Public Private Partnerships (PPP)
Public Private Partnerships (PPP)
A number of world-wide forces are encouraging the collaboration of the private and public sectors to address economic and social issues. Private-public partnerships are one of the ways in which the 2 disparate sectors come together for the public good.
According to PPP Knowledge Lab, a private-public partnership is defined as a ‘long term contract between a government entity and a private party, for provision of a public asset or service in which the private party bears a significant amount of risk and responsibility of management. The remuneration for the same is linked to performance.’ PPP could also be termed as an approach to delivering good and services that seek to combine the management innovation, economic efficiency and the capacity of the private sector to execute with the service mandate of the pubic sector.
A key reason for the creation of these partnerships is the fact that many challenges do not fall neatly into either the public or the private domain. In this case, joint efforts are mandatory. For example, the private sector contributes significantly to healthcare in African countries (over 50 %), hence it makes sense to join forces with public agencies and NGOs to improve service delivery and outcome of healthcare. In the late 1980s, about 50 PPPs were operating the world over, whereas the number stands at over 700 now in sectors ranging from education, health, infrastructure etc. Partnerships are characterised by a common goal and vision, investment from all partners, collaboration and mutual decision making.
Advantages of Public-Private Partnership
There are a significant number of demonstrated benefits of these partnerships, some of which are enumerated below.
- Increasing economies of scale
- Enhancing impact in the industry
- Sharing/ reducing risk
- Building a common brand
- Attracting investments/ resources easily
- Sharing resources to improve efficiency
- Enhancing institutional capacity
Partnerships between public and private entities help introduce new approaches and ideas. There is an infusion of private sector mindset- focus on performance and outcome. This, in turn, results in improves services and accessibility.
PPP in India
To boost the Indian economy and continue growing the GDP at over 7%, the Government of India has identified quality infrastructure as being a key enabler. In the XII Five Year Plan (2012-2017), the Government has an ambitious target of infrastructure investment – envisaged at the US $ 1 trillion. Of the total investment in infrastructure, the private sector is expected to contribute at least half of the over $1 trillion dollar investment planned in infrastructure in the XII plan (2012-17). Given the enormous size of the investment required, the Government has placed importance on increasing investment in infrastructure through private-public partnerships (PPP). Thus, the Government establishes the Public-Private Partnership (PPP) Cell for supporting all matters concerning Public-Private Partnerships, including policy, schemes, programmes and capacity building and all other matters relating to mainstreaming PPPs.
Initiatives to Promote PPP
The Government has undertaken various initiatives as under to promote PPP in India:
Public-Private Partnership Appraisal Committee (PPPAC)
The appraisal mechanism for the PPP projects has been streamlined to ensure speedy appraisal of projects, eliminate delays, adopt international best practices and have uniformity in appraisal mechanism and guidelines. PPP projects are now appraised by the Public-Private Partnership Appraisal Committee (PPPAC) which is responsible for the appraisal of PPP projects in the Central Sector.
Standardization of Bidding Process
Standardized bidding and contractual documents have developed for PPP projects. Further, encouraging the project sponsors to award projects through a transparent open competitive bidding process, which leads to greater transparency and consistency to the bid process and terms of the contract.
Viability Gap Funding Scheme
The Government has created a Viability Gap Funding Scheme for PPP projects. Infrastructure projects are often not commercially viable on account of having substantial sunk investment and low returns. However, they continue to be economically essential. Hence, the Viability Gap Funding Scheme has been formulated to provide financial support in the form of grants, one time or deferred, to infrastructure projects undertaken through public-private partnerships with a view to make them commercially viable. The viability gap funding scheme provides maximum viability gap funding of up to 20% of the total project.
India Infrastructure Finance Company Limited
The Government has also set up India Infrastructure Finance Company Limited (IIFCL) with the specific mandate to play a catalytic role in the Infrastructure sector by providing long-term debt for financing infrastructure projects. IIFCL funds viable infrastructure projects through Long Term Debt, Refinance to Banks and Financial Institutions for loans granted by them, with tenor exceeding 10 years or any other mode approved by the Government.