4/12/24, 8:32 AM Public private partnership models - ClearIAS

ClearIAS

Public private partnership

models

What is Public-Private-Partnership (PPP)? What are the

advantages of Public-Private Partnership (PPP)? What
are the various types of Public Private Partnership (PPP)
Models? Read further to know more.

Investment is the process of putting money in assets for increasing

production or financial gains. The investment models can speak
about how to put the money in assets.

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4/12/24, 8:32 AM Public private partnership models - ClearIAS

Investing in productive assets can be in the form of Public Sources

(Government), Private Sources (Corporate) or Combined Sources
(Public Private Partnership or PPP).

Table of Contents
1. What is Public-Private Partnership (PPP)?
2. Advantages of Public-Private Partnership (PPP)
3. Public-Private Partnership (PPP) models
3.1. BOT (Build–Operate–Transfer):
3.2. BOO (Build–Own–Operate):
3.3. BOOT (Build–Own–Operate–Transfer):
3.4. BLT (Build-Lease-Transfer):
3.5. BOLT (Build–Own–Lease–Transfer):
3.6. DBFO (Design–Build–Finance–Operate):
3.7. LDO (Lease–Develop–Operate):
3.8. DCMF (Design–Construct–Manage–Finance):
3.9. OMT (Operate–Maintain–Transfer):
4. Some other types of Public-private-partnership (PPP) Models
4.1. Management Contract Model
4.2. Lease Contract Model
4.3. BOT Annuity
4.4. Engineering-Procurement-Construction(EPC) Model
4.5. Hybrid Annuity Model (HAM)
5. Vijay Kelkar Committee Report on Revisiting and Revitalising
Public-private-partnership (PPP) Model
6. Conclusion

What is Public-Private Partnership

(PPP)?
A public-private partnership (PPP) unites the public and private

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4/12/24, 8:32 AM Public private partnership models - ClearIAS

A public private partnership (PPP) unites the public and private

sectors to carry out a project or offer a service that is typically
handled by the public sector.

Public-private partnerships (PPPs) come in a variety of shapes and

sizes, depending on the private party’s level of involvement and
risk tolerance. Normally, the conditions of a PPP are outlined in a
contract or agreement to specify the obligations of each partner
and allocate risk.

When private-sector technology and creativity are combined with

public-sector incentives to finish projects on schedule and within
budget, these collaborations are successful.

Advantages of Public-Private
Partnership (PPP)
The benefit of a PPP is that when appropriate cooperative
agreements between the public and private sectors are
employed, the management abilities and financial savvy of
private enterprises may result in better value for money for
taxpayers.
When a project is funded through a public-private
partnership, it can either be completed sooner or become
feasible because investments are made by the private sector
entity for a predetermined amount of time.
Public services may become more effective, efficient, and
competitive as a result of PPP. In a situation when there are
budgetary constraints, it can raise additional funding and
supplement the limited public sector capacities.

PPP does not constitute privatisation because it entails the

government’s complete retention of responsibility for
delivering the services. The division of risk between the public
i tit ti d th i t t i l l d fi d

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4/12/24, 8:32 AM Public private partnership models - ClearIAS

institution and the private sector is clearly defined.

The private company is chosen through an open, competitive
bidding process and is compensated depending on
performance.
In developing nations when governments are constrained in
their ability to borrow money for significant projects, the PPP
approach may be an alternative.
It may also provide the necessary knowledge for large-scale
project planning or execution.

Public-Private Partnership (PPP)

models
Commonly adopted models of PPPs include Build-Operate-
Transfer (BOT), Build-Own-Operate (BOO), Build-Operate-Lease-
Transfer (BOLT), Design-Build-Operate-Transfer (DBFOT), Lease-
Develop-Operate (LDO), Operate-Maintain-Transfer (OMT), etc.

These models are different on the levels of investment

(https://www.clearias.com/investment-models/), ownership
control, risk sharing, technical collaboration, duration, financing
etc.

BOT (Build–Operate–Transfer):
It follows a standard PPP paradigm where the private partner
is in charge of designing, constructing, operating (during the
agreed-upon period), and handing back the facility to the
public sector.

The project’s private sector partner must provide the funding

and assume responsibility for its construction and upkeep
(usually a greenfield project).
Th bli t ill it b i t t h

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4/12/24, 8:32 AM Public private partnership models - ClearIAS

The public sector will permit business partners to charge

users for services.
A key illustration of the BOT concept is the national highway
projects that NHAI has leased out under the PPP form.

BOO (Build–Own–Operate):
According to this approach, a private entity will retain
ownership of the newly constructed facility.
The public sector partner consents to “buy” the goods and
services delivered by the project on mutually acceptable terms
and circumstances.

BOOT (Build–Own–Operate–Transfer):
In this BOT form, the project is turned over to the
government or a private operator after the agreed-upon
period.

Highway and port construction utilises the BOOT concept.

BLT (Build-Lease-Transfer):
The asset is leased to the public entity for a medium duration
and is owned by the private company.
In this case, the public entity is in charge of financing the
investment.

BOLT (Build–Own–Lease–Transfer):
In this strategy, the government grants a building concession
to a private company (and possibly designs it as well).

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4/12/24, 8:32 AM Public private partnership models - ClearIAS

The facility may be owned by a private business, which may

then lease it to the public sector and transfer ownership of the
facility to the government after the lease term.

DBFO (Design–Build–Finance–Operate):
According to this approach, the private party is solely
responsible for the project’s design, building, financing, and
operation throughout the concession period.

LDO (Lease–Develop–Operate):
In this kind of investment arrangement, the public sector
organisation or the government keeps ownership of the newly
built infrastructure facility and receives payments under the
conditions of a lease with the private promoter.
It is primarily used for developing airport facilities.
A private partner is in charge of designing, constructing,
operating (during the agreed-upon period) and handing over
the facility to the public sector. This is a typical public-private
partnership model.
DBOT is a variant of the build-operate-transfer (BOT)
contract model where the contractor is responsible for both
the project’s design and construction. Because it identifies a
single point of accountability for delivering the project and
seeing it through to operation, this approach may be
appealing to some clients.
The DBOT contract is different from a design build finance
and operations (DBFO) contract, in which the contractor also
finances the project and leases it to the client for a
predetermined amount of time (perhaps 30 years), after
which the development reverts to the customer.

DCMF (Design Construct Manage Finance):

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4/12/24, 8:32 AM Public private partnership models - ClearIAS

DCMF (Design–Construct–Manage–Finance):
In this case, the asset is constructed and run by the private
sector for a predetermined time. This time frame can range
from 20 to 50 years. For renting out the asset at that time, the
Government pays the contractor.
By diverting public spending from significant infrastructure
development projects, this model may help establish funding
sources for other public initiatives.
The following are some examples of DCMF PPP models: jails,
courts, public hospitals, etc.

OMT (Operate–Maintain–Transfer):
The OMT model is comparable to the BOT model, with the
exception that, unlike the BOT model, OMT does not call for
the concessionaire for a project.
For a predetermined amount of time, the concessionaire is
responsible for maintenance under the OMT model.

Some other types of Public-private-

partnership (PPP) Models
Different types of PPP include Concessions, Leases / Affermage,
Full Divestiture, Contract Plans, and Performance Contracts.

Management Contract Model

In this model, a public facility or service is managed, either
entirely or in part, by a private organisation.

In this approach, the public body (government) retains

ownership of the asset or facility, but a private firm takes over
the day-to-day management of the facility.
Th i t tit ’ i k i i i lb it i t

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4/12/24, 8:32 AM Public private partnership models - ClearIAS

The private entity’s risk exposure is minimal because it is not

obligated to make any capital expenditures and is permitted
to charge a set fee.

Lease Contract Model

According to this concept, the asset is leased, depending on
the circumstance, to either a private organisation or a public
entity.
The private organisation is permitted to generate income
through operations.

BOT Annuity
This technique is used to construct roadways, mostly for
NHAI projects where the possibility for revenue generation is
low.
The asset must be designed, constructed, managed, and
maintained by the private business. The private entity’s risk is
minimal, though, as it consistently receives a fixed amount as
an annuity from the public entity throughout the contract.

Engineering-Procurement-Construction(EPC)
Model
In this model, the asset is designed, financed, and constructed
by the private entity.
The public agency that built the asset eventually receives
ownership of it. The public entity pays the private entity a
lump amount in exchange for playing the role; the private
business is not responsible for operations and management.

The NHAI is constructing highways with the use of this

model.

Hybrid Annuity Model (HAM)

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4/12/24, 8:32 AM Public private partnership models - ClearIAS

Hybrid Annuity Model (HAM)

In this arrangement, the private company is required to invest
the remaining 40% of the project cost after paying 40% of it
from the public entity.
The public company continues to be in charge of ownership
and operations; the private business is simply required to
contribute engineering knowledge.

Vijay Kelkar Committee Report on

Revisiting and Revitalising Public-
private-partnership (PPP) Model
In the Union Budget 2015–16, the Finance Minister stated
that the PPP method of infrastructure development has to be
reviewed and reinvigorated.
In response to this declaration, Dr Vijay Kelkar served as the
chair of the Committee on Revisiting & Revitalizing the PPP
Model of Infrastructure Development.
(https://en.wikipedia.org/wiki/Kelkar_committee_on_PPP_
in_India#:~:text=Kelkar%20committee%20to%20evaluate%
20PPP,and%20headed%20by%20Vijay%20Kelkar.)

Conclusion
The Government of India defined the public-private partnership
(PPP or 3P) as a commercial legal relationship in 2011. The User-
fee based BOT model, Performance-based

management/maintenance contracts, and Modified design-build

(turnkey) contracts are three examples of PPPs that are recognised
by the Indian government.

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4/12/24, 8:32 AM Public private partnership models - ClearIAS

Numerous PPP projects are now being implemented across the

nation at various stages. PPPs are actively being promoted by the
Indian government in many different economic sectors.

Article written by Aseem Muhammed

AIM IAS, IPS, OR IFS?

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