charge defined in the PPP Contract. The client pays the contractor a fixed rent for a specified length of time, which is determined by development expenses. BOLT follows a set process: a private developer plans and builds a project, leases it for 10-30 years, operates it as a business until the lease period expires, and then transfers ownership to the government or a partner at a predefined market price. This model allows developers to build and profit from the project while leasing it, with ownership eventually transferred to the government or public entity/partner.
● Design Build Finance Operate Model
The Design-Build Finance Operate (DBFO) model is a Public-Private Partnership (PPP) in which the private sector oversees all aspects of a public infrastructure project’s lifecycle. The private sector develops, builds, finds financing, and takes on operational responsibilities. This model accelerates project delivery, encourages collaboration, and enables the private sector to use its financial expertise. Revenue collected during the operational phase may yield returns.
● Lease Develop Operate Model
The Lease Develop Operate (LDO) model is a public-private partnership model in which a private organization rents public assets, develops or improves them, and then operates the infrastructure for a defined duration. The public sector retains ownership, while the private organization is responsible for development and operations. The private sector controls and creates revenue.
National Public Private Partnership Policy
The Indian government is dedicated to developing a conducive climate for Public-Private Partnerships (PPPs) throughout the country through efforts such as enabling funds, plans, rules, institutional structures, and processes. Key initiatives include the India Infrastructure Project Development Fund (IIPDF), Viability Gap Funding (VGF), resources for annuities/availability-based payments, long-term lending, a re-financing facility, infrastructure debt funds, and so on. The government will continue to provide legislative and policy support for equity, debt, hybrid, and credit enhancement structures aimed at domestic and international financial investors. The government will also consider levying user fees to fund the rehabilitation, redevelopment, building, or replacement of project assets, as well as their ongoing operation and maintenance. The government is dedicated to strengthening efforts at the sponsor agency, community, and private sector levels to raise awareness of the benefits of PPPs and build a strong PPP project pipeline across a variety of industries.
A strong institutional structure is essential for a long-term Public-Private Partnership (PPP) strategy. It supports innovation, encourages new models, and builds PPP capacity. The government encourages the formation of PPP nodal agencies, such as PPP Cells, which perform a variety of tasks such as identifying projects, preparing feasibility reports, appointing consultants, managing tendering processes, developing efficient machinery, developing internal evaluation guidelines, acting as a capacity building agency, disseminating PPP benefits and procedures, and monitoring projects.
The Indian government established the PPP Appraisal Committee (PPPAC) to promote PPP projects and ensure that they are profitable. The committee is made up of numerous departments, including the Department of Economic Affairs, the Planning Commission, the Department of Expenditure, the Department of Legal Affairs, and the Department that is sponsoring the project. Clearance from the PPPAC ensures that projects are commercially viable, that user and public interests are preserved, and that government contingent liabilities are limited. The PPPAC also promotes the adoption of standard contractual contracts and annual performance metrics.
Public assets and services having natural monopolistic features will be regulated by independent regulators, contractual agreements, or multi-sectoral arrangements. If no sector-specific regulator exists, the government will consider the contract conditions to reduce regulatory risk. This protects the interests of both customers and service providers while maintaining affordability and pricing predictability.
Conclusion
In conclusion, Public-Private Partnerships (PPPs) are essential for supporting sustainable infrastructure development because they encourage collaboration between the public and private sectors. Models such as Build-Operate-Transfer, Build-Own-Operate, and Design-Build Finance Operate provide adaptable frameworks for meeting complex infrastructure requirements. A strong national PPP strategy directs and supervises these cooperation, defining roles, promoting transparency, and creating a favorable environment for private sector participation. Effective PPP models and a comprehensive policy framework speed infrastructure development, contribute to economic growth, job creation, and improved public services, demonstrating the dynamic synergy possible when the public and private sectors collaborate for common goals.