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Sector: State Highway  |  Module 1: PPP Background

Overview of PPP modal variants

The main PPP modal families

Different PPP modes can be compared on a spectrum ranging between low and high levels of private participation and involvement. The four major “families” of PPP modes are:

  • Management contracts
  • Lease contracts
  • Concessions and Build-operate-transfer (BOT) and its variants

PPPs have given rise to an array of acronyms for the names that describe the variations in each modal family. A quick reference of the major PPP acronyms is provided in the Tools module. The main ones are also described in the table below.

Following this, the typical modes and characteristics for the Roads sector are given.

Characteristics of major PPP modal families and their main variants

MODES / FEATURES Asset ownership during contract PPP duration Capital investment focus & responsibility Private partner revenue risk and compensation terms Private partner roles Features, relevance in India & examples
Management Contracts Contractual arrangement for the management of a part or whole of a public facility or service by the private sector. Capital investment is typically not the primary focus in such arrangements.
Note: service contracts and management contracts of less than 3 years duration are not included in the definition of PPP in India.
Management Contract Public Short – medium
(e.g. 3-5yrs)
Not the focus
Public
Low
(Pre-determined fee, possibly with performance incentives)
Management of all aspects of operation and maintenance. This involves contracting to the private sector most or all of the operations and maintenance of a public facility or service. Although the ultimate obligation of service provision remains with the public authority, the day-to-day management control is vested with the private sector. Usually the private sector is not required to make capital investments.
These are prevalent in India across sectors. e.g., Karnataka Urban Water Supply and Improvement Project, performance based maintenance contracts in highways.
Management Contract (with rehabilitation/ expansion ) Public Medium – long Limited Focus Brownfield
(Rehabilitation / expansion)
Private
Medium
(Tariff / Revenue share)
Minimum Capex, Management, Maintenance This is similar to management contracts but include limited investments for rehabilitation or expansion of the facility.
This mode has been adopted in the power distribution and water supply sectors e.g. Bhiwandi Distribution Franchise, Latur Water Supply Project.
Lease Contracts Asset is leased, either by the public entity to the private partner or vice-versa.
Lease Public Medium
(e.g., 10-15yrs)
Not the focus
Public
High
Revenue from Operations
Management and maintenance e.g. Leasing of retail outlets at railway stations by Indian Railways
Build Lease Transfer (BLT) or Build-Own-Lease-Transfer (BOLT) Private
(Leased to the government)
Medium
(e.g. 10-15yrs)
Greenfield
Private
Low-medium
Pre-set lease from the government.
Capex Involves building a facility, leasing it to the Govt. and transferring the facility after recovery of investment.
Primarily taken up for railway projects such as gauge conversion in India in the past, with limited success.
Build-Transfer-Lease (BTL) Public Medium
(e.g., 10-15yrs)
Greenfield
Private
High
Revenue from User Charges
Capex and  Operations Involves building an asset, transferring it to the Govt, and leasing it back. Here the private sector delivers the service and collects user charges.
Concessions Responsibility for construction (typically brownfield / expansions) and operations with the private partner while ownership is retained by the public sector.
Area Concessions Public Long
(e.g. 20-30 yrs)
Brownfield/ Expansions
Private

High
Tariff revenue

Design, finance, construct, manage, maintain Herein the private sector (concessionaire) is responsible for the full delivery of services in a specified area, including operation, maintenance, collection, management, and construction and rehabilitation of the system.
Importantly, the operator is now responsible for all capital investment while the assets are publicly owned even during the concession period. The public sector’s role shifts from being the service provider to regulating the price and quality of service.
For example, water distribution concession for a city or area within the city.
Build-Operate-Transfer Contracts Responsibility for construction (typically greenfield) and operations with the private partner while ownership is retained by the public sector.
Design-build-operate (DBO) Public Short-medium
(e.g. 3-5 yrs)
Greenfield
Public
Medium-High
Tariff revenue
Design, construct, manage, maintain Not very common in India. Typically financing obligation is not retained by the public sector.
Build-operate-transfer (BOT)/ Design-Build-Finance-Operate-Transfer (DBFOT) Public Long
(e.g. 20-30 yrs)
Greenfield
Private
High
Tariff revenue
Design, finance, construct, manage, maintain Most common form of BOT concession in India.
e.g. Nhava Sheva International Container Terminal, Amritsar Interstate Bus Terminal, Delhi Gurgaon Expressway, Hyderabad MetroSalt Lake Water Supply and Sewage Disposal System.
Build-operate-transfer (BOT) Annuity Public Long
(e.g. 20-30 yrs)
Greenfield
Private
Low
Annuity revenue / unitary charge
Design, finance, construct, manage, maintain This has been adopted for NHAI highway projects in the past. More recently, it is the preferred approach for socially relevant projects where revenue potential is limited.
e.g. Tuni Anakapalli Project, Alandur Underground Sewerage Project
Build-own-operate Transfer (BOOT) Contracts Private partner has the responsibility for construction and operations. Ownership is with the private partner for the duration of the concession.
Build-own-operate-transfer (BOOT) or DBOOT Private Long
(e.g. 20-30 yrs)
Greenfield
Private
High
Tariff revenue
Design, construct, own, manage, maintain, transfer Most common form of BOOT concession in India.
For example, Greenfield minor port concessions in Gujarat are on a BOOT basis.
Build-own-operate (BOO) Private Perpetual Greenfield
Private
High
Tariff revenue
Design, finance, construct, own, manage, maintain Under this structure the asset ownership is with the private sector and the service / facility provision responsibility is also with the private sector.
Not common in India.

The characteristics in the tables are meant to be indicative of the typical differences between the modes. Further variations on each mode and blends of modes are possible and common. It is also likely that new variations will be developed as the PPP market in India evolves.

Sector specific PPP modal characteristics

Roads sector
The PPP mode for roads sector projects in India is affected by the following major characteristics of the sector:

  • Ownership of land for roads is public in India. Private ownership is not allowed under India law
  • The private sector roles can cover a broad spectrum from design and finance through construction, operation, revenue collection and management of the facility.
  • Roads projects that do not involve major capital investment (ie, are O&M only) are typically carried out as performance-based maintenance contracts
  • Capital projects are of two types: new build (Greenfield) or expansion or addition to existing roads (Brownfield)
  • Capital projects are typically carried out as BOTs
  • BOT contracts have a long duration to match the lifetime of the assets created
  • An important defining feature of a roads BOT is the revenue type. This can be:
    • user charges collected by the contractor (toll),
    • an annuity paid by the public partner, or
    • an indirect user charge that is paid by the public sector rather than being collected from users (shadow toll).

The main roads sector PPP modes and their characteristics are summarised in the table below.

Characteristics of typical PPP modes in the roads sector

MODES / FEATURES Asset
ownership during the contract
PPP duration Capital investment focus & responsibility Private partner revenue risk and compensation terms Private partner roles
Build-operate-transfer (BOT) Toll Public Long
(e.g. 15-30 yrs)
Brownfield or Greenfield Private High
Toll revenue
Design, finance, construct, manage, maintain and collect tolls
Build-operate-transfer (BOT) Annuity Public Long
(e.g. 15-30 yrs )
Brownfield or Greenfield Private Low
Annuity revenue / unitary charge
Design, finance, construct, manage, maintain
Build-operate-transfer (BOT) Shadow Toll Public Long
(e.g. 15-30 yrs )
Brownfield or Greenfield Private High
Shadow Toll revenue
Design, finance, construct, manage, maintain
Performance based Maintenance Contracts Public Medium
(e.g. 5yrs)
Not the focus Public Low
Pre-determined fee, based on performance
Management of all aspects of operation and maintenance.


PPP family indicator
There are relatively few possible variations in the PPP families for roads. For Capex projects (involving capital expenditure for the construction of new or expanded roads) the key characteristic that distinguishes different PPPs from each other is the choice of revenue source. This is effectively the allocation of revenue risk in the project, which depends on traffic volumes.

The family indicator allows one to quickly see the main choices that define a PPP mode for roads. It shows how the modes change when different choices are made. A screen shot is shown below. The PPP family indicator is available from the Tools module.

 

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