Public-private partnership (PPP) in general refers to long-term, contractual partnerships between the public and private sector agencies, specifically targeted towards financing, designing, implementing, and operating infrastructure facilities and services that were traditionally provided by the public sector. PPPs allow us to combine the best of both worlds. The private sector contributes significantly with its resources, management skills, market understanding and technologies. The public sector provides opportunities to participate in strategic infrastructure development within a governed regulatory framework to protect public interest.
In recent years, PPP has emerged as one of the key approaches for delivering infrastructure projects effectively and efficiently. These have been widely adopted for developing critical infrastructure, such as highways, power distribution, water supply network, sanitation system and transport and projects which are capital intensive. PPPs are increasingly being used by governments and public sector authorities as a way of accelerating development projects, increasing access to funding and financing, and providing upgraded infrastructure services. Consequently, these initiatives result in fostering overall economic growth and creating various employment opportunities both in rural and urban areas to support the regional economy.
PPPs can take several organizational forms between the government and private sector participants, such as User-Fee Based Build-Operate-Transfer models, Annuity Based Build-Operate-Transfer models, Performance Based Management/ Maintenance Contracts and Modified Design-Build contracts just to name a few. Captured below are a few of the most critical indicators for successful PPP models.
Critical indicators for a successful PPP model
Clarity on Responsibility/ Scope of both Partners – Private & Govt: There must be a clear definition of deliverables, comparator costs, a sound understanding of the legal framework, factors influencing the choice of business model, preliminary demand, cost and revenue projections, scope of force majeure and other game changing situations before taking up any PPP project.
Balancing risk and benefits sharing: PPPs involve transfer of valuable public assets as well as foregoing future revenues in the form of concessions. In this scenario, ensuring high credibility, objectivity and probity of the decision-making process are crucial for the successful future of the project. The success of PPP projects is also dependent on a balanced sharing of risks and benefits between partners with accountability in all transactions that relate to the management of the contract. In order to safeguard public interest, it is therefore essential to plan and implement PPPs efficiently and meticulously.
Raising Capital: A successful model must encourage the private sector to dedicate its capacity to raise capital, complete projects on time and budget for the welfare of the community, without compromising on profits.Requirements of Contracts to be Crisp & Concise: The requirements of the contract must be clearly specified, including allocation of risk and clear statement of the service output requirements. For a long-term partnership, the contract requires greater consideration and specification of contingencies in advance.
One formula doesn’t fit for all: There is no single formula that fits all the requirements as different PPP structures work differently for various sectors. It is important to consolidate, and update PPP guidelines based on experiences from various sectors to cover steps that involve selecting a private partner, decision making timelines, guidelines for risk sharing, etc.
Ensuring dispute resolution: There is an urgent need to address concerns for private partners by providing for early and fast dispute resolution methods. For a private sector participant, this is one of the most critical aspects as the time taken for the dispute resolution process can impact the economics of the project adversely. .
PPP projects aim to provide improved public services by sharing risks in a balanced manner and are intended to result in enhanced value for money for public agencies. These have already proven their efficacy through cost effective designing, technology as well as better project management.
Public authorities must undertake thorough groundwork that will involve clear definition of deliverables, comparative costs, a sound understanding of the legal framework, factors influencing the choice of business model, preliminary demand, cost and revenue projections, scope of force majeure and other game changing situations before taking up any PPP project.
This can be achieved through a fair and transparent selection process, reasonable incentives to all stakeholders and implementation through long-term contracts. The key to the success of PPP projects lies in innovation and bringing a solution-based approach to the infrastructure challenges faced by our country.
The author is Executive Director and Head-Government Practice, CBRE. Views are personal.
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