Concept of Public Private Partnership Scheme (PPPs)

Introduction:

Providing a better infrastructure and continuous development of the same is the basic factor to sustain the economic growth of any country and also the responsibility of any Government. Lack of infrastructure facilities will affect the public life, productivity and growth. A well established infrastructure facility is playing a great role in the better economic and GDP growth.

Purpose of PPPs:

Big countries like India, providing infrastructure required high investments, Government alone unable to provide the complete infrastructure and there are gap between the infrastructure requirement and available infrastructure, to meet the gap, Government allows the private sector participation the same. The scheme which developed by the Government for that purpose is called “Public Private Partnership Scheme “(PPPs). In this article try to give brief understanding about the Public Private Partnership Scheme (PPPs)

Public Private Partnership (PPP):

Public Private Partnership means an arrangement between the government / statutory entity / government owned entity on one side and a private sector entity on the other, for the provision of public assets and/or public services, through investments being made and/or management being undertaken by the private sector entity, for a specified period of time, where there is well defined allocation of risk between the private sector and the public entity and the private entity receives performance linked payments that conform (or are benchmarked) to specified and pre-determined performance standards, measurable by the public entity or its representative.

Essential conditions for PPP:

Arrangement with private sector entity and the asset and/or service under the contractual arrangement will be provided by the Private Sector entity to the users. An entity that has a majority non-governmental ownership, i.e., 51 percent or more, is construed as a Private Sector entity. Public asset or service for public benefit. The facilities/ services being provided are traditionally provided by the Government, as a sovereign function, to the people. To better reflect this intent, two key concepts are elaborated below

(a) Public Services are those services that the Central/State Governments/Local authorities are obligated to provide to its citizens or where the State has traditionally provided the services to its citizens.

(b) Public Asset is that asset the use of which is inextricably linked to the delivery of a Public Service, or, those assets that utilize or integrate sovereign assets to deliver Public Services. Ownership by Government need not necessarily imply that it is a PPP.

Fundamental qualities of a PPP project:

a. High priority, government-planned project. The project must have emerged from a government-led planning and prioritization process. The project must be such that, regardless of the source of public or private capital, the government would still want the project to be implemented quickly.

b. Genuine risk allocation. Shared risk allocation is a principal feature of a PPP project. The private sector must genuinely assume some risk.

c.  Mutually valuable. Value should be for both sides, which means government should also genuinely accept some risks and not transfer the entire risk to the private sector, and vice versa.

Sectors covered under PPP models:

Most of the Major infrastructure sectors are presently covered under PPP model such as:

a. Highways

b. Railways

c. Ports

d. Airports

e. Telecom

f. Power

g. Solid waste management

h. Water & Sanitation

i. Urban Transport

Conclusion:

The initiative of PPP scheme by the government is a very good attempt to bringing the gap closure in the infrastructure development & finance. Present globalization and privatisation economy, private sector participation is inevitable in every sector. Also Government alone cannot provide the infrastructure facilities which needed for the projected GDP growth; effective private sector partnership is very much required. But at the same time, the success of the any project under PPP scheme will be based on streamlined funding system and better cooperation from the all the relevant Government department & ministries and correcting the mistakes from the previous lesson learnt from the previous experience and providing proper support in physically as well as financially to the private sector by the Government also giving confidence to banking sector as Infrastructure is low risk funding sector.

CMA Ramesh Krishnan