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- 10 Marks
Question
Public Private Partnership (PPP) arrangements can take different forms ranging from simple models to complex models. PPP arrangements may differ from one jurisdiction and economy to another. There are, however, typical types of PPP contracts that are common to all jurisdictions and economies.
Required:
Explain FOUR (4) typical types of PPP contracts.
Answer
- Operate and Maintain (O&M):
- Explanation: In an O&M arrangement, a private sector operator is contracted to operate and maintain a public service facility. The contracting entity or grantor retains ownership of the facility, while the operator manages day-to-day operations.
- Characteristics:
- The facility remains fully owned by the grantor.
- The operator is paid a fixed fee or commission for their services.
- The grantor is responsible for capital expenditures related to the facility.
- The operator typically does not assume risks related to the asset’s condition.
- Contract duration ranges from 1 to 5 years.
- Build-Operate-Transfer (BOT):
- Explanation: In a BOT arrangement, the private sector entity designs, finances, and constructs an infrastructure project and operates it for a specified period. After the end of the contract term, the ownership is transferred to the public sector entity.
- Characteristics:
- The operator is responsible for construction, operation, and maintenance.
- The operator recovers costs through revenues generated during the operation period.
- The grantor assumes ownership of the asset after the contract term expires.
- The contract duration is typically long-term (e.g., 20-30 years).
- Design-Build-Finance-Operate (DBFO):
- Explanation: In a DBFO model, the private sector entity designs, builds, finances, and operates a project, typically with the objective of recouping costs through user charges or government payments over a long-term period.
- Characteristics:
- The private sector assumes the risk of financing and building the facility.
- The operator is responsible for maintaining and operating the facility.
- The public sector may offer financial support through subsidies or availability payments.
- The asset is transferred to the public sector at the end of the contract term.
- Service Concession:
- Explanation: A service concession involves the public sector entity granting a private sector entity the right to operate and manage a public service facility while meeting specified performance standards.
- Characteristics:
- The operator is responsible for both operational and investment activities.
- The grantor sets the prices for the service and may regulate pricing adjustments.
- The operator must return the asset to the grantor in a specified condition at the end of the contract period.
- These agreements are typically long-term to allow the operator to earn an acceptable return on investment.
- Topic: Public sector financing initiatives
- Series: NOV 2021
- Uploader: Theophilus