Public Private Partnership in Transport Sector
Meaning
• Public Private Partnership means an arrangement between a 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.

Different types of PPP
1. BOT-Toll (Build Operate Transfer – Toll) : The private entity meets the upfront cost of design, construction and recurring cost on operation and maintenance. The Private entity recovers the entire cost along with the interest from collection of user utilization during the agreed concession period. Capital infusion is available from the public entity. A risk sharing model is predominant in this model.

2. BOOT (Build Operate Own Transfer) : This engagement model is similar to the “Build Operate Transfer” model except that the private entity has to transfer the facility back to the public sector

3. Joint Venture (JV) : In a PPP arrangement commonly followed in our country (such as for airport development), the private sector body is encouraged to form a joint venture company (JVC) along with the participating public sector agency with the latter holding only minority shares. The private sector body will be responsible for the design; construction and management of the operations targeted for the PPP and will also bring in most of the investment requirements. The public sector partner’s contribution will be by way of fixed assets at a pre-determined value, whether it is land, buildings or facilities or it may contribute to the shareholding capital. It may also provide assurances and guarantees required by the private partner to raise funds and to ensure smooth construction and operation.

4. Management Contract (MC) : A management contract is a contractual arrangement for the management of a part or whole of a public enterprise by the private sector. Management contracts allow private sector skills to be brought into service design and delivery, operational control, labour management and equipment procurement. However, the public sector retains the ownership of facility and equipment. The private sector is provided specified responsibilities concerning a service and is generally not asked to assume commercial risk. The private contractor is paid a fee to manage and operate services. Normally, payment of such fees is performance-based. Usually, the contract period is short, typically two to five years. But longer period may be used for large and complex operational facilities such as a port or airport.

5. BOT (Build Operate Transfer) : The private business builds and operates the public facility for an agreed period of time. Once the facility is operational as agreed, or at the end of the time period, the private entity transfers the facility ownership to the public, here it may be construed as Government. Under this category, the private partner is responsible to design, build, operate (during the contracted period) and transfer back the facility to the public sector. The private sector partner is expected to bring the finance for the project and take the responsibility to construct and maintain it. The public sector will either pay a rent for using the facility or allow it to collect revenue from the users. The national highway projects contracted out by NHAI under PPP mode is an example. This model is a classic example for IT industry

6. BOT – Annuity (Build Operate Transfer – Annuity): This model though is globally accepted one does not have the favour of the Planning Commission of India. In case of annuity model, the cost of building the entity is paid to the private entity or the developer annually after the starting commercial operations of the facility.

7. DBFOT (Design Build Finance Operate Transfer): These are other variations of PPP and as the nomenclatures highlight, the private party assumes the entire responsibility for the design, construct, finance, and operate or operate and maintain the project for the period of concession.

8. BOO (Build Own Operate): In a BOO project, ownership of the project usually remains with the Private entity. The government grants the rights to design, finance, build, operate and maintain the project to a private entity, which retains ownership of the project. In BOO the private entity is usually not required to transfer the facility back to the government

9. BOOST (Build Operate Own Share Transfer): This model is very similar to the BOOT model, except that there exists an arrangement or sharing the revenue to the private entity for a longer time even after the rights of the private entity are transferred to the public entity.

10. Hybrid Annuity Model: Under this model, the government will provide 40 per cent of the project cost to the developer to start work while the remaining investment has to be made by the developer. The main objective of the approval is to revive highway projects in the country by making one more mode of delivery of highway projects. Under this, all major stakeholders in the PPP arrangement — the Authority, Lender and the Developer, Concessionaire would have an increased comfort level resulting in revival of the sector through renewed interest of private developers/investors in highway projects and this will bring relief thereby to citizens/travelers in the area of a respective project.