Public -Private Partnership

Public -Private Partnership 
Public -private partnership (ppp) describes a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies . These schemes are sometimes referred to as ppp.

PPP involves a contract between a public sector authority and a private party in which the private party provides a public service or project and assumes substantial financial, technical and operational risk  in the project. 

It is purportedly a means of bringing together social priorities with the managerial skills of the private sector relieving government of the burden of large capital expenditure and transferring the risk of cost overruns to the private sector.  Rather than completely transferring public assets to the private sector as with privatization government and bussiness work together to provide services. 

In some types of PPP the cost of using the service is borne exclusively by the users of the service and not by the taxpayer.  In other types  (notably the private finance initiative ) capital investment is made by the private sector on the strength of a contract with government to provide agreed services and the cost of providing the service is borne wholly or in party by the government. 

Government contributions to a PPP may also be in kind (notably the transfer of existing assets ). In projects that are aimed at creating public goods like in the infrastructure sector the government may provide a capital subsidy in the form of a one-time grant so as to make it more attractive to the private investors. In some other cases the government may support the project by providing revenue subsidies including tax breaks or by providing guaranteed annual revenues for a fixed period. 


Origin and Evolution 
There were concerns about the level of public debt which grew rapidly during the macro-economic dislocation of the 1970s and 1980s.  Government sought to encourage private investment in infrastructure initially on the basis of accounting fallacies arising from the fact that public accounts did not distinguish between recurrent and capital expenditure. In addition to this debt crisis particularly in 3rd World countries in 1990s added to general distrust of bureaucracy and state. This was accompanied by expansion of civil society that started taking up state services as more and more welfare services were taken over by non-profit voluntary sector in welfare area .


AI Gore stressed -"We need government which costs less but works well".Focus shifted from rules to result control to performance from government solutions to market solutions.  Resource constraints of the government and emphasis on checking the budget deficit has compelled the government to move from bureaucratic model to entrepreunial model. Due to the influence of public Choice theory new right ideology that advocated institutional pluralism and networked governance PPP s became the new mechanism to deliver social infrastructure and services. 


Principles 
PPP involves a long term relationship between the public sector and the Private sector. Features that characterize PPP :

1.Contractual Framework :The contract mirrors the objective of the programme the tenure of agreement the funding pattern and of sharing of risks and responsibilities projects classified under PPP :

(a) Service contract 
(b)Operations and Maintenance  (management )contract 
(c) Capital projects with operations and maintenance contract 

2. Selection of Service Provider :Selection of service provider is done in three ways:

(a) Competitive Bidding :Well publicised and well designed bid process to ascertain financial, technical and managerial capabilities of the service provider. 

(b) Swiss Challenge Approach :Refers to suo-motu proposals being received from the private participation by the government. 

(c)Competitive Negotiations :Variant of (a) the government specifies the service objective and invites proposals through advertisements.  The government then negotiates the contract with selected bidders. 

3.Payment Mechanism :Payment to the private sector could be 
(a) Contractual payments 
(b) Grants -in-aid
(c)Right to levy user charges for the asset created/leased 

4. Monitoring and Evolution : Comparing the desired outcomes from amongst the various alternatives. Monitoring can be done :
(a) by government departments authorized to be so, based on a standardised scale
(b)by Independent agencies /regulators based on a standardised scale 
(c)By departments or independent agencies based on pass /fail criteria 
(d) By departments or agencies based on feedback received. 

5. Risk and revenue Sharing :PPP  invclves Sharing of risk and reward between the partners  (government and private party).


Construction implementation risk from
○Delay in project clearance 
○Environmental damage

Market risk from
○Insufficient demand 
○Impractical user levies 

Finance risk from 
○Increase in taxes
○Changes in exchange rates and income rates 

Operation /Maintenance risk from
○Termination of contract 
○Technology risk
○Labour risk

Legal risk from
○Changes in security structure, lease rights etc.
○Insolvency of developer 

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