Innovations in Pubic Private Partnerships
The BJP led NDA government has made it clear that Public Private Partnership (PPP) is the preferred mode for driving major infrastructure development projects. In light of this major push towards the PPP model we spoke to Mr. Arun Lakhani, Chairman & Managing Director Vishvaraj Infrastructure Ltd, one of the leading authorities on the PPP model.
Vishwaraj Infrastructure's various PPP projects such as the Nagpur 24X7 water supply project and Warora- Chandrapur - Ballarpur Road Project have given them the opportunity to bring about innovations in the PPP model and set up best practices.
We wanted to understand different working models for Public Private Partnerships and here are some interesting insights gleaned from our talks with Mr. Lakhani.
1. Service Contract:
Under this structure, Government (which is a public entity) will hire a private entity. The aim behind this hiring is to utilise the potential of the private entity to carry out certain tasks or services for a set amount of time.In this type of PPP model, the Government will be the main provider of the investment and the infrastructure associated with the project. The private entity with which the Government has partnered with will be under a contractual obligation to complete the project within a set time for a set cost.
However, VIL under the leadership of Mr. Lakhani chose to do it differently for its 24X7 water projects. Under these the initial investment is brought in by the operator, the annuity is paid by the client over the contract period and the revenue generated by selling treated water is shared by both.
2. Lease Contract:
Under a lease contract the role of the government isto lease out a service to a contractor/private entity, with the role of the Government body being limited to awarding of the service to the private body and maintaining a check on quality and delivery.
The private partner will be completely responsible for management of finance, operations, delivery and quality provided under the project.Financial risk associated with operation, maintenance is complete responsibility of the private partner.
The duration of this type of contract is usually longer than that of Service contract. A Lease contract usually has duration of 10 years with an option to extend to 20 years.
3. Joint Venture:
Under this partnership model, the infrastructure is co-owned and is operated by both the partners (private and public). Partners either create a completely new company or become joint owners of an existing organization.
A key factor in making this type of PPP structure successful is that the corporate governance must be quite good. This means that since Government is a regulator and also part owner, the running of the project must be kept independent from its interference.
Another huge advantage is that since Government too has its own interests in the project (profits, sustainability) it will help out with official hurdles faced during the project.
4. Management Contract:
Unlike service contract, this contract involves the Government body giving out either all or some services to a private sector entity. These include supply and service contract, maintenance management and operational management.
Even then the service provision is still in public domain. Private partner is given out responsibilities related to daily management of the project. Quite the private partner puts in the working capital but does not finance the project.
Government pays the private partner pre-decided payment for its labour and other costs related to the project.5.
Under this type of partnership, the private partner is completely responsible for delivering all the services assigned to it. These services include operation, maintenance, collection, management, and construction and rehabilitation of the system.