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Erschienen in:
Infrastructure and Public–Private Partnerships: Overview and Key Issues Kapitel lesen Erstes Kapitel lesen

2017 | OriginalPaper | Buchkapitel

4. Public-Private Partnership (PPP) Concepts

verfasst von : Kumar V. Pratap, Rajesh Chakrabarti

Erschienen in: Public-Private Partnerships in Infrastructure

Verlag: Springer Singapore

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Abstract

This chapter discusses the concept and features of Public-Private Partnerships (PPPs) and contrasts them with Privatization and Outsourcing. Key issues include: making political sense; appropriate risk allocation among stakeholders, with risk allocated to that party that has more control over the risk factor; need for competitive bidding of projects; designing of appropriate bidding parameters; and crafting concession agreements in line with imperatives of non- or limited-recourse project financing. Sustainable PPPs need to provide value for money to the government, a computation missed in many countries. The case study of Delhi Airport Metro Express is used to illustrate the concepts.

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Vorheriges Kapitel Financing Infrastructure
Nächstes Kapitel Models of PPP—Taxonomy and Issues
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Fußnoten
1
The World Bank (Independent Evaluation Group). World Bank Group Support to Public-Private Partnerships—Lessons from Experience in Client Countries, FY02–12.
 
2
The World Bank (2014).
 
3
As quoted in The World Bank (2014).
 
4
Farquharson et al. (2011).
 
5
Pratap (2011).
 
6
Pratap (2011).
 
8
Grindle et al. (1991).
 
9
Pratap (2011).
 
10
Since higher debt implies a fixed share to the lenders, in a good state of the world (high revenues) the equity holders can get to keep more of the surplus to themselves. The exact opposite happens when revenues are low, however, and the net worth (equity) can get wiped out easily, making the venture more risky. The attractiveness of leverage also comes from the fact that debt provides tax cover—part of what is paid out as interest would have anyway had to be paid out to government as taxes if there was no debt. Hence cost of debt is typically lower than cost of equity.
 
11
The rationale only holds if the party is also given the right and responsibility to make decisions related to that risk.
 
12
Government takeover of the project without (or with nominal) compensation.
 
13
Farquharson et al. (2011).
 
14
Pratap (2011).
 
15
For example, there may be a different procedure for fixing the cost of variation in the project under the EPC Subcontract and for fixing the cost of the same variation in the PPP Contract, so that the cost of variation payable to the EPC Subcontractor may not be fully passed through to the public authority.
 
16
As per Indian infrastructure policies, a competing airport may not be built within 150 km radius of an existing airport.
 
17
It is said that the deal for projects like Delhi-Noida Toll Bridge or Dabhol Power Project may have been much better from the public sector perspective, if these projects had been competitively bid rather then negotiated.
 
18
Pratap (2011).
 
19
Pratap (2011).
 
20
Delmon (2010).
 
21
Farquharson et al. (2011).
 
22
Pratap (2011).
 
23
McKinsey Global Institute (2013).
 
24
World Bank (2014).
 
25
World Bank (2012).
 
26
In early 2005, when one of the authors was working at the Indian Prime Minister’s Office, Government of Japan (GoJ) had posed a project of a Bullet Train between Ahmedabad and Mumbai at a cost of Rs. 300 billion. GoJ saw this project as a way of reviving Mitsubishi which would have produced the hardware necessary for the project. However, it was felt that at the most what would happen with this project was that people who were traveling by air between these two cities would start taking the Bullet Train. Therefore, it was felt that there was no economic justification for the project given the huge expenditure and the meager benefits.
 
27
World Bank (2014).
 
28
World Bank (2014).
 
29
Engel et al. (2014).
 
30
World Bank (2014).
 
31
Duffield (2008).
 
32
Gassner et al. (2009).
 
33
Guasch (2004).
 
34
National Audit Office (2007).
 
35
World Bank (2014).
 
36
World Bank (2015).
 
37
Pratap (2013).
 
39
DAMEPL suspended services for safety repairs on 8 July 2012. The joint inspection team found that a majority of the bearings in civil construction were defective. After repairs, services were resumed in January 2013.
 
41
DAMEPL has claimed from DMRC a Termination Payment equal to 130% of the Adjusted Equity and 100% of the Debt Due for the project. This is as per the Concession Agreement for DMRC’s Event of Default.
 
42
Pratap (2011).
 
43
The ridership of DAME was about 17,000 passengers per day as on the date of the initial shutdown of the project (8 July 2012; Source: Rajya Sabha Unstarred Question No. 1226, answered on 22 August 2012). The ridership during the peak of DAME’s operations was recorded at 21,000 per day. Now, the ridership is 10,000–12,000 per day [from 1 July 2013, period after DMRC takeover]. Lately the ridership has increased following, among other factors, rationalization of fares.
 
44
Only one-fourth of the total revenue was expected to come from fare collections (Source: Satish Mishra, director of DAMEPL, in a letter to DMRC). But, the other sources of revenue did not materialize due to inadequate traffic.
 
45
Accumulated loss of DAMEPL as on 31 March 2012 was Rs. 341 crore [Source: CAG (2013)].
 
46
Guasch (2004).
 
47
Partly based on Pratap (2011).
 
48
Pratap et al. (2012).
 
49
Construction of a Public Sector Comparator is (PSC) also a mandatory tool for assessing PPPs in Japan and South Africa [Source: Grimsey et al. (2005)].
 
50
For example, in the UK, in the financial year 2011–12, Public Sector Net Investment (PSNI), the gross spending on investment less depreciation, totaled £26.7 billion. The capital cost of those PFI projects that reached financial close in 2011–12 was £2.1 billion. In the UK, total investment in 700 PFI projects was £55 billion. In Korea, PPP investment is 10–15% of total public investment. In India, the contribution of the private sector to total infrastructure investment in the Tenth Plan period (2002–07) was 25%. This percentage has gone up to 38% in the Eleventh Plan period (2007–12) and is projected to be 47% in the Twelfth Plan period (2012–17).
 
51
Arthur Andersen and Enterprise LSE. 2000. Value for Money Drivers in the Private Finance Initiative, a report commissioned by The Treasury Taskforce. The 17% Value-for-Money figure is the financial comparison of the Net Present Values (NPVs) of the cash flows of the public sector option compared to the PPP option. It was dominated by two large projects, with individual project savings varying between 0.7% and 45% across the sample of 29 projects.
 
52
With public provision, a construction firm minimizes building costs subject to design characteristics. In a PPP, by contrast, the private firm minimizes life-cycle costs, which include building, operations, and maintenance costs. (See, for example, Engel et al. 2011).
 
53
Comptroller and Auditor General, UK (2003).
 
54
Mott Macdonald (2002). In this study, a representative sample of projects (with costs exceeding £40 million at 2001 prices) procured traditionally and through the PFI route and implemented over the previous 20 years was compared.
 
55
Fitzgerald (2004).
 
56
The use of PSC for calculating VfM involves the following calculation: Estimation of the benchmark cost of providing the specified service under traditional procurement and a comparison of this benchmark cost with the cost of providing the specified service under a PPP scheme. This benchmark is known as the public sector comparator (PSC). A PSC, in other words, is the estimated cost of a conventionally procured project delivering the same output as the PPP project.
 
57
Duffield (2008).
 
58
Government of South Africa (Department of Correctional Services, National Treasury, Department of Public Works) (2002).
 
59
Engel et al. (2008).
 
60
Grimsey and Lewis (2005).
 
61
Around 85% of past PFI projects have been considered off-balance sheet in UK.
 
62
Aguas Argentinas was a $4 billion project awarded in 1993 for providing water and sewerage services to Buenos Aires, the capital of Argentina. However, in 2006, the project was canceled and the concession taken over by the government in the face of the Argentine Financial Crisis of 2002, on account of increasing water rates, and no commensurate performance improvements.
 
63
23 Mexican toll roads were taken over by the government in 1997 as the financial condition of these projects bordered on bankruptcy after the Mexican peso crisis of 1994. The government paid over $7.7 billion to the creditors of these projects.
 
64
In the case of the Dabhol power project (now known as Ratnagiri Gas and Power Private Limited), the government of India shelled out about $2 billion to buy out a PPP project of about 2000 MW capacity in 2005. Even now, the project is only partially operational owing to shortage of feedstock and high costs. Meanwhile, the project cost is increasing relentlessly imposing a substantial burden on the public sector.
 
65
Guasch (2004).
 
66
Harris and Pratap (2008).
 
67
As quoted in Pollitt (2005).
 
68
Inaccuracy because of poor data availability, omitted risks like that of contract renegotiation, and inappropriate benchmark when the public sector does not have the resources to implement the project. (see, Leigland et al. 2006).
 
69
In the Fitzgerald study (2004), when the discount rate was reduced from 8.65 to 5.7%, value for money declined from 9 to −6%.
 
70
Leigland et al. (2006).
 
71
Opposite conclusions were reached in the Fitzgerald report when using a 8.65% discount rate (leading to the conclusion that the PPP mechanism was 9% cheaper than traditional delivery) compared to an evaluation adopting a 5.7% discount rate (when the PPP mechanism was apparently 6% more expensive).
 
72
Grimsey et al. (2005).
 
Metadaten
Titel
Public-Private Partnership (PPP) Concepts
verfasst von
Kumar V. Pratap
Rajesh Chakrabarti
Copyright-Jahr
2017
Verlag
Springer Singapore
Buch
Public-Private Partnerships in Infrastructure

Print ISBN: 978-981-10-3354-4

Electronic ISBN: 978-981-10-3355-1

Copyright-Jahr: 2017

DOI
https://doi.org/10.1007/978-981-10-3355-1_4