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PPP TOOLKIT for Improving PPP
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Sector: State Highway  |  Module 1: PPP Background

PPP supporting environment

Private sector appetite and capacity

For a PPP to be successful and least-cost, there needs to be a healthy level of competition among potential bidders. This means there are a number of potential private partners actively participating in the market for PPP projects, each with the technical and financial capacity to undertake the project.

Assessments of private developer interest can be made from the response to previous PPP opportunities, either in the same State or authority or elsewhere in India for similar projects. The best indicator is the number of firms submitting bids following pre-qualification. The number of responses to pre-qualification notices can also be used to help assess interest. Where no similar projects exist, then evidence of private sector interest might include the number of visits made by potential developers to discuss project opportunities and other enquiries received.

The risk that there won’t be enough interest and competition for the PPP among the private sector has two clear consequences: failure at the procurement stage or a weakened procurement exercise that results in poor value for money for the public sector.

If the PPP fails to attract bidders at the procurement stage there will be a cost to the public sector in terms of the resources that were put into developing the project and preparing the bid. If very few bidders respond to the tender but procurement goes ahead it is much more likely that the value for money from the PPP will be reduced as a result of weakened competitive pressures. It should be noted that this can mean both a worsened financial outcome for the public sector and lower quality of services.

Three levels of private partners may be targeted: firms based locally to the project (in the same State or municipality), national firms, and international firms.

The Sponsoring Authority may invite bids from Indian firms active in other States and at the national level and from international firms. In addition to adding to the competitiveness of the market for PPPs, international firms can bring valuable experience and knowledge transfer to both public and private partners in India.

Potential private sector partners will be required to meet minimum criteria with regards to their ability to carry out the technical, financial and operational aspects of the project. The pool of potential private sector providers will be largest for small projects and those using PPP modes for which the transfer of roles and risks to the private sector is relatively lower, for example in management contracts.

 

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