Public-Private Partnership is a contract based partnership vehicle between the public sector and a private entity. The government bodies in order to procure and implement public infrastructure and projects seek private sector assistance as they require their resources and expertise.
Private input in these public-private partnerships for infrastructure projects can be wide-ranging. Transaction advisory is a major aspect of the public-private partnership model where a private entity may be engaged in everything from bid procedure and the floatation of the tender to monitoring the progress of the project and full-scale project management. The wider arena for private participation in infrastructure projects is through a tender/bidding procedure, a post which the private entity may take up the actual designing, building, operation, and maintenance of a project.
To achieve a successful long-term infrastructure project with the public-private partnership, it is essential to carefully analyze the risk allocation. The effective governance through legal and institutional framework is required to make the project and partnership a success.
These public-private partnerships can be taken up in multiple working models based on ownership, operation, and mode of revenue. In key sectors of infrastructure, some of the most used models are:
1. Build-Operate-Transfer (BOT): this is the basic public-private partnership model wherein during the contracted period, the private sector partner is allocated the responsibility to design, build, and operate the public facility/utility and post that period they transfer it back to the public sector authority/government also known as Employer in these type of PPP arrangements. The risk allocation is at the private party where it has to bring the finance for the construction and maintenance of the project. In lieu of the financial investment by the private sector, the public sector allows the collection of revenue from the users of such utilities. The BOT model has the two following major sub-models:
a. Build-Own-Operate (BOO): in this sub-model, the ownership of the newly built facility remains with the private partner.
b. Build-Own-Operate-Transfer (BOOT): The built facility is in the ownership of the private entity and posts the contract period is transferred back to the public sector.
2. Build-Operate-Lease-Transfer (BOLT): In this model of public-private partnership, the contract is given to the private party to build, own and lease the facility to the public sector. Thereafter, at the end of the lease period, the ownership is transferred to the government.
3. Design-Build-Operate-Transfer (DBFOT): The entire responsibility to design, construct, finance, and operate the project is given to the private sector party and at the end of the contract period, the facility is transferred to the public sector.
4. Operate-Maintain-Transfer (OMT) or Operation & Maintenance (O&M): The entire responsibility for the design, construction, finance, and operation and maintenance of the project is allocated to the private sector party.
The public-private partnership chooses the model they wish to utilize based on the type of infrastructure project, the level of investment, risk sharing, technical collaboration, duration of the project, financing mode, and management of cash flows etc. In most cases, the model is chosen at the time of floating the bid/tender.
