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Public Private Partnership Siva Prasad
Contents . Introduction .Evolution . Models of PPP . Examples . Reasons for Failure . Solutions . Questions
ntroduction In the age of Liberalization, State has realized that optimum utilization of resources is not possible without the active cooperation of private sector. * State has following advantages :- o Enjoy huge amount of credibility among citizens; o Ability to raise resources; o Ensuring sustainable & equitable growth However it is also plagued with following weaknesses :- o Red tapism oTime & cost overruns o Politicization of developmental process
. On the other hand markets have following advantages :- o Efficient utilization of resources o Provide quality goods & services to citizens o Ensure competitive price mechanism o Introduce innovations Markets have following weaknesses o Creation of monopoly o Crony capitalism o Profit motive o Negative externalities
.PPP (Public Private Partnership) is an instrument to maximize the strengths of state & markets & minimize their weaknesses. Ultimately PPP can realize the objectives of 4 Es - Economy, Efficiency, Effectiveness & Equity.
Evolution PPP has its origin in UK as part of Neo-right philosophy adopted by . As part of PPP, British govt privatized service delivery mechanisms which . People suffered in the form of low quality goods & high prices as these .Also due to inefficiency of PSEs govt had high FD & by late 1970s UK . Thus govt adopted for PPP form Margaret Thatcher in early 1980s, were earlier monopolized by PSEs. PSEs were not accountable to people. faced severe financial crisis. Initially PPP failed as govt monopoly was replaced with private sector monopoly which resulted in high prices for the service delivery
. It couldn't contain FD as expenditure didn't come down & citizens also couldn't benefit because these didn't concentrate much on the quality redefined which now was to provide quality services to citizens. treating people as customers who should get complete value for the . In early 1990s, UK changed its strategy & the objective of PPP was . The concept of Value For Money was introduced i.e., govt started money for the money they have paid for the service. . As part of this govt introduced competition in the service delivery mechanisms . It ensured transparency in PPP by opting for its social audit. All this ultimately led to its success.
. PPP in India: In 1991 in response to financial crisis, the govt had opted for LPG . Govt identified the crucial role to be played by private sector in ensuring rapid growth. It adopted indicative planning. PPP was identified as the major instrument of investment in the age of LPG.
Models of PPP Build Operate and Transfer (BOT): This is the simple and conventional PPP model where the private partner is responsible to design, build, operate (during the contracted period) and transfer back the facility to the public sector. Role of the private sector partner is to bring the finance for the project and take the responsibility to construct and maintain it. In return, the public sector will allow it 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. .
Build-Own-Operate (BOO): This is a variant of the BOT and the difference is that the ownership of the newly built facility will rest with the private party here. The public sector partner agrees to 'purchase'the goods and services produced by the project on mutually agreed terms and conditions Build-Own-Operate-Transfer (BOOT): This is also on the lines of BOT. After the negotiated period of time, the infrastructure asset is transferred to the government or to the private operator. This approach has been used for the development of highways and ports. Build-Operate-Lease-Transfer (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. . .
Engineering Procurement Construction (EPC) : Under this system the entire project is funded by the government. It entails the contractor build the project by designing, installing and procuring necessary labor and land to construct the infrastructure, either directly or by subcontracting. The contractor is legally responsible to complete the project under some fixed predetermined timeline and may also involve scope for penalty in case of time overrun. As all the clearances, land acquisition and regulatory norms have to be completed by the government itself and the private players do not have to get itself involved in these time taking procedures.
. Hybrid Annuity Model : In India, the new HAM is a mix of BOT Annuity and EPC models. As per the design, the government will contribute to 40% of the project cost in the first five years through annual payments (annuity, whereas the remaining 60% is raised by developer from equity or loan as variable depending upon the value of assets created. Revenue collection would be the responsibility of the National Highways Authority of India (NHAI).The developer doesn't have right to collect revenue.
Management contract: Here, the private promoter has the responsibility for a full range of investment, operation and maintenance functions. He has the authority to make daily management decisions under a profit-sharing or fixed-fee arrangement Service contract: This approach is less focused than the management contract. In this approach, the private promoter performs a particular operational or maintenance function for a fee over a specified period of time.
Some PPP Examples -Transport System Concession Support Required Metro Link Authority Concessionaire Reliance Infrastructure Limited Reliance Energy Limited Reliance Energy Ltd (REL) DLF Limited and IL&FS Limited Period 30 years 35 years 35 years Delhi Metro Airport Link DMRC 6.50 Billion 22.98 Billion Mumbai Metro Line l MMRDA Mumbai Metro Line 2 MMRDA Gurgaon Metro Rail Link HUDA 99 years
. In the name of PPP, public sector monopoly is replaced by private sector monopoly. . Stakeholders have not been give any opportunity to influence the PPP deals. It has resulted in Public Sector Banks incurring huge amount of losses as most of the loans taken by pvt, sector have turned into NPAs Because of absence of coordination between centre, state & local self govt & problems related to environmental clearances along with civil society movement & judicial activism, money couldn't be utilized fully by private sector. S.
. Due to absence of transparency in PPP deals, people have lost faith in PPP. There is severe opposition to PPP deals . Because of huge amount of NPAs in PSBs & also increasing debt burden of private sector companies there is complete stagnation in economic activities.
Solutions Govt must clearly define the objectives of PPP in quantifiable terms. It must also define the moral objectives so that it can be called as a reform. Govt must ensure complete transparency in the allocation of resources. . . Discretionary powers of political executive & bureaucracy should be clearly defined so that there is no scope for misuse. . As part of PPP, govt should not transfer resources permanently to private sector. It should only lease resources on a temporary basis.