Public Private Partnership

Public Private
Partnership
WHAT IS PUBLIC-PRIVATE
PARTNERSHIP(PPP)?
A public–private partnership (PPP,

3P, or P3) is a cooperative
arrangement between two or
more public and private sectors,
typically of a long-term nature.
!It involves an arrangement

between a unit of government
and a business that brings better
services or improves the city’s
capacity to operate effectively.
Public–private partnerships are primarily used for
infrastructure provision, such as the building and equipping
of schools, hospitals, transport systems, and water and
sewerage systems.
!The Government of India defines a P3 as "a partnership

between a public sector entity (sponsoring authority) and a
private sector entity (a legal entity in which 51% or more of
equity is with the private partner/s) for the creation and/or
management of infrastructure for public purpose for a
specified period of time
ECONOMIC THEORY
!In economic theory, public–private partnerships have been

studied through the lens of contract theory.
! From an economic theory perspective, what distinguishes

a PPP from traditional public procurement of infrastructure
services is that in the case of PPPs, the building and operating
stages are bundled.
!Hence, the private firm has strong incentives in the building

stage to make investments with regard to the operating stage.
These investments can be desirable but may also be
undesirable.
DBF (DESIGN BUILD FINANCE)
!Design build finance means a project delivery method in which a

Public Body enters into a single contract for design, construction, and
full or partial private financing of a Cooperatively-Delivered Facility
over a contractually defined term.
!They are set up as fixed-price contracts between a private entity

and a public agency to jointly manage the design and construction of
a new roadway facility.
!Under such an arrangement, the private party accepts most or all of

the risk of any increase in costs associated with the project’s design.
!The private partner provides the necessary up-front
capital and is generally repaid by a State or local
government in a series of installments funded by taxes,
fees, or tolls.
! DBF projects are typically short-term financing

arrangements, ending 5–7 years after construction. They
spread out payments for a large project in order to make
them more affordable
Portsmouth Bypass (OH)
IT IS PPP USING THE DBF

MODEL BETWEEN THE
GOVERNMENT( PUBLIC) AND
DELOITTE ( PRIVATE )
Key tax provisions in Availability Payment Agreement:
• Allocation of payments: “…the Department will pay Developer each Milestone

Payment…”
• Not a Partnership for Tax Purposes: “…in no event shall either Party take a
position on any tax return or other writing that a partnership, joint venture or
similar relationship exists.”
• Project Ownership: “…Developer shall not be treated as or deemed to be the

legal or equitable owner of the Project Right of Way for any purpose under this
Agreement.”
• Payment of taxes: “Developer shall pay, prior to delinquency, all applicable

Taxes….”
• Reimbursement of sales tax: “…the Department will provide sales and use tax
exemption certificates to the Developer…”
DBFO (DESIGN BUILD FINANCE OPERATE)
!Design–build–finance–operate is a project delivery

method very similar to BOOT except that there is no actual
ownership transfer.
!Moreover, the contractor assumes the risk of financing till

the end of the contract period. The owner then assumes the
responsibility for maintenance and operation.
!In DBFO The private construction company is responsible for the
design and
construction of a piece of infrastructure for the government, which is

the true owner. Moreover, the private entity has the responsibility to
raise finance during the construction and the exploitation period.
!The cash flow serve to repay the investment and reward its
shareholders. They end up in form of periodical payment to the
government for the use of the infrastructure.
! Some disadvantages of DBFO are the difficulty with long term

relationships and the threat of possible future political changes which
may not agree with prior commitments.
CHANNEL TUNNEL RAIL
LINK, LONDON
The UK government uses this model extensively and some

examples of PPP projects are the Chunnel Tunnel Link, the
London Underground system, many NHS projects to build
hospitals, toll roads on the highways, Stoke on Trent
schools, Blackburn Hospital, and many others (Abou-bakr,
2013).
OWNERSHIP:London & Continental Railways
DUE TO OPEN: 2007
ROUTE LENGTH :108km (69 miles)
STATIONS : 5
The project was originated by London & Continental Railways,

a consortium of eight major shareholders, including design and
planning consultancy Ove Arup and Partners, engineering firm
Bechtel, train and transport operators Virgin and National
Express, investment bank SBG Warburg and French rail project
manager Systra. Control passed to the newly-formed Network
Rail in 2002.
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Public Private Partnership

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Public Private

A public–private partnership (PPP,

!It involves an arrangement

!The Government of India defines a P3 as "a partnership

!In economic theory, public–private partnerships have been

! From an economic theory perspective, what distinguishes

!Hence, the private firm has strong incentives in the building

!Design build finance means a project delivery method in which a

!They are set up as fixed-price contracts between a private entity

!Under such an arrangement, the private party accepts most or all of

! DBF projects are typically short-term financing

IT IS PPP USING THE DBF

• Allocation of payments: “…the Department will pay Developer each Milestone

• Project Ownership: “…Developer shall not be treated as or deemed to be the

• Payment of taxes: “Developer shall pay, prior to delinquency, all applicable

!Design–build–finance–operate is a project delivery

!Moreover, the contractor assumes the risk of financing till

construction of a piece of infrastructure for the government, which is

! Some disadvantages of DBFO are the difficulty with long term

The UK government uses this model extensively and some

DUE TO OPEN: 2007

ROUTE LENGTH :108km (69 miles)

The project was originated by London & Continental Railways,

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