We distinguish PPPs with regards to kinds of partnerships. The public private relationship in PPPs can either be “horizontal” or “vertical” in nature. In a horizontal partnership both partners are directly engaged as shareholders in a special purpose vehicle (SPV), which is providing required infrastructure services. In a vertical partnership the public sector contracts with the private partner through a concession agreement or a PPP-contract, and the latter is responsible for providing required services.
PPPs can further be divided according to the existing mode of sector financing into user-financed and budget-financed models. Under the former model, the private partner has its investment recovered through user charges that are directly linked to the infrastructure or services, such as tolls, vignette, licensing fee, water tariffs and ticketing. While under the latter model the private partner delivers service in return of down payments made by the public partner that are commensurate with the service level provided or upon availability of the facility. A key government responsibility here is to decide which mode of financing to apply and the choice is subject to the nature of infrastructure
service as well as political and economic circumstances of that country. The structure of financing will also affect the level of efficiency gains achieved.
Under functional and material privatisations, there are various PPP contract models employed in the international practice for different sectors. These varying models of PPPs have become commonly known by the acronyms of the tasks delegated. The following gives more details regarding what
these models might entail:
Build-Operate-Transfer (BOT) arrangement involves the transfer of responsibility for constructing, financing and operating a single facility to a private sector partner for a fixed period of time. At the end of that period, the responsibility reverts to the public party. The bundling of building and operations allows for “lifecycle efficiency”. The additional financing cost incurred by using the private sector can be offset by a reduction in operating costs resulting from the lifecycle approach in design, construction and operation. BOT is perhaps the most familiar models of PPP and the basic concept has been employed with some variations in many different ways, including BOOT, DBLOT and DBROT. Some
models are more prevalent in some nations than others.
Design-Build-Finance-Operate (DBFO) means that the private sector partner is also asked to supply resources for having the project built. Future revenue streams are usually based on availability payments made by the public sector or shadow tolls. Hence this contract model belongs to typical budget-financed PPPs.
Build-Operate-Own (BOO) involves the granting of ownership rights in perpetuity to develop, finance, design, build, own, operate, and maintain an asset. The private sector owns the asset outright and retains the ownership and operating revenue risk, with no transfer to the public sector. It is hence categorised as material PPP.
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