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Essay on PPP Investment Model

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We are providing many paragraphs, long essay in very simple language with the boundaries of different words here.  Here you can find Essay on PPP Investment Model in English language for students in 1000 words. In this article cover Topic : What is PPP investment model?, Explain the concepts of public services and public asset, Different models of PPP models, Role of PPP models in the infrastructure projects, Vijay Kalekar Panel and its recommendations for PPP models, Causes of failure of PPP models in India and Government's initiative for improvement in PPP models.

The Public Private Partnership (PPP) model is particularly important in infrastructure projects. In recent years, some of India's and the world's best airports have been built through the PPP model. But these are overlooked as the media focuses on some main points that are inevitable in projects involving land acquisition, construction, environmental clearances and other contentious issues. It is time to put these issues behind and focus on reviving the infrastructure sector in India. This is imperative, given the ambitious infrastructure plans such as Housing for All, 100 Smart Cities and stiff goals in increasing the capacity of power projects in conventional as well as renewable energy.

In short, a PPP is a long term contract between a private party and a government entity for providing a public asset or service, in which private party bears the significant risk and management responsibility, and the remuneration is normally linked to performance. Different models of PPP funding are characterised by which partner is responsible for owning and maintaining assets at different stages of the project. Examples of PPP models include

  • Design-Build (DB) The private-sector partner designs and builds the infrastructure to meet the public-sector partner's specifications, often for a fixed price. The private-sector partner assumes a11 risk.
  • Operation and Maintenance Contract (O&M) The private-sector partner, under contract, operates a publicly-owned asset for a specific period of time. The public partner retains ownership of the assets.
  • Design-Build-Finance-Operate (DBFO) The private-sector partner designs, finances and constructs a new infrastructure component and operates/maintains it under a long-term lease. The private-sector partner transfers the infrastructure component to the public-sector partner when the lease is up.
  • Build-Own -Operate (BOO) The private-sector partner finances, builds, owns and operates the infrastructure component in perpetuity. The public-sector partner's .constraints are stated in the original agreement and through on-going regulatory authority.
  • Build-Own-Operate-Transfer (BOOT) The private-sector partner is granted authorisation to finance, design, build and operate an infrastructure component (and to charge user fees) for a specific period of time, after which ownership is transferred back to the public sector partner.
  • Buy-Build-Operate (BBQ) This publicly-owned asset is legally transferred to a private-sector partner for a designated period of time.
  • Build-Lease-Operate-Transfer (BLOT) The private-sector partner designs, finances and builds a facility on leased public land. The private-sector partner operates the facility for the duration of the land lease. When the lease expires, assets are transferred to the public-sector partner.
  • Operation License The private-sector partner is granted a license or other expression of legal perm ission to operate a public service, usually for a specified term. (This model is often used in IT projects.)
  • Finance Only The private-sector partner, usually a financial services company, funds the infrastructure component and charges the public-sector partner interest for use of the funds.

In India, the Build-Own-Operate (BOO) is not supported in the form of Public Private Partnership. Also the Indian Government does not recognize Engineering Procurement Construction (EPC), contracts and divestiture of assets as forms of PPP. The different types of PPP models supported by the Indian Government include, User-Fee based BOT models, Annuity based BOT models, Performance Based Management and Modified Design Build (Turnkey) contracts.

The User-Fee based BOT model is common in the energy and transport sub-sectors. The annuity based BOT models emphasise on the availability or performance based payment, to the private sector as it is not possible to recover these charges from the users due to socio-economic considerations. This model is common in sectors such as rural, urban, health and education.

The PPP model in India has played an important role in the infrastructure projects. The National Highways including the Golden quadrilateral, North-South corridor, East-west corridors, T3 terminal at Indira Gandhi International Airport, airports at Mumbai, Bangalore and Hyderabad are some of the examples of successful Public Private Partnerships.

However, there have been failures in the Public-Private Partnership models in some power and metro rail projects. The Airport Express line of Delhi Metro Rail Corporation (DMRC) was a BOT between Reliance Infrastructure and DMRC for 30 years.

The express line was scheduled to start before the Commonwealth Games, but it missed the deadline. Later on, a dispute arose between DMRC and RIL regarding the fixing of defects. Eventually, there was a suspension of RIL's operations and DMRC took over the complete control in 2013.

Vijay Kalekar Panel was appointed by the Union Finance Ministry in the Union Budget 2015-16 to study, restructure and revive the PPP model in

India. The committee recognised PPP model as a cornerstone of India s development. It recommended the strengthening 0f tlie three pillars nf PPP framework viz governance, institutions and capacity. At the same time it endorsed setting up of a PPP institute for excellence in order to support capacity building activities. The panel recommen.lect amendments in Prevention of Corruption Act, 1988 so as to punish the corrupt officials.

The recommendati ons included setting of independent sectoral regulators so as to do away with the bureaucratic and political pressures. In order to set up a fast grievance redressal mechanism , it recommended the establishment of Infrastructure PPP Project Review Committee (IPRC) and Infrastructure PPP Adjudication Tribunal (IPAT).

In India, corruption is one of the most important cause of failure of the most of PPP projects. These projects are highly capital intensive projects and involve a high-level corruption ctt different levels right from getting approvals till the clearance.

The government is able to extract long-term value for money by transfer of appropriate risk to the private sector over the life of the project. The government has decided to take up infrastructure project on the hybrid-annuity mode, a new model for implementing contracts under the Public Private Partnership (PPP) project in highways and railway projects.

The appraisal mechanism for the PPP pro!ects has been streamlined to ensure speedy appraisal of projects, eliminate delays, adopt international best practices and have uniformity in appraisal mechanism and guidelines. The appraisal mechanism includes setting up of the Public Private Partnership Appraisal Committe (PPPAC) responsible for the appraisal of PPP projects in the central sector.

These include projects in roads, ports, civil aviation, tourism infrastructure, housing etc. Further the scheme for 'India Infrastructure Project Developmen t Fund' (IIPDF) was launched to finance the cost incurred towards development of PPP projects. The IIPDF supports up to 75 per cent to the project development expenses. The Government has also set up

India Infrastructure Finance Company Limited (IIFCL) with the specific infrastructure sector by providing long-term debt for financing infrastructure projects. In this way India tries to do away all the major road blocks associated with PPP model.

This will definitely help in establishing India's credibility as a world leader.

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