Source: The Economic Times
Indian Economy
Why in News?
Recently, the Department of Economic Affairs (DEA), Ministry of Finance notified India Infrastructure Project Development Fund Scheme (IIPDF Scheme), a scheme for financial support for project development expenses of Public-Private Partnership (PPP) Projects.
What is IIPDF Scheme?
About:
- The IIPDF Scheme was set up in 2007.
- It is a Central Sector Scheme with total outlay of Rs 150 crore for a period of three years from 2022-23 to 2024-25.
- It is available to the Sponsoring Authorities for PPP projects for meeting the project development costs.
- It would be necessary for the Sponsoring Authority to create and empower a PPP Cell to undertake PPP project development activities and also address larger policy and regulatory issues.
Objective:
It is aimed to provide financial support for quality project development activities.
Significance:
The Sponsoring Authority will, be able to source funding to cover a portion of the PPP transaction costs, thereby reducing the impact of costs related to procurement on their budgets.
Financial Outlay:
- The IIPDF will contribute upto 75% of the project development expenses to the Sponsoring Authority as an interest free loan. The balance 25% will be co-funded by the Sponsoring Authority.
- On successful completion of the bidding process, the project development expenditure would be recovered from the successful bidder.
- However, in the case of failure of the bid, the loan would be converted into grant.
- In case the Sponsoring Authority does not conclude the bidding process for some reason, the entire amount contributed would be refunded to the IIPDF.
What is PPP?
About:
PPP is a partnership between a government agency and private-sector company can be used to finance, build and operate projects, such as public transportation networks, parks, and city centers.
There has been commendable progress in addressing the problems in PPP models. Still, there is a need to revisit PPP models for greater benefits.
Types of PPP Models:
Build-Operate-Transfer (BOT):
- It is a conventional PPP model in which the private partner is responsible to design, build, operate (during the contracted period) and transfer back the facility to the public sector.
- The private sector partner has to bring the finance for the project and take the responsibility to construct and maintain it.
- The public sector will allow private sector partners to collect revenue from the users. The national highway projects contracted out by NHAI under PPP mode is a major example for the BOT model.
Build-Own-Operate (BOO):
In this model ownership of the newly built facility will rest with the private party.
On mutually agreed terms and conditions the public sector partner agrees to ‘purchase’ the goods and services produced by the project.
Build, Own, Operate, Transfer (BOOT):
In this variant of BOT, after the negotiated period of time, the project is transferred to the government or to the private operator.
BOOT model is used for the development of highways and ports.
Build-Operate-Lease-Transfer (BOLT):
In this approach, the government gives a concession to a private entity to build a facility (and possibly design it as well), own the facility, lease the facility to the public sector and then at the end of the lease period transfer the ownership of the facility to the government.
Design-Build-Operate-Transfer (DBFO):
In this model, entire responsibility for the design, construction, finance, and operation of the project for the period of concession lies with the private party.
Lease-Develop-Operate (LDO):
In this type of investment model either the government or the public sector entity retains ownership of the newly created infrastructure facility and receives payments in terms of a lease agreement with the private promoter.
It is mostly followed in the development of airport facilities.
Engineering, Procurement, and Construction (EPC) Model:
- Under this model, the cost is completely borne by the government. Government invites bids for engineering knowledge from the private players.
- Procurement of raw material and construction costs are met by the government.
- The private sector’s participation is minimal and is limited to the provision of engineering expertise.
- A difficulty of the model is that financial is the high financial burden for the government.
Hybrid Annuity Model (HAM):
In India, the new HAM is a mix of BOT-Annuity and EPC models.
As per the design, the government will contribute 40% of the project cost in the first five years through annual payments (annuity).
The remaining payment will be made on the basis of the assets created and the performance of the developer.
