Introduction to Consumer Private Partnership
Public private partnership is a cooperative project between the community and private sector where the open public and privates sector perform a particular task based on agreed activity and risks, each party keeping its jobs and responsibility. The interest in PPPs is growing daily because it is an efficient way of delivering the general public services to the masses. The rudimentary primary behind general population private partnership is the fact that, Although Community sector entities may need to be responsible for the delivery of people services, but it is not necessary it must be actually responsible for providing or starting the investment themselves. In this manner all actors in public private relationship can focus on doing what they are likely to do in the best possible way through the use of their resources and skills. To be able to under take any public private collaboration for a specific venture we have different methods or model for PPPs, Which can be referred to briefly as under.
A brief overview of Prominent Types of PPPs
Operation and management contracts
In these contracts the responsibility for asset procedure and management is passed on to the private sector entities. The duration for these contracts is generally short ranging from three to five 5 years, but can normally be extended. The private get together is remunerated on a fixed payment basis or on an Incentive basis with payments linked to specific performance goals. Under this agreement the public get together still bears the financial and investment risk associated with the projects. This type of contract is an effective way to attempt a project because the private sector has enough skills and also have strong desire for bettering the service quality. This style of PPPs agreement is suited for transaction stages which finally lead to privatization.
Potential strengths of management
The profound benefit of management agreement is that lots of operational benefits that result from private sector can be availed without transferring the resources to the private get together. Management agreement are less thorny to build up when compared with others and are considered less controversial. Theses deals are also less costly as compared to others because fewer but productive staff may be used to carryout the duty. They may also be seen as interim arrangements, allowing for modest advancements while more thorough contracts and set ups are developed. Likewise, a management deal can be organized to phase-in ever more extensive engagement of the private sector over time and as improvement is shown.
Potential weaknesses
Despite of the aforesaid features of management contract it also embodies some disadvantages one of the key disadvantage of this contract is the fact that in this contract the private sector entity who's managing a particular project will not benefit from the autonomy. This is important to accomplish deep and prolonged change also the department between the obligation for service and management, on one hand, and financing and extension planning, on the other, is a tough one.
Service contracts
It is a restricted type of PPPs model in this arrangement the Private party procure, operate an investments for a short span of time usually for 2 to 5 years. In this particular contract the general public sector is accountable for investment and management of the job which bears the financial and residual value hazards. While the general public sector entity supply the services. It really is fitted to simple and operational requirments. it is often used for toll collections.
Potential advantages of Service Contract
This contract is most beneficial suitable when the assistance are clearly described in the agreement, the demand is reasonably certain and the performance of the job can easily be monitored. One of the the gigantic advantage of service contract is that it provides us relatively low-risk option for the development of private sector which in return brings efficiency in the system operation. It really is a more affordable way to delivery the public services and due to low barrier to competition it encourage competition which in exchange enhance the public service delivery which is also a good source of technology transfer as well as for the introduction of managerial capacity. The other prominent advantages include
- Decrease in operation cost
- Access to cheaper labor
- Cut up in labor training cost
- Access to progress technology at minimum amount cost
- Enhance service delivery
Potential weaknesses
Service contracts are used for simple and short-term task in this the private sector only provide their services not the capital investment. But this deal is not suitable for such situation in which the goal is to pool up capital. An other important downside of this agreement is that of lack of managerial control because it is much difficult to control the outside provider when compared with own employees. Also other sketch backs include the loss of versatility in reacting to changing the business enterprise condition, lake of inside and external concentration, loss of competitive edge, problem in contract renewal and contractual misunderstanding. Within this it is difficult to assess the concealed cost from the deal like legal cost and the time require to put the contract into action.
Leasing agreements
It is a financial agreement in which the owner of your facility provides it to another entity, and subsequently leases it back again from the new owner. In this contract both general population and private sectors entities may enter into sale/leaseback preparations for a number of reasons. An impressive request of the deal/leaseback approach is the sales of a open public facility to a open public or private having company for the purposes of limiting governmental responsibility under certain statues. Under this arrangement, the government that sold the service leases it back and continues to use it. Under this contract the private party better off only when it manages to reduce operating costs while reaching the selected service level. On the other hand the general public sector bears the risks from the network growth, capital improvement and financing. Its life ranges from 12 to 16 years, this kind of agreement is most effective for infrastructure. Other visible leasing contract include
- Buy-build-operate (BBO)
- Lease-develop-operate (LDO)
- Wrap-around addition (WAA)
Potential strengths
One of the key advantage of this contract is the fact it brings efficiency in the general public service delivery. Also in this contract the commercial risk is borne by the private sector which give a strong performance incentive and which coax the private sector to perform well. Under this contract the private sector competitively bet for providing the assistance which in return enhance the delivery of open public services.
Potential weaknesses
As we realize that in rent agreement the company revenue is dependant on the revenue blast of the customers' payments so in such situation the question of tariff levels is of sensitive nature which can lead to possible conflict between your people and private celebrations. Also under this contract the duty of capital investment is of open public sector and the financial risk is borne by the general public sector so in this agreement no capital is mobilized from the private sector entity and also labour issues are of more hypersensitive nature when compared with other PPPs deals.
Concession Contract
It is a type of leasing contract in which the ownership stay with the government as the private get together not only provide capital investment but also accountable for the maintenance of the investments. After the completion of the job the government pays the agreed sum of money to the private get together and provides the assets. It is fitted to the construction and its own life is from 15 to 30 years.
Potential talents of concession contract
One of key advantage of Concessions is the fact it helps to mobilize capital from private sector for the engineering or treatment of existing projects. As we know that under this contract the private sector also contribute capital for the job so it coax the private sector (concessionaire) to bring efficiency and effectiveness to be able to increase his go back in the project. It also motivates the private party to bring development in the delivery of public services.
Potential weaknesses
One of the major disadvantage of this agreement is usually that the complexity of determining the actions of private sector entity. Among the major disadvantage of the contract rises in case of long-term assignments i. e. more than 25 years because this complicate the bidding process and the agreement design which hinder in anticipating the situations of the job. Also due to its long-term tenure it is deemed politically controversial and difficult to organize. Another drawback of the contract is the fact that it limit the competition because of limited volume of qualified contractors are available.
Green field Contracts
This type of contract is mainly used for the development of new assignments. Such projects are often demanded by engineers. Types of Greenfield jobs are new factories, electric power plants or international airports which are designed from scuff. Those facilities that happen to be modified/ improved are called Brownfield assignments.
Build-Operate-Transfer (BOT)
In this the private get together is accountable for designing, development and procedure of the possessions. In this general population party bears the financial risks but it offers control on important phases of the life pattern of the job. This type of deal bring efficiency in the projects and removes the key maintenance issues from public budget This built-in system obliges the private operator to take into consideration the expense of operating the property through the design and operation phase and for that reason stimulates a much better planning and management of the service itself It include the following types
- Build-own-operate-transfer (BOOT)
- Build-rent-own-transfer (BROT)
- Build-transfer-operate (BTO)
- Build-lease-operate-transfer (BLOT)
Potential strengths
As we realize that BOTs have been mostly used to draw in private financing to the building or renovation of infrastructure. Hence one of the main element advantage of BOT agreements is the fact it reduces commercial risk for the private partner because there is often only one customer, i. e. general population sector (federal government). The following are a few of the major benefits of BOT contract
- Due to the efficiency of private sector the general public services can be delivered with least cost
- As the private sector directly involved in this so it reduces the public debit, controlling the beget deficit and reduce the role of public sector.
- It also facility the copy of progress technology by intruding international contractors in the web host country.
Potential weaknesses
The following are some of the major cons of BOT contract
- The business deal cost in cases like this is higher when compared with other contracts
- Not suitable for small tasks.
- The success of the project depends after the successful bringing up of funds.
- BOT jobs are successful only once substantial income are generated through the operation stage.
A Circumstance STUDY
This case study is one of the better example of general public private collaboration (service agreement) which is contributing to the overall economical development of Pakistan.
Faisalabad Industrial Real estate Development and Management Company (FIEDMC)
This is one of the traditional of PPP (service agreement). With this contract the government of Punjab provided funds and the private sector were allocated the task to build up two professional estates at Faisalabad by adding there services on voluntary basis. This company constitutes of 21 members in its panel 5 from public and 16 from private sector. Under this contract the private sector will contribute their expertise to develop a global standard industrial property in order to utilize the public money in a fruitful way. The next two prominent assignments were performed under this contract.
Value Addition City.
This commercial city was in essence established in order to address the need for SMEs also to provide land on small scale to the industrialist. This estate involves 200 acres land. where all utilities and facilities to the industrialist and a great emphasis is given to the security, in addition The VAC offers facilities such as a high tech highway network, electricification, gas, optic dietary fiber telecommunication network, medical center, commercial area and considerable landscaping design for environmental friendly atmosphere.
M-3 Industrial city (M-31C)
This is a larger project when compared with value added city with a huge section of 4500 acres. This industrial city is catering for the needs of most business sectors both professional and services It requires the fulfillment the needs and would like of the prospective investors. This industrial city supplies the important facilities according to world requirements including, cutting edge telecommunication system, move facilities and labor colonies to the labor. This professional city constitute of all sorts of textile market sectors, high quality substance units, engineering including automobile and agricultural machinery firms and construction material firms. It will accommodate the needs of pharmaceutical companies and food control units. Other industries include IT equipment manufacture and software industry, electric devices, electronics and other value added products.
This is one of the traditional exemplory case of PPP models in which the private get together provides their services in the form of their knowledge to boost market sectors in Pakistan and it'll raise the Pakistani overall economy.
A Inability of PP Task (Metronet UK)
The London underground rail system is the world first underground system which was proven in 1863 and up to early on twenty century it was operated by six private operators. But because of the substandard services its activities was straight or indirectly grouped by the UK specialists by 1933.
In February 2002 it was made a decision to bring improvement in the public service delivery by getting into a PFI agreement with the private sector. Under this agreement it was decided that maintenance and renewal of London underground infrastructure would be designed through three PPP deals
Under this contract the Responsibility for stations, teach functions, signaling and safety remained in the Public sector, being run by London Underground Limited, a new operating company set up for the purpose. It also got responsibility for determining service habits and establishing fares. Under this PPP project there have been three private sectors companies that have been called infracos namely
- Infraco BCV Bakerloo, Central, Victoria, Waterloo & City.
- Infraco JNP Jubilee, Northern, Piccadilly.
- Infraco SSL Circle, Region, East London, Hammersmith & City, Metropolitan.
To improve the Services and ensure long-term resources management a 30 year contract was signed which is split into 7. 5 yr segment. In this arrangement an Arbiter was also appointed whose role was to resolve the disputes between the London Under Earth Small and an infaco about the repayment and other issues.
On December 31 2002 Pipe Line attained Infraco JNP and on Apr 2003 Metronet attained the other two infracos. The PPP agreement give legal possession of London Underground infrastructure during the term of the contracting In July 2007 the task of modernization of London Underground Infrastructure was entrusted to Metronet BCV and Metronet SSL. and the finance was provided by the Government under PPP.
But Metronet was unable to complete their job in the agreed time and believed cost of bet. By March 2005 Metronet had not completed the eight stations anticipated. Only 11 out of 35 channels were accepted as shipped by March and finally the London Underground Limited purchased 95% of Metrone's outstaniding debt burden from its private sector lenders in February 2008 rather than repaying this personal debt on the 30 years of the agreement. The Division for Move (DfT) made 1. 7 billion of offer available to help London Underground do it.
Causes of Failing of the Debacle of PPP
The following are some of the main reason behind the debacle of the PPP agreement.
- Poor Corporate Governance and Command structure of Metronet and tied Supply string management
- Supplier was failed to give timely information to Metronet management about the costs against delivery.
- Ambiguities in the opportunity of the project and poor program management.
- Also it was discovered that it was unable to do the the operation in the perfect way and lake of efficiencies in business supervision activities.
Conclusions
From the aforesaid dialogue on various dominant types of PPPs models we conclude that it's not always productive to enter in to a PPP agreement. So the federal should not enter into such agreement without exact and comprehensive assessment of the risk used in the private sector and a firm proven fact that what would constitute an appropriate price when planning on taking such level of risk. If it does not transfer a proper degree of risk to the private sector then it will not be availed. PPPs can be very helpful for the general public service delivery if the main drawbacks are reduced and to reduce the risk associated with these models we should apply each model according to the type of problem we have been solving. For instance if we need for Capital then BOT/BOO/Divestiture can be utilized. In case if we need for Competence and Performance then Management Agreement could possibly be the best option. But if we need for Competence only then Service Contract is the best option. Or if we are facing a complex problem which can not be fixed with one model a combination of the models can be utilized.
References
- www. ncppp. org/howpart/ppptypes. shtml
- Article by By Brig. Ahmad Riaz Siddiqi (Retd), X-Chief operating official FIEDMC (Dawn Saturday, December 20, 2008)
- PUBLIC - PRIVATE PARTNERSHIPS Models and Trends in europe Authors: Andrea RENDA (Senior Research Fellow, CEPS) and Lorna SCHREFLER (Research Associate, CEPS)
- India time. com http://www. cyfuture. com/disadvantages-of-outsourcing. htm
- http://www. investorwords. com
- The failing of Metronet Statement FROM THE COMPTROLLER AND AUDITOR Standard | HC 512 Session 2008-2009 5 June 2009 Section Of Management Sciences Ciit Islamabad
