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Managerial Economics - Business And Government

Economic Environment Trough Public Private Participation (PPP) - Business And Government

   Posted On :  30.05.2018 12:46 am

Public Private Participation (PPP) is defined as cooperative institutional arrangements between public and private enterprise which has gained wide interest around the world.

Economic Environment Trough Public Private Participation (PPP)
 
Public Private Participation (PPP) is defined as cooperative institutional arrangements between public and private enterprise which has gained wide interest around the world. PPP model is a new way to handle infrastructure projects. It can benefit both the public and private sector enterprise. Both the sectors have certain special merits and if we combine them the result will be better for all with new products and service. These projects involve many forms of contractual arrangements which are long term in nature. This reduces pressure on government budgets and increases value for money in infrastructure.1
 
According to Van Ham and Koppenjan “PPP are co-operation of some sort of durable activity between public and private actors in which they jointly develop products and services and share risks, costs and resources which are connected with these products”
 

The major arrangements between the public and private participation are:


1.      Institutional cooperation.
 
2.      Long term infrastructure contracts. Like construction of Roads for the public use which reduces the pressure on the exchequer, but benefits the private through way toll fee.
 
3.      Community development
 
4.      Urbanization and
 
5.      Economic development

Both the central government and states are increasingly using the PPP   mode to meet the gaps in the provision of basic services. For the past 10 years India has attracted more private investments which are complex in nature. Comprehensive cross cutting PPP legislations have been used more extensively in countries that operate under the civil code. It often covers aspects such as, specifying which sectors PPP operate in, how to set tariffs for PPPs, the role of different institution in PPP program, procurement of PPPs and dispute resolution procedures.
 

According To The World Bank Report

 
 
In Australia, the national government has virtually no role in state level PPPs. In Canada, the federal government’s PPP office acts as a resource center and promoter of the benefits of rationale for using PPPs, rather than acting as an advisory body. In South Africa the treasury’s PPP unit plays a role in both guidance and approval. Brazil intends to establish capacities at the national level to offer detailed guidance to the states in the development of PPPs.
 

PPPs in India

 
 
Infrastructure shortages are proving as key constraints in sustaining and expanding Indian economic growth. To overcome this problem India has decided to double the investment in the next 5 years and one third of the investment is funded by the private sector. The Government of India is promoting the expansion of PPP in improving infrastructure facilities including highways, ports, power and telecom. India follows public contracting, joint ventures, long term contractual agreements like BOT, BOOT, BOLT etc.,. In India more than Rs.1000 billion worth PPP projects are under progress.
 

Government Of India’s Definition:

 
 
According to the government of India , PPP project means “a project based on a contract or concession agreement, between a government or statutory entity on the one side and a private sector company on the other side, for delivering an infrastructure service on payment of user charges”. Private Sector Company means a company other than the public and cooperative enterprise.

PPP   broadly refers to long term contractual partnerships 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.
 

Characteristic Features Of PPPs:

 
1.      Cooperative and contractual relationship: To establish complementary relationship between the public and private enterprises. Normally PPPs are for more than 10 years therefore cooperation is essential to build and strengthen the relationship in a contractual agreement.
 
2.      Shared responsibilities: The responsibilities are shared based on the nature of the project and are not always equal.
 
3.      A method of procurement: Through PPPs government procures the capital, assets or infrastructure and is allowed to play major roles in planning, finance, design, operation and maintenance.
 
4.      Risk transfer: The government sector transfers the risks to the private sector that has skills and experience to manage the same.
 
5.      Flexible ownership: The ownership of PPP projects may or may not be retained by the government .Sometimes private sector provides only facilities and planning but does not take up the ownership.
 
PPP appraisal committee (PPPAC) consists of secretary of Planning commission, Department of expenditure, Department of legal affairs and the Department sponsoring the project. Under the chairmanship of the secretary of department of economic affairs the activities are undertaken.
 
1.      Ministry of finance will be the nodal center for examining, scrutinizing and making concession agreements.
 
2.      Planning commission will set up a PPP appraisal unit to prepare a report for improving the concession terms.
 
3.      Department of legal affairs will scrutinize the legal perspective
 
4.      Planning commission and finance ministry will engage experts to undertake due diligence.
 
5.      For final approval the projects are sent to a competent authority.

Benefits Of PPP:

 
To the public sector: PPP helps the government in raising capital, expertise and infrastructure to render better service in an effective manner to the general public.
 
To the private sector: Private sector gets long term business opportunities, building relationship with the government and private sector for better understanding and assistance.
 
But on the other hand the public sector can lose its control and efficiency. This may also become time consuming and expensive instead of cost effective. Some times private sectors may not be flexible in agreements.

Reasons For Failure Of Some PPP Projects

 
The major reasons for the failure of some PPP projects are insufficient resources, poor drafts, lack of experience and inadequate monitoring.
 
In India over 70% of the projects were on strengthening road ways and railways and building ports. 11 PPP projects dealt with urban infrastructure of which 8 were on solid waste management, 2 water and sanitation and 1 bus terminal project under progress. The total cost awarded was $339 billion of which 55% was used for ports, 36% for road ways and 5% on airport development. Confederation of Indian Industries (CII) has organized many training programs at central and state level. Many government organizations and civil servants have participated in it. India could consider the policy legislature framework and information dissemination to strengthen funds for preparation of PPP projects.

 

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