Infrastructure created using these partnerships is of a superior quality. This has led to the development of many good airports and buildings across India. India needs more basic infrastructure and PPPs are the best way to accomplish this.

These responsibilities are discussed in the following.

Formulation of a policy framework is an important step towards building an enabling environment for PPPs. The existence of a clear framework can remove ambiguities and uncertainties about government's intention to PPP development.
Contents: Such a framework may have two parts:

• the first part on common matters to all PPPs such as objectives, principles and general policy issues; and
• the second part on issues specific to each sector

Social objectives can be incorporated in the policy framework as well as in legal and regulatory regimes.

Defining the roles of public and private sectors
The roles of public and private sector should be clearly defined in the framework. Private sector friendly policies can be formulated and their implementation needs to be coordinated across all sectors and at all spatial levels. It is also important to include in the framework (and follow) certain core principles of good governance namely transparency, accountability and participatory approach in decision making to promote PPPs. Formulation of a policy framework is also important in view of the fact that many aspects of it can be turned into legal and regulatory instruments.

Access to private sector finance

• India has a very large infrastructure need and an associated funding gap. PPPs can help both to meet the need and to fill the funding gap. PPP projects often involve the private sector arranging and providing finance. This frees the public sector from the need to meet financing requirements from its own revenues (taxes) or through borrowing.

Increased transparency in the use of funds

• A well-designed PPP process can bring procurement out from behind closed doors. The PPP tender and award process based on open competitive bidding following international best practice procedures lead to transparency.

PPPs often cover a long-term period of service provision (e.g. 15-30 years, or life of the asset). Any agreement covering such a long period into the future is naturally subject to uncertainty. If the requirements of the public sponsor or the conditions facing the private sector change during the lifetime of the PPP the contract may need to be modified to reflect the changes. This can entail large costs to the public sector and the benefit of competitive tendering to determine these costs is usually not available. This issue can be mitigated by selecting relatively stable projects as PPPs and by specifying in the original contract terms how future contract variations will be handled and priced.

Ideally, a project should be procured as a PPP on the basis of a clear demonstration that it provides value for money (VFM) compared with public sector procurement. However, it is difficult to demonstrate VFM in advance due to uncertainties in predicting what will happen over the life of the project and due to a lack of information about comparable previous projects. However, the standard for VFM is different in India to more economically developed countries such as Australia or the UK. In those countries there is a much smaller funding need. In India, many projects procured in the public sector, experience time and cost over runs, and hence it is likely that well-managed private procurements will deliver savings. Furthermore, the funding gap is far greater than the Public Sponsor can meet by itself. In this case, it may sometimes not be a question of public vs. private procurement, but rather the choice between private procurement or none at all. If this is the case then the focus should be on making a careful assessment of alternative project options to be sure that the projects that are selected are the best ones economically and financially.

• The public sector environment is suited to supporting PPPs
• The project is suitable to being carried out as a PPP –
• The potential barriers to successful project implementation have been identified and can be overcome

Given that these conditions are satisfied, the project must be commercially viable for the private sector and offer value for money (VFM) for the public sector.

Build-Operate-Lease-Transfer (BOLT)

• In this approach, the government gives a concession to a private entity to build a facility (and possibly design it as well), own the facility, lease the facility to the public sector and then at the end of the lease period transfer the ownership of the facility to the government.

Design – Construct – Maintain – Finance (DCMF)

• Design, Construct, Maintain and Finance is very similar to DBFM. The private entity creates the facility based on specifications from the government body and leases it back to them. This is generally the convention for PPP prison projects.
• A private entity is entrusted to design, construct, manage, and finance a facility, based on the specifications of the government. Project cash flows result from the government's payment for the rent of the facility. Some examples of the DCMF model are prisons or public hospitals.

• Private sector will do what it is paid to do and no more than that – therefore incentives and performance requirements need to be clearly set out in the contract. Focus should be on performance requirements that are out-put based and relatively easy to monitor
• Government responsibility continues – citizens will continue to hold government accountable for quality of utility services. Government will also need to retain sufficient expertise, whether the implementing agency and/ or via a regulatory body, to be able to understand the PPP arrangements, to carry out its own obligations under the PPP agreement and to monitor performance of the private sector and enforce its obligations
• The private sector is likely to have more expertise and after a short time have an advantage in the data relating to the project. It is important to ensure that there are clear and detailed reporting requirements imposed on the private operator to reduce this potential imbalance
• A clear legal and regulatory framework is crucial to achieving a sustainable solution (for more, go to legislation and Regulation)
• Given the long-term nature of these projects and the complexity associated, it is difficult to identify all possible contingencies during project development and events and issues may arise that were not anticipated in the documents or by the parties at the time of the contract. It is more likely than not that the parties will need to renegotiate the contract to accommodate these contingencies. It is also possible that some of the projects may fail or may be terminated prior to the projected term of the project, for a number of reasons including changes in government policy, failure by the private operator or the government to perform their obligations or indeed due to external circumstances such as force majeure. While some of these issues will be able to be addressed in the PPP agreement, it is likely that some of them will need to be managed during the course of the project

According to World Bank, public-private partnership (PPP) is a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance. Public-private partnerships typically are long-term and involve large corporations on the private side. Some of the commonly adopted forms of PPPs include build-operate-transfer (BOT), build-lease-transfer (BLT), design-build-operate-transfer (DBFO), operate-maintain-transfer (OMT), etc. A key element of these contracts is that the private party takes on a significant portion of the risk.

(IIFCL) India Infrastructure Finance Company

• long-term debt for financing infrastructure projects that typically involve long gestation periods since debt finance for such projects should be of a sufficient.
• There is urgent need for providing long-term debt for financing infrastructure projects that typically involve long gestation periods.
• Debt finance for such projects should be of a sufficient tenure which enables cost recovery across the project life, as the Indian capital markets were found deficient in long-term debt instruments;
• IIFC was set-up to bridge this gap.

• The authorities may be advised against adopting PPP structures for very small projects, since the benefits of delivering small PPP projects may not be commensurate with the resulting costs and the complexity of managing such partnerships over a long period.
• Unsolicited Proposals (“Swiss Challenge”) may be actively discouraged as they bring information asymmetries into the procurement process and result in lack of transparency and fair and equal treatment of potential bidders in the procurement process.
• The Committee is of the view that since State Owned Entities (SoEs)/PSUs are essentially government entities and work within the government framework, they should not be allowed to bid for PPP projects.
• PPP should not be used as the first delivery mechanism without checking its suitability for a particular project.
• Monetization of viable projects that have stable revenue flows after EPC delivery may be considered.
• Equity in completed, successful infrastructure projects may be divested by offering to long-term investors, including overseas institutional investors as domestic and foreign institutional investors with long-term liabilities are best suited for providing such long-term financing, but have a limited appetite for risk.
• Improving a PPP project’s risk profile so that it is more suitable for overseas and domestic long-term investors can be accomplished through partial recourse to credible third-party institutions. This could be implemented through a partial credit guarantee or cash flow support mechanisms.
• It is necessary to explore options for sourcing long term capital at low cost. Towards this, the Committee recommends, encouraging the banks and financial institution to issue Deep Discount Bonds or Zero Coupon Bonds (ZCB). These will not only lower debt servicing costs in an initial phase of project but also enable the authorities to charge lower user charges in initial years.

The development and articulation of a PPP policy framework should be consistent with other policies within the Administration’s policy framework. The Toolkit provides detailed guidance on legal and regulatory framework assessment (Module 4 → Legislation → Framework Assessment) and on establishment of a PPP policy framework (Module 3 → PPP Policy Framework). The policy framework will provide statements describing the government’s approach and commitment under a number of headings. The policy document need not be lengthy and government may not have already worked out in detail all solutions. It must however, cover and explain clearly all the key points of their PPP program and provide/instill sufficient confidence in investors that they will continue to develop their initial interest further. The introduction of a PPP program may invoke examination of an array of policy considerations ranging from the constitutional to the legal, economic and social. One such key question, which in ways is also a political issue, is whether constitutionally an Administration can enter a long-term agreement which can survive its term in office. It will be of paramount importance to any prospective partner that the obligations of the Public Sector under the contract will be respected by subsequent governments and that the Courts will uphold the contractual rights reserved to Private Sector Partner throughout the life of the contract.

Other constitutional questions that are likely to be raised will focus on the powers of an Administration to delegate the responsibility to carry out certain public service functions and/or the powers to allow formal or economic ownership of infrastructure and public service to pass into private hands. The introduction of a PPP may require the clarification if not change in the constitutional and legal position. To clear the pathway for PPPs, other specific changes in the Law may be desirable or indeed imperative. Such changes may involve the introduction of a general concession law, amendments to procurement and tax laws. In relation to the first, experience has proven that it is better for a new law to express principles and introduce a general framework. At the early stages of a PPP initiative, it is normally counterproductive to attempt to enshrine in law a model contract. PPP’s may also require certain structural reforms in government which will require legislation. This can be the case where a public service is to be conducted by a Private Sector company where previously the service has been provided by a self-regulating State Body. It will then be necessary to create or appoint a Public Sector Agency to be responsible for policing the contract and protecting the consumer, public health, and environmental interests.

Beyond the need for formal legal clarification, the new PPP policy must be articulated in such a way that it is consistent with other economic and social objectives. Such objectives may include for instance regional development, the protection of employment and conditions of employment and the encouragement of small and medium-sized enterprises. A program of PPP’s is most likely to involve the following two consequences:

• the redeployment of public sector workers into the private sector and
• a significant if not leading role for foreign operating and financing companies in the delivery of public services.

The Prime Minister’s office and other Ministries must be prepared to cope with the political fall-out from these changes both within the body of the public employees and the wider electorate. Moreover, the PPP policy framework may recommend the establishment of a PPP unit (Module 3 → PPP Policy Framework → Institutional Framework and Reform →PPP Units and the Role of the Highways Agency). Specialized PPP Units are generally created in response to weaknesses in the existing government’s ability to manage a PPP program effectively. Governments in different countries will suffer from different institutional failures in PPP procurement. PPP Units therefore need different designs in different countries, so they can address the specific government weaknesses concerned. In other words, the medicine must fit the disease. A question that must be addressed under the financial framework is whether the PPP projects that are to be promoted will depend entirely on the users for the payment stream or whether the Administration or one of its dependent agencies will be partly or totally responsible for the payments. Payments to concessionaires can only come from users, from government or from a combination of these two sources. Policy will therefore normally reflect a desire by government to either have self-sustaining projects and/or minimize government contributions.

As important as the Taskforce’s role in establishing a PPP policy within the overall constitutional and political context is the selection and delivery of the initial projects. There are examples of PPP policy being called into question not because it was flawed as a policy but in practice because inappropriate projects were chosen for PPP procurement. Module 5 shows a development path for the development of PPP programs including the identification, prioritization and selection of PPP projects. However, experience has demonstrated certain rules of thumb for initially selecting a few appropriate PPP projects. These are particularly important for the initial PPP projects where public and political sensitivity may be greatest and where a failure, or at least a perceived failure, may compromise the continuation of the program. The following are some of the more significant criteria:

• The project must be one for which there is plainly a social and economic need and the delivery of which is recognized as important to most political opinions. However, it is best to avoid grandiose politically sponsored schemes as they rarely meet other criteria.
• The project(s) should have only moderate risks, be reasonably well-developed (e.g. have an economic or preliminary study) and be ready in the sense of not having too many constraints to be overcome such as obvious and severe socio-environmental issues.
• The project should be one that involves known and tested technologies and for which there is a market place of potential suppliers with whom to enter partnership (i.e. not too complex and risky and technologically wise).
• The project should be one that is on the main priority list (e.g. the 5 year development program) of the sponsoring Ministry or Agency (there has been a tendency for skeptical Ministries to offer up their lower priority schemes for PPP procurement).
• Financially, the best projects are those that need little or no government financial support. However if support is needed, the project payment stream must be clearly affordable by the sponsoring Ministry or Agency (and/or supported by Ministry of Finance issued guarantees);
• The project should be of a sufficient size to interest international financiers and concession companies.

Ideally, the initial pilot schemes should represent a range across the key public service sectors and be representative of likely future schemes. From the Public Sector’s point of view, it is very important from the outset to be aiming to develop methods and methodologies, which will be replicable. Once one or more pilot project(s) is/are selected, the Central Taskforce should be closely involved in the process by which a Private Sector Partner is chosen. However, the lead responsibility for the Partner selection process should always be with the projects sponsoring Ministry or Agency. The selection/procurement process should demonstrate certain characteristics if it is to be effective. It must be fair and transparent, it must conform to best international practice in competitive public procurement and it must arrive at a result whereby the Public Sector opts for the partner offering the best long-term value by way of quality, security of provision and cost. However, as well as the process being one that leads to the selection of the best value bid, it must deliver a result which is demonstrably good value to the public sector. Developing an effective method and methodology for procurement and applying such during the procurement projects must go hand in hand with a well focused program whereby both Public Sector officials and the national construction and service supply companies are led to understand and appreciate the detail and merits of the process. Effective implies to transparent and competitive procurement thus encouraging many and strong companies to prequalify and bid so that the government gets a good deal from a reliable partner.

The PPP Taskforce should provide guidance and expertise for the PPP program through the establishment of PPP policy framework and initial project preparation and tendering. In doing so, they become not a pure center of expertise but that they take a very active role in teaching and promoting the PPP message and become adept at countering the intellectual and emotional objections that the initiative inevitably engenders. The Task Force, as mentioned above, can pave the way for a PPP unit (or units) within different government agencies e.g. Public Works/Highway Agency and Finance.

Today our urban local bodies /state authorities are finding that their existing water, sanitation, energy and other urban infrastructures are unable to service their rapidly expanding urban population. In addition, governments realize that their limited financial resources are not sufficient to cover the needed expansion of these services. Even where government does find the resources to subsidize public utilities, service is often poor and sectors of the population largely not served. It is becoming increasingly clear that government cannot meet the continually growing demand for water, waste, waste, energy and other urban services acting alone. Local governments are finding that their tax revenues are not providing sufficient resources to meet these needs, and official development assistance has not been able to fill the gap. It is in this backdrop that we are forced to think of alternate sources of finance, technical excellence and support one of the most viable options is to involve the private sector in the state monopolies. This is done through associations with private sector on a project-to project basis and generally termed as PSP-private sector participation, PPP-Public private partnerships, PFI-Private finance initiatives etc. these usages though done interchangeably have slight differences in their specific definitions and operational frameworks but for the genera understanding itconveys the meaning of involvement of private sector in public services.
The term “private partnership” (PPP) describes a spectrum of possible relationships between public and private actors for the cooperative provision of infrastructure services. The only essential ingredient is some degree of private participation in the delivery of traditionally public – domain services. Private actors may include private businesses, as well as non-governmental organizations (NGOs) and community- based organization (CBOs).

Through PPPs, the advantages of the private sector- innovation, access to finance, knowledge of technologies, managerial efficiency, and entrepreneurial spirit- are combined with the social responsibility, environmental awareness, and local knowledge of the public sector in an effort to solve problems. In cities throughout the world, private firms have demonstrated their ability to improve the operation of infrastructure services. However, it is important to bear in mind that private involvement does not provide an automatic solution to urban infrastructure problems. The need for private sector involvement in urban infrastructure development is indisputable in the above context and it has been proven beyond doubt that depending on the option of private participation used it could deliver the required benefits in urban infrastructure projects. Private sector participation could help to bring technical and managerial expertise, improve operating efficiency, large scale injection of capital, greater efficiency in using the capital, rationalization/ cost base tariffs for services, better responsiveness to consumer needs and satisfaction.
Though we are clear that private sector participation is necessary and it could bring definite advantages into the system, it would be worthwhile to look into those critical factors which do or undo the partnership or the successful running of it. The key factors that could be highlighted are clear, government commitment, legal and regulatory capacity, stakeholder involvement, intelligent transaction design, cost-recovery tariffs, the right option and a systematic approach. It is not enough that the support of private sector be sought for the development but it should be well thought out and should be ventured into with adequate preparation and homework. There is a definite process to be followed for Private sector participation in infrastructure development this involves many systematic steps, but to put in general it is four phases. They are project preparation, selecting an appropriate PPP option, soliciting private sector participation, establishing a durable partnership. In general these steps would include detailed steps as given.

Step 1 : Project Preparation

• The process from conceiving the idea to identifying the potentiality of the project and finding out the financial and economical feasibility of the same would come under this phase. They are conceiving the idea or problem definition, demand assessment, financial feasibility, economic feasibility and project feasibility (Generally a project feasibility report)

The concept of PPP is new and emerging requiring different skills and Governance. This chapter has discussed the basic aspects of PPP in the Indian context. The definition, advantages and disadvantages, features, need, roles and responsibilities, risk sharing, characteristics, types of PPP, General steps in PPP and a list of PPP projects initiated in Karnataka State have been described. Broadly speaking, a typical PPP allows a private consortium to assume the financing risk and two or more phases of the project’s life-cycle. This may include the design and construction phases of the project and the subsequent maintenance and operation of the government facility under a carefully contrived long-term lease. This is in contrast to the private sector’s traditional role in infrastructure development where its involvement is limited to providing skilled labor under short-term contracts, with the delivery of the services being solely provided by the public authority. It is also important not to confuse PPPs with privatization- a situation where responsibility over the delivery of the public service is fully transferred to the private partner with little or no government oversight. Public Private Partnerships combine two or more of the project’s phases in a single bundle for the private consortium to deliver over the long-ter. This created economics of scale by motivating the private sector to organize its activities in a way that drives efficiencies and maximizes returns on investments.
Public private partnerships are designed so that risk is transferred between the public and private sectors, allocating particular project risk to the partner best able to manage that risk cost effectively. With financing risk routinely transferred to the private consortium, any delays in meeting the agreed upon timelines can lead to additional costs for the private partner as it alone carries the debt for a longer period of time. Therefore, the private sector has a direct financial interest in ensuring that projects and services are delivered on-time, if not sooner. By bringing the strengths from both the public and private sectors together, PPPs have the unique ability to share a diverse range of resources, technologies, ideas and skills in a cooperative manner that can work to improve how urban infrastructure assets and services are delivered to the people. Public private partnerships represent good opportunities to lower overall project costs. However, when compared with traditional procurement, the complete PPP process invites additional costs that, if not managed properly, can erode some of the potential economic benefits of this model. A key concern with the long-term committal nature of PPP procurement is that it limits the public sector’s ability to make changes to the contract if unexpected economic or situational challenges arise. In the event that a change is required to either the use of an infrastructure asset, or to the type of urban service offered, PPPs have proven to be inflexible both in terms of the time and administrative burden associated with altering the contract. The Government of India (GoI), in FY 2019-20, undertook a first-of-its-kind and a whole-of-government exercise to lay the infrastructure vision for the country. Pursuant to which, the National Infrastructure Pipeline (‘NIP’), detailing the infrastructure vision for the country, was released in December 2019. NIP envisages investment of 111 lakh crores over five-year period (2020-25). With annual average investment of 22 lakh crore this is a significant step-up of 2.5 times vis-à-vis historical levels. Public Private Partnerships (PPP) in infrastructure represent a valuable instrument to speed up infrastructure development in India and bridge the gap envisaged under NIP. Currently, there are 7600 projects under NIP. The success of the project would depend finally on getting the different stakeholder rallying for it which requires a high level of awareness and a genuine effort for a consensus. The emphasis on this point is because the relationship is for 20 year where in it is possible that governments change, ideologies change and market dynamics may change but the long-term policies should remain and the commitment given to private sector and public should be honored.