explain public private partnership ( 6 marks)
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1.1) Public Private Partnership means an arrangement between a government / statutory entity / government owned entity on one side and a private sector entity on the other, for the provision of public assets and/or public services, through investments being made and/or management being undertaken by the private sector entity, for a specified period of time, where there is well defined allocation of risk between the private sector and the public entity and the private entity receives performance linked payments that conform (or are benchmarked) to specified and pre-determined performance standards, measurable by the public entity or its representative.
1.2) Essential conditions in the definition are as under: i.Arrangement with private sector entity: The asset and/or service under the contractual arrangement will be provided by the Private Sector entity to the users. An entity that has a majority non-governmental ownership, i.e., 51 percent or more, is construed as a Private Sector entity1. ii.Public asset or service for public benefit: The facilities/ services being provided are traditionally provided by the Government, as a sovereign function, to the people. To better reflect this intent, two key concepts are elaborated below:
(a)Public Services are those services that the State is obligated to provide to its citizens or where the State has traditionally provided the services to its citizens.
(b)Public Asset is that asset the use of which is inextricably linked to the delivery of a Public Service, or, those assets that utilize or integrate sovereign assets to deliver Public Services. Ownership by Government need not necessarily imply that it is a PPP.
iii.) Investments being made by and/or management undertaken by the private sector entity:
The arrangement could provide for financial investment and/or non-financial investment by the private sector; the intent of the arrangement is to harness the private sector efficiency in the delivery of quality services to the users.
iv.) Operations or management for a specified period:
The arrangement cannot be in perpetuity. After a pre-determined time period, the arrangement with the private sector entity comes to a closure.
v.) Risk sharing with the private sector:
Mere outsourcing contracts are not PPPs.
vi.) Performance linked payments:
The central focus is on performance and not merely provision of facility or service.
vii.) Conformance to performance standards:
The focus is on a strong element of service delivery aspect and compliance to pre-determined and measurable standards to be specified by the Sponsoring Authority.
1.3) The above definition puts forth only the essential conditions for an arrangement to be designated as a Public Private Partnerships (PPP). In addition to these, some of the desirable conditions or good practices for a PPP include the following:
a.) Allocation of risks in an optimal manner to the party best suited to manage the risks;
b.) Private sector entity receives cash flows for their investments in and/or management of the PPP either through a performance linked fee payment structure from the government entity and/or through user charges from the consumers of the service provided;
c.) Generally a long term arrangement between the parties but can be shorter term dependent for instance on the sector or focus of PPP;
d.) Incentive and penalty based structures in the arrangement so as to ensure that the private sector is benchmarked against service delivery;
e.) Outcomes of the PPP are normally pre-defined as output parameters rather than technical specifications for assets to be built, though minimum technical specifications might be identified. Such a structure is expected to leave room for innovation and technology transfer in project execution / implementation by the private sector entity.
1.4) The models where ownership of the underlying asset remains with the public entity during the contract period and project is transferred back to the public entity after the termination contract are the preferred forms of Public Private Partnership models. The final decision on the form of PPP is a determinant of the Value for Money analysis.
1.5) Some of the commonly adopted forms of PPPs include management contracts, build-operate-transfer (BOT) and its variants, build-lease-transfer (BLT), design-build-operate-transfer (DBFOT), operate-maintain-transfer (OMT), etc.
1.2) Essential conditions in the definition are as under: i.Arrangement with private sector entity: The asset and/or service under the contractual arrangement will be provided by the Private Sector entity to the users. An entity that has a majority non-governmental ownership, i.e., 51 percent or more, is construed as a Private Sector entity1. ii.Public asset or service for public benefit: The facilities/ services being provided are traditionally provided by the Government, as a sovereign function, to the people. To better reflect this intent, two key concepts are elaborated below:
(a)Public Services are those services that the State is obligated to provide to its citizens or where the State has traditionally provided the services to its citizens.
(b)Public Asset is that asset the use of which is inextricably linked to the delivery of a Public Service, or, those assets that utilize or integrate sovereign assets to deliver Public Services. Ownership by Government need not necessarily imply that it is a PPP.
iii.) Investments being made by and/or management undertaken by the private sector entity:
The arrangement could provide for financial investment and/or non-financial investment by the private sector; the intent of the arrangement is to harness the private sector efficiency in the delivery of quality services to the users.
iv.) Operations or management for a specified period:
The arrangement cannot be in perpetuity. After a pre-determined time period, the arrangement with the private sector entity comes to a closure.
v.) Risk sharing with the private sector:
Mere outsourcing contracts are not PPPs.
vi.) Performance linked payments:
The central focus is on performance and not merely provision of facility or service.
vii.) Conformance to performance standards:
The focus is on a strong element of service delivery aspect and compliance to pre-determined and measurable standards to be specified by the Sponsoring Authority.
1.3) The above definition puts forth only the essential conditions for an arrangement to be designated as a Public Private Partnerships (PPP). In addition to these, some of the desirable conditions or good practices for a PPP include the following:
a.) Allocation of risks in an optimal manner to the party best suited to manage the risks;
b.) Private sector entity receives cash flows for their investments in and/or management of the PPP either through a performance linked fee payment structure from the government entity and/or through user charges from the consumers of the service provided;
c.) Generally a long term arrangement between the parties but can be shorter term dependent for instance on the sector or focus of PPP;
d.) Incentive and penalty based structures in the arrangement so as to ensure that the private sector is benchmarked against service delivery;
e.) Outcomes of the PPP are normally pre-defined as output parameters rather than technical specifications for assets to be built, though minimum technical specifications might be identified. Such a structure is expected to leave room for innovation and technology transfer in project execution / implementation by the private sector entity.
1.4) The models where ownership of the underlying asset remains with the public entity during the contract period and project is transferred back to the public entity after the termination contract are the preferred forms of Public Private Partnership models. The final decision on the form of PPP is a determinant of the Value for Money analysis.
1.5) Some of the commonly adopted forms of PPPs include management contracts, build-operate-transfer (BOT) and its variants, build-lease-transfer (BLT), design-build-operate-transfer (DBFOT), operate-maintain-transfer (OMT), etc.
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