Rational for PPP:
1) PPP allows the government to tap the private sector’s capacity to innovate. Instead, the government will spell out the services it needs, and the desired outcomes/outputs. The private sector can then introduce innovative solutions to meet the government’s objectives. 2) In a PPP project, the government and the private sector share the responsibilities of delivering a service depending on each party’s expertise. 3) In a PPP project, access to private capital frees government capital to be used in projects with higher public policy objectives 4) When structured appropriately, PPPs will deliver public services that can better meet the needs of the public without compromising public policy goals and needs. 5) The government will also ensure that public interest is protected in all PPP projects and that service delivery will meet public needs at the best value for money when the private sector is brought in to provide government services. While service delivery through a PPP changes the means of delivering services, it does not change the government’s accountability for ensuring that the services are delivered. The department’s focus shifts from providing the service to managing the service provider.
The PPP models vary from short-term simple management contracts (with or without Investment requirements) to long-term and very complex BOT form, to divestiture. These models vary mainly by:
1) Ownership of capital assets
2) Responsibility for investment
3) Assumption of risks, and
4) Duration of contract.
The PPP models can be classified into four broad categories in order of generally (but not always) increased involvement and assumption of risks by the private sector. The Four broad categorizations of participation are:
1) Supply and management contracts
2) Turnkey projects
5) Private ownership of assets.
Supply and Management Contracts:
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, labor 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.
There are several variants under the management contract including:
1) Supply or service contract
2) Maintenance management
3) Operational management
Turnkey is a traditional public sector procurement model for infrastructure facilities. Generally, a private contractor is selected through a bidding process. The private Contractor designs and builds a facility for a fixed fee, rate or total cost, which is one of the key criteria in selecting the winning bid. The contractor assumes risks involved in the design and construction phases. The scale of investment by the private sector is generally low and for a short-term. Typically, in this type of arrangement there is no strong incentive for early completion of a project. This type of private sector participation is also known as Design-Build.
Affermage / Lease:
In this category of arrangement an operator (the leaseholder) is responsible for operating and maintaining the infrastructure facility and services, but generally the operator is not required to make any large investment. However, often this model is applied in combination with other models such as...
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