Investment Models – Part 2

Investment models Part 1

Investment models – Part 2

Types of investment models

Part 2

Public private partnership (PPP) Models

  • PPPs are formal long-term arrangements between government and private companies to share risks and rewards in the delivery of public services and infrastructure.
  • Large-scale infrastructure projects, such as roads, bridges, or hospitals, are usually completed with private funding through public-private partnerships.
  • PPP model maintains the responsibility of the government for providing the services, while ensuring private capital and efficiency as a best of both worlds’ scenario.

Models of PPP

  • Under this model, the private company is given a contract to manage a part of or the whole of a public facility or a service for a set period of time.
  • The ownership of the assets remains in the hands of the government, which reduces the financial risk of the private entity since it is not required to make any capital investments.
BOT (Build Operate Transfer):
  • This is a traditional PPP model in which the private partner is responsible for designing, building, operating for the contracted period while the public entity retains the ownership.
BOT Annuity
  • This model is commonly adopted by the NHAI, for the building of highways, especially for those projects where the potential for generating revenues is limited.
  • The responsibility for designing, building, managing, and maintaining the asset lies with the private entity.
  • However, the risk for the private entity is relatively low as it receives a fixed sum as annuity from the government at regular intervals throughout the duration of the contract.
BOO (Build Own Operate):
  • Under this model, the private entity will retain the ownership of the newly constructed facility.
BOLT (Build Operate Lease Transfer):
  • In this approach, the government allows the private entity to build (and possibly design) a facility, which it will own, lease the facility to the public sector enterprise, and then transfer ownership of the facility to the government at the end of the lease period.
DBFOT (Design Build Operate Transfer):
  • In this model, the private party has the sole responsibility for the project’s design, construction, financing, and operation during the concession period at the end of which it has to transfer the ownership to the government.
Engineering-Procurement-Construction (EPC) Model:
  • In this model, the private entity is responsible for designing, and building the asset without government funding.
  • After building the asset, it is transferred to the government which will remain the owner.
  • The private entity does not have the responsibility of operations and management and is given a lump-sum amount by the government for its role.
Hybrid Annuity Model (HAM)
  • In this model, the government will fund 40% of the project cost, and private entity has to finance the remaining 60%.
  • The ownership, as well as operations, remain the responsibility of the government while the private entity has to provide their engineering expertise.