Public Private Partnership

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