Public Private Partnership: Bridging the gap
Dec 21, 2013
Source : The Times of India

 

DELHI: Public Private Partnership (PPP) broadly refers to long-term, contractual partnership between the public and private sector agencies, specifically targeted towards financing, designing, implementing and operating infrastructure facilities and services that were traditionally provided by the public sector. PPPs are therefore “cooperative venture between the public and private sectors, built on the expertise of each partner that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards.”

These collaborative ventures are built around the expertise and capacity of the project partners and are based on a contractual agreement, which ensures appropriate and mutually agreed allocation of resources, risks and returns. This approach of developing and operating public utilities and infrastructure by the private sector under terms and conditions agreeable to both the government and the private sector is called PPP or P3 or Private Sector Participation (PSP).

PPPs often involve complex planning and sustained facilitation. Infrastructure projects such as roads and bridges, water supply, sewerage and drainage involve large investment, long gestation period, poor cost recovery and construction, social and environmental risks. When infrastructure is developed as PPPs, the process is often characterised by detailed risk and cost appraisal, complex and long bidding procedures, difficult stakeholder management and long-drawn negotiations to financial closure. This means that PPPs are critically dependent on sustained and explicit support of the sponsoring government. To deal with these procedural complexities and potential pitfalls of PPPs, governments need to be clear, committed and technically capable to handle the legal, regulatory, policy and governance issues. Thus, a strong commitment on the part of the government is the key to the success of a PPP.

PPPs aim to combine the skills, expertise and experience of both the public and private sectors to deliver higher standard of services to customers or citizens. The public sector contributes assurance in terms of stable governance, citizens’ support, financing and also assumes social, environmental and political risks. The private sector brings along operational efficiencies, innovative technologies, managerial effectiveness, access to additional finances and construction & commercial risk sharing.

Not all projects with private sector participation are PPP projects. Essentially, PPPs are those ventures in which the resources required by the project in totality, along with the accompanying risks and rewards/returns, are shared on the basis of a predetermined, agreed formula, which is formalised through a contract. PPPs are different from privatization.

While PPPs involve private management of public services through a long-term contract between an operator and a public authority, privatisation involves outright sale of a public service or facility to the private sector. A typical PPP example would be a toll expressway project financed and constructed by a private developer.

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