Investment in infrastructure projects forms a considerable component in the evolution of growth in an economy. Investment plays the role of money multiplier, enhances the standard of living and also provides employment opportunities. There are several types of Investment models to finance infrastructure projects. Public Private Partnership (PPP) is one of them and it means the contractual agreement on the part of a government organization and a private corporation to provide public assets. In the PPP model of investment, both government and private entities join hands to bear the expenses, operations, risk and revenue. The revenue earned by the private entity is usually tied to its performance.
At present, PPP projects are being widely used across multiple sectors and domains in India. PPP projects have a wider scope due to the simple reason of sharing finances between government and private entities.
PPP projects are advantageous due to several reasons
- The government gets capital support from the private sector. The hardship of the financial crunch is solved with the private sector providing a helping hand to the government.
- PPP projects ensure the inclusion of expertise and resources from the private sector in the projects undertaken by the state. The inputs from private organizations as stakeholders in better provision of services to the public.
- The projects that have substantial risks can also be undertaken by the government as the private sector joins in to share the risk. It ensures better operation, maintenance and revenue generation.
- Private companies are synonymous with better work ethic, discipline and efficiency. Hence, their inclusion can usher in quicker delivery of services.
- Through the PPPs, the Private sector earns a possibility of making reasonable profits. It opens up new avenues for business operation and investment.
- Private companies usually get a managerial and operational take on such projects. It translates to better prospects for those companies and their goodwill is also raised with public-sector collaboration.
- Government-owned projects are more durable and cater to demands over a longer period of time. This assists the private sector to avail experience in those domains. 8. Citizens are better placed as involvement in the private sector provides more finances, better quality services and a higher standard of living.
- Innovation can take the lead due to the engagement of the collective spirit of the government and the private sector.
- The involvement of the private sector leads to enhanced accountability of the government.
- The PPP infrastructure projects open up avenues for employment opportunities among the workforce. With increased employment opportunities, the economic conditions have improved.
- Public Private Partnership projects offer the scope for having long-term returns and hence, a profitable venture.
Type of Investment models that are used most commonly are-
- Build-Operate-Transfer (BOT)- It is a traditional model of investment. In this model, a private entity is liable to design, build, operate, and later hand over the facility to the government entity. The private organization takes up the task of providing finance, constructing, and maintaining it. Thereafter, private entities can amass revenue from the consumers. The best illustration is that of building the highways by the National Highways Authority of India (NHAI).
- Build-Own-Operate (BOO)- The ownership of the structure is with the private sector. On terms agreed upon, the public sector approves to purchase of the goods and services created by the project.
- Built-Own-Operate-Transfer model (BOOT)- It is a category of the BOT model. The project is transferred after the set time limit to the government or the private party. It is commonly used in highway projects and also in port development projects.
- Design-Build-Operate-Transfer (DBFO) Model- Entire obligation for the design, building, finance, and function of the undertaking for time off concession rests with a private entity.
- Operate-Maintain-Transfer (OMT) Model- The private corporation handles the task of operating the project, looking towards the maintenance works and training until the final transfer of the building to the government.
- Build-Operate-Lease-Transfer (BOLT) Model- in this model, the roommate corporation is given the concession to construct a project, take ownership of it, provide it to the government on the lease, and then, after the termination of the lease period, transfer the ownership to the government.
- Lease-Develop-Operate(LDO) Model- in this scheme, either the government or private sector possesses the infrastructure and gets lease dues.
- The model is popularly used in airport development projects.
- Engineering, Procurement, and Construction (EPC) Model- in this model, the government bears the cost of construction and procuring of raw materials. The private sector only looks after the engineering roles in the project.
- Hybrid Annuity Model- As the name suggests, it is a hybrid / mix of the Build-Operate-Transfer Annuity model and EPC.
The annuity model mandates the government to chip in 40% of the project expense in the initial 5 years. The remaining 60% is made on the premises of the private corporation’s performance and assets developed. Effectively, the government only pays
40% at the time of construction, hence, the private player has to pitch in the remaining money. The private party doesn’t get any sort of right to collect toll.
Vijay Kelkar committee was set up to recommend the feasibility of the Public Private Partnership(PPP) Investment model in India. The committee’s recommendations came out in 2015. The important recommendations are as follows-
- Formulate risk allocation procedure for participants
- An Independent regulatory body should be set up
- The Prevention of Corruption Act needs modifications to lessen corruption in projects
- ● Banks should be entitled to disseminate zero-coupon bonds.
- Use PPP for large projects only.
- A procedure should be put in place to proceed with the stuck projects.
- ● Collect toll electronically
- Infrastructure PPP Project Review Committee (IPRC) to be constituted.
- ● Establish Infrastructure PPP Adjudication Tribunal (IPAT) spearheaded by a former apex court judge/ High Court judge.
Public Private Partnerships help enable robust infrastructure for New India. The involvement of private entities brings in a promising prospect for future developments. However, the road ahead should be traversed by rectifying the shortcomings.
The suggestions of the Kelkar committee are noteworthy in that direction.