Public Private Partnership (PPP) projects in India

A view on top Engagement Models and related statistics

(Data sourced till 31st Jan 2011 from sources mainly from GOI data)
Collated and authored by, BathuDun Consulting, Bangalore, India, www.bathudun.com

Private Partnership Policy, 2011 states PPP as:

A partnership between the public and private sectors with clear agreement on shared objectives
for the delivery of public infrastructure and/or public services.

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.

There is no single PPP engagement model that can satisfy all conditions concerning a projects location
setting and its technical and financial features. The most suitable model should be selected taking into
account the countrys political, legal and socio-cultural circumstances, maturity of the countrys PPP
market and the financial and technical features of the projects and sectors concerned. This has led to
innovation in the engagement models.

The below are the top ten prevalent PPP Engagement Models in India:

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
Most active PPP engagement models in India
model.
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 Public Private Partnership (PPP) projects in India
A view on top Engagement Models and related statistics
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. In
BOOT model the government grants a private entity to finance, design, build and operate a facility for
a specific period of time before the transfer.

This is a variation of the BOT model, except that the ownership of the newly built facility will rest with
the private party and during
the period of contract. This
will result in the transfer of
most of the risks related to
planning, design,
construction and operation
of the project to the private
entity. The public sector
entity will however contract
Status of PPP Projects in India
to purchase the goods and
services produced by the project on mutually agreed terms and conditions.. The facility built under
PPP will be transferred back to the government department or agency at the end of the contract
period, generally at the residual value and after the private entity recovers its investment and
reasonable return agreed to as per the contract.

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
partners
States and their area of development in PPPs
contribution will be
by way of fixed assets at a pre-determined value, whether it is land, buildings or facilities or it may
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 Public Private Partnership (PPP) projects in India
A view on top Engagement Models and related statistics
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. The public service
for which the joint venture is established will be provided by the entity on certain pre-set conditions
and subject to the required quality parameters and specifications. Examples are international airports
(Hyderabad and Bangalore), ports etc.

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
Top 10 active states in PPP 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.
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 Public Private Partnership (PPP) projects in India
A view on top Engagement Models and related statistics

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. These
are also referred to as
Concessions. The project
will recover its investments
PPP Projects categorized based on development areas (ROI) through concessions
granted or through annuity
payments etc. It may be noted that most of the project risks related to the design, financing and
construction would stand transferred to the private partner. The public sector may provide
guarantees to financing agencies, help with the acquisition of land and assist to obtain statutory and
environmental clearances and approvals and also assure a reasonable return as per established
norms or industry practice etc., throughout 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

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 Public Private Partnership (PPP) projects in India
A view on top Engagement Models and related statistics

9. PPP (Public Private Partnership) - A partnership between the public and private sectors with
clear agreement on shared objectives for the delivery of public infrastructure and/or public services.
There exists well defined allocation of risk between the private and the public entities and the
private entity receives performance linked payments that conform to specified and pre-determined
performance standards, measurable by the public entity or its representative.

10. 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 is
transferred to the public entity.

Collated and authored by

BathuDun Consulting,
Bangalore, India
www.bathudun.com

BathuDun Consulting is a Management Consulting company focused on

Consulting, Analytics & Training in Bids, Proposals & Tenders