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
developmentBoth 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.
Tags : Managerial Economics - Business And Government
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