PPP is a form of cooperation of the public and private sectors for the funding, construction, renovation, management or maintenance of an infrastructure or the provision of a service. PPP is thus a construction contract carried in the mutual understanding and agreements between public and private sectors for the mutual benefits in order to deliver service or facility. The PPP project focuses on “output” and the delivery of service rather than on the construction methods or procedures. The payment is based on the delivery of a service swhich meets the performance requirements of the output specification. The performance criteria are described by a parameter called Key Performance Indicator (KPI).
KPIs are a set of key control parameters which give a measure of the performance of the project or services. All PPP projects are defined with Key Performance Indicators (KPI) which should be fulfilled by the private sector. PPP is thus, in a broad sense, a philosophy based on shared aspirations, shared risks, rewards and resources between public and private sectors.
Nowadays the public sectors are working together with the private sectors for the development of the public infrastructure. The government has the responsibility to develop the infrastructure for the social welfare and economic growth. But the governments of developing countries and, also, developed countries are facing budget constraints because the public fund should cover all the expenditure of the state including the education sector, health sector, water supply, power supply, and transport sector, etc. Therefore, the public sector is joining hands with the private sector to overcome budget constraints using private funds. It uses the know-how of the private sector for cost reduction and improving quality of public services.
Unlike the traditional method of awarding separate contracts for construction and maintenance, PPP normally involves competitively awarding concessions that combine construction, operation and maintenance over a period of 15 to 30 years.
Public Private Partnership is an alternative for the procurement of the project by public sector using the tax revenues or public borrowing as a source of financing. A PPP project involves financing, design, construction, maintenance and operation of public infrastructure or a public facility by the private sector under a long term contract. Unlike the traditional method of awarding separate contracts for construction and maintenance, PPP normally involves competitively awarding concessions that combine construction, operation and maintenance over a period of 15 to 30 years. PPP is usually implemented in infrastructure projects, where the public sector plans and designs, whereas the private sector designs in detail, constructs, maintains and operates the project to earn its investment and profit within the contract period.
PPP has been used in the variety of forms across the world. It builds, owns, operates and transfers. The choice of the particular form depends on the objectives of the government, nature of the project, the availability of the fund, and the expertise that private sector can bring. Each project and each PPP form has its unique characteristics. For the successful project completion, the form of PPP should match with the type of project. Therefore characteristics of the project and the one to be applied from PPP should be well studied before deciding upon the particular form. The statistics reveal that Build-Operate-Transfer (BOT) form has been widely used in PPP. Under BOT, private entity designs and builds the assets, operates and transfers them to the public sectors after the expiry of the contract. The private sector is paid by the government or the fee users.
Over the last decade there has been growing trend in delivering public infrastructure through PPP, particularly for services with substantial capital costs. Since the 1990s, it is in rapid rise across the world ( take for example, ADB, Facilitating Public Private Partnership for Accelerated Infrastructure Development in India, Workshop Report). The governments of the developing as well as the developed countries are implementing PPPs in infrastructure developments to overcome its financial shortage. Thus PPP is now regarded as the preferred method for public procurement of infrastructure and infrastructure service projects throughout the world. It has been implemented in the development of transport infrastructure, power generation and distribution, water and sanitation, pipelines, hospitals, school buildings, housing and so forth.
Under PPP, the private sector normally finances the public infrastructure project through the loans from financial institution. This provision draws the responsibilities of the government to finance the public infrastructure through public fund. The private sector collects its investment through the users in some cases (eg road project). Or it may be partly collected through the users and remaining is paid by the government. Sometimes even the whole amount may be paid by the government on the completion of the project if specified standards of PPP are met. PPPs furnish new ways to increase infrastructure investment through private sector fund. To be efficient, however, they need to be structured appropriately and supported by a well-developed institutional framework. The goal should be to increase efficiency by attracting private capital to infrastructure investment and not to move investment spending off budget.
Writer has a graduate degree in Transportation System from Technical University Munich, Germany and can be reached at ashishgajurel@hotmail.com.
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