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8/2/2019 SMN_PPP_Sep 07 Ver 2, 28th Sep

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Public Private Partnership, its Models and Applicability


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Public Private Partnership (PPP)

A strong and modern infrastructure is central to the progress and development of the economy and for

providing basic services that people need in their everyday life. ICTs have become identifiable as the key

enablers of socio-economic development and are also recognized as a critical tool in reducing poverty.

PPP can be termed as a contract arrangement between public bodies and private consortium that

synergizes the net effect and delivers results where public bodies may not have worked efficiently. PPP

describes a range of possible relationships among public and private entities in the context of

infrastructure and other services (ADB PPP Handbook).

PPP may encompass the whole spectrum of approaches from private participation through the

contracting out of services and revenue sharing partnership arrangement to pure non-recourse project

finance, while sometime it may include only a narrow range of project type. The PPP has two important

characteristics - an emphasis on service provision as well as investment by the private sector and

secondly transference of risk from the Government to the private sector. The PPP model is very flexible

and discernible in variety of forms. Although PPP has been utilized extensively in Energy, Telecom,

Transport and Water & Sewerage we would be focusing on its effects in Telecom industry.

PPP Models Categorized Description

Turnkey The private sector designs and builds infrastructure to

meet public sector performance specifications, often for a

fixed price, so the risk of cost overruns is transferred to

the private sector.

Operations, Maintenance and

Management

A private operator, under contract, operates a publicly-

owned asset for a specified term. Ownership of the assetremains with the public entity.

OMM: Operations, Maintenance &

Management

A private operator, under contract, operates, maintain,

and manage a publicly-owned asset for a specified term,

while the ownership of the asset remains with the public

entity.

Competitive Provision Service providers bid for the universal services fund that

covers some part of the cost required to provision the

universal service.

Subsidy Government offers subsidy to roll out networks and other

required infrastructure for provisioning of universal

services

Concessions Under a concession, the private partner (Concessionaire)

bears overall responsibility for the services. The fixed

assets either remain the property of the public authority

or revert to public ownership at the end of the concession

period.


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Leasing-type contracts

Buy-build-operate (BBO) Lease-develop-operate (LDO)

Wrap-around addition (WAA) Joint Ownership Model

The private sector buys or leases an existing asset from

the government, renovates, modernizes, and/or expands

it, and then operates the asset, again with no obligation

to transfer ownership back to the government. In the

joint ownership model, the government and a private-

sector partner team up to start a for-profit company

Build-operate-transfer (BOT)

Build-own-operate-transfer(BOOT)

Build-rent-own-transfer (BROT) Build-lease-operate-transfer

(BLOT)

Build-transfer-operate (BTO)

The private sector designs and builds an asset, operates

it, and then transfers it to the government when the

operating contract ends, or at some other pre-specified

time. The private partner may subsequently rent or lease

the asset from the government.

Design-Build-Finance-Operate (DBFO)

Build-own-operate (BOO) Build-develop-operate (BDO) Design-construct-manage-

finance (DCMF)

The private sector designs, builds, owns, develops,

operates and manages an asset with no obligation totransfer ownership to the government. These are variants

of design-build-finance-operate (DBFO) schemes.

Alternative forms of PPP with the expected duration and distribution of risks and investments can be

seen in this table.

Operation &

maintenance

Ownership Investment Commercial

risk

Duration

(years)

Managementsupport

Public andPrivate Public Public Public 1-2

O&M Private Public Public Public 3-5

Leasing Private Public Public

Semi-

private 8-15

Concession Private Public Public Public 20-30

BDO Private Public Public Public 20-30

BOT / BOO Private Public Public Public 20-30

Source: Gurber (2003) and OECD Secretariat

Each form of PPP has specific prerequisites to enable its proper implementation. PPP model that

transfers greater amount of risk to private sector would require a more sophisticated framework. Also

the interests of the government may be in deploying concession while private party may not be

interested if risk levels are high. The table below explains the prerequisites of different PPP options and

consequent legal and regulatory reforms that may be necessary to make necessary investments viable

and possible.


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OptionPolitical

Commitment

Cost

Recovery

Tariffs

Regulatory

Framework

Information

Base

Government

Capacity for

Contracting,

Management and

analysis

Service

ContractLow Low Low Low Moderate

Management

ContractModerate Moderate Moderate Low Moderate

Lease Moderate High High High High

Concession High High High High High

Build

Operate

Transfer and

Variations

High Variable High High High

Source: ADB PPP handbook, 2008

Public Private Partnerships: Industry Updates

Public-private partnerships provide key to successful development of Middle East healthcaresector

Public-private partnerships (PPPs) are being mobilized increasingly in the Middle East to deliver

better health sector infrastructure and services, according to PwC's Health Research Institute. In

a new report launched on the sidelines of the Arab Health in Dubai this week, PwC, the leading

international professional services organization, suggests that PPPs are emerging as a model for

financing and managing healthcare delivery. Developments in the Middle East show that this

trend will continue to grow in the region. Middle East have concession model successfully.

Canada Alberta SuperNet www.albertasupernet.ca The Alberta SuperNet uses an open access model which creates a competitive environment for

service providers who want to deliver ultrahighspeed services to their retail and business

customers. Axia provides Real Broadband guaranteed connectivity to all service providers,

leveling the playing field for both urban and rural customers in a geographic region. This

innovative approach to network design and management equal access to Real Broadbandconnectivity challenges traditional telecommunications providers, who have focused on

delivering network services to more densely populated areas where they have a large,

concentrated customer base and more manageable construction costs. This model can be

thought as Universal Service Fund so to speak as it has money being handed over to existing

service providers to provide access to underserved communities.
http://www.albertasupernet.ca/http://www.albertasupernet.ca/http://www.albertasupernet.ca/


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The Eastern African Submarine Cable System (EASSy) www.eassy.orgEASSy is a multi-country, multi-partner fiber-optic cable project that will connect 21 African

countries to each other and the rest of the world. The partners will be a combination of publicly

and privately owned entities. EASSy is set-up to operate as a non-profit making initiative and

endeavours to bring about substantial bandwidth cost reductions to the countries where its

members operate. The ownership structure of EASSy is a hybrid consortium of which one of

the members is the West Indian Ocean Cable Company Limited (WIOCC). WIOCC is a specially

created investment company owned by Djibouti Telecom (Djibouti), Dalkom (Somalia), Telkom

Kenya (Kenya), Uganda Telecom (Uganda), Zanzibar Telecom (Tanzania), ONATEL (Burundi), U-

COM (Burundi), Botswana Telecom (Botswana) and Telecommunicaces de Mocambique - TDM

(Mozambique), Lesotho Telecommunications Authority (Lesotho) and Gilat Satcom Limited

Nigeria.

Bangalore One (B1) www.bangaloreone.gov.inAnother Indian project, B1 is a BOT contract between the State of Karnataka and private

consortium of CMS Computers Ltd. and Ram Informatics. The objective is to provide a one-stopshop via public center kiosks for all Government to Business (G2B) and Government to Citizen

(G2C) services in the state. The Government personnel responsible for providing services prior

to B1 were redeployed into the service of B1. The private operator is paid a fixed fee for each

transaction carried out. UTI Bank is also providing financing by paying the salary of 200 kiosk

employees. The bank makes up the costs out of the one-day float it gets to hold on the cash

collected.

Estonia Rural ConnectivityEstonia has one of the highest degrees of connectivity in Europe as a result of the focus placed

on the development of a core network infrastructure and provision of access to the general

population. Through a BOO contract with the Estonian Telephone Company, the companyhelped to ensure connectivity in rural and scarcely populated areas in return for lucrative urban

contracts. The government is actively extending connectivity throughout the nation. By 2002

Estonia had approximately 300 public Internet access points providing free email and Internet

access.

MSC MalaysiaIn 1996 the Government of Malaysia announced its plans to develop the Multimedia Super

Corridor (now called MSC Malaysia). Supporting the mega-project was the Governments

electronic governance policy, which sought to transform the relationship between the

Government and its citizens according to new, indigenous (non-Western) models of

development. As with its past infrastructure mega-projects, the Government of Malaysia relied

heavily on partnerships with the private sector to develop and invest in the new MSC and to

provide the infrastructure and operate the applications and services of the new e-Government

program. The Multimedia Development Corporation (MDeC) oversees the development of MSC

Malaysia. Initially a Government-owned corporation but now incorporated, MDeC markets the

MSC globally and facilitates applications by multinational and local companies to re-locate to

MSC Malaysia. This model can be thought of as BOOT model for realization of the mega project.


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Smart Village is a technology park that was designed to remove obstacles to ICT firms investingin Egypts ICT sector. Within two years of its inauguration in 2005, the Smart Village hosts a

growing number of IT companies including multinationals, local and regional enterprises, start-

ups, training centres, the ITU Arab regional office, and the Ministry of Information and

Communication Technology (MCIT). The project is a PPP between the MCIT and a private

consortium. Under the partnership, the MCIT provided 300 acres of land (20% of the cost) and

the private investors financed the remaining 80%.

Hong KongESDlife is a bilingual portal in Hong Kong, developed and maintained through a Design-Build-

Own-Operate (DBOO) model that implemented the governments Electronic Service Delivery

(ESD) Scheme. Under this contract the private operator, ESD Services Limited and Hewlett-

Packard HK SAR Limited), is responsible for developing, financing, operating, and maintaining

the portal in return for the Government paying transaction fees to the private operator after

the transaction level has reached a pre-agreed volume

Egypt Free InternetEgypt's Free Internet Project is an initiative by the Ministry of Communications and Information

Technology in Egypt, to provide everyone nationwide with easy and affordable access to the

Internet at the cost of a local call and with no additional subscription fees. Today, Internet users

all across Egypt are only charged for the price of local phone calls associated with connecting to

the Internet. The Free Internet Initiative is based on an offloading/revenue sharing model: ISPs

are allowed to co-locate their access equipment at Telecom Egypt local exchanges. Thus

customers' Internet calls are serviced at the closest local exchange and re-routed to the ISP data

backbone, resulting in major offloading of Telecom Egypt PSTN network. In return for offloading,

revenues from the Free Internet calls are shared between Telecom Egypt and the service

providers. This concept is based on an Offloading / Revenue Sharing model.

Another example of joint ownership model was used when the Egyptian government wanted to

build an e-payment system, and for this purpose it formed a publicprivate partnership. Egypt

government took a 60 percent stake in the new company and the two private partners had a

combined 40 percent stake thus both the government and the private sector had a combined

stake in the newly formed corporation.

IndiaIn India similar Universal Service Fund has been established to promote telecom growth. Here it

is funded through Universal Access Levy and charged at 5% of the revenue of telecom service

providers. To date, various PPP models have been tried in India, including public contracting;passive public investment (equity, debt, guarantee, grants); joint ventures; and long-term

contractual agreements (BOT, BOOT, BOLT).

SingaporePrivate sector derive revenue from providing information and transactions and revenue is

shared between private sector and Government. The onemotoring site caters to transactional


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services, Information services and Commercial services using DBFO model. ITE College West

(Institute of Technical Education) is the First social infrastructure PPP project in Singapore

where Gamon Capital would design, build, maintain and operate the education facility for a

period of 27 years.

Source: PPI, World Bank

We see that partial divestiture projects and Merchant type Greenfield projects dominate the

landscape in the above region -GCC countries are not covered in the above chart.

Universal Services Obligation Worldwide

Globally, about 120 governments have officially defined elements of telecom Universal Services in their

respective markets. Out of these 120 countries, around 50 plus have implemented universal services

schemes whereby operators can apply for subsidies to offer essential services, or intend to do so in the

near future. Levies on operators are the main sources of funding, ranging from 0.04 percent of revenues

in Estonia to 5 percent in Colombia and India, and 6 percent on certain services in Malaysia.

Mobile telephony can lead to economic growth both directly and indirectly, however relying on

technology alone to provide development solutions is an incomplete answer, and that governments

have an essential role to play in the development process. The relationship between economic

development and mobile communications is two-way process. A positive relationship has been found

between telecommunications investment and economic growth while and that this impact was more

significant for developing countries (Curwen and Whalley, 2011).

Internet access brings with it a wide range of benefits and advantages for all communities. This is

especially true for rural and remote areas as Internet brings access to resources that are even less likely

to be available in these communities. Broadband has been proven to increase educational access, access

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2004 2005 2006 2007 2008 2009 2010

$millions

Middle East North Africa South Asia

Build, operate, and transfer Build, own, and operate Management contract Merchant Partial


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to medical professionals and access to e-marketplace. This helps creates many new opportunities for un-

served and underserved areas residents (Peha, 2003).

Some of the most commonly used Universal Services Funding methods include the following

Universal Service Fund (USF) widely used, with around 60 instances are under implementation

worldwide, although around 25% of those in existence are available for funding the incumbent only.

Most countries were not able to disburse more than quarter of funds collected. Intelecon goes on to

suggest that no developing country has distributed more than 2% of the collected funds.

Countries with USFs available to Other Licensed censed Operators include Australia, Bulgaria, Canada,

Ecuador, Hungary, India, South Korea, Morocco, New Zealand, Pakistan, and Spain

Internal Cross-Subsidies chiefly used by incumbents, but by some other licensed carriers as well,

often in conjunction with direct subsidies or balancing USF payments from government

Examples include Austria, China, Estonia, Japan, South Africa and the USA. Some countries e.g.

Ireland, Liechtenstein, and Sierra Leone- use a Self-Financing model where Universal Service is financed

by receipts from interconnection access payments

Direct Subsidy in Botswana, the Czech Republic, Iran, Kuwait, Mexico, Nepal and Vietnam, the

national government has directly funded the provision of Universal Service

Competitive Provision adopted in Angola, India, Niger, Oman, and Sri Lanka amongst others. InGermany, operators bid competitively for meeting Universal Service Obligations but are expected to

fund at least a measure of the resulting costs through internal cross-subsidy

Universal Services Obligation in SAMENA Region

1. Pakistan, USFEstablished in 2006, USF spread the benefits of the telecom revolution to all corners of the country. The

fund consists of contributions (1.5% of adjusted revenues) by the Telecom Operators with no

Government funding involved.

Four major areas currently being covered by USF includes

1. Rural Telecom Program2. Broadband Program3. Optic fiber cable project4. Special Projects


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Universal Service Fund (USF) has also launched special projects to establish Multi-purpose Community

Telecenters and Telemedicine Networks all over the country. These projects aim at introducing and

promoting e-services in the country especially where availability of PCs and computer literacy are the

main issues.

Universal Service Fund (USF) is also trying its bit to contribute in other fields. The Special project ICT for

persons with disabilities involves providing ICT related equipment to institutions for special persons.

Universal Service Fund (USF) is also encouraging its contractors to go for Alternative Energy Solutions

like Solar so that at least a few hundred radio base stations start running with alternate sources of

energy.

2. QatarThe State of Qatar has implemented the highest principles of globalization through a policy ofliberalization and modernization.

"There was pro-activity on the part of Qatar's government authorities to develop significant public-

private partnerships in Qatar to protect the economy and its banking system from the consequences of

the current global financial crisis. The Qatar Investment Authority last year offered to invest in new

shares between 10%-20% of the capital of the main Qatari banks." (R Seetharaman, Group CEO of Doha

Bank.)

Some example of Qatari and international projects

Villagio Shopping Mall (BOT). Some electricity generators owned by Qatar General Electricity and Water Corporation

(Kahramaa) (BOO).

Some Qatar local companies are currently contracting with local and internationalcorporations in real estate and construction sectors (BOT).

Item Egypt Malaysia Philippines The Republic of Czech

Number of projects

executed through private

sector partnership

16 81 78 68

Volume of private sector

partnership (USD billions)

6.207 37.845 31.533 16.822

Public Private partnership: Global Initiatives

Australia


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Over the past few years, Australia has been quite active in terms of strengthening its science and

innovation system. Structural reforms across a broad front have contributed to this achievement,

including science and innovation policy initiatives that have consolidated and broadened the basis for

economic growth in the country, by accelerating the transition from a natural resource-based to aknowledge-based economy.

A range of schemes have been introduced with the primary aim to encourage and facilitate public-

private partnerships for innovation (PPP), which together represent about 9% of the total S&T budget.

The report briefly described these PPP schemes in terms of their specific aim, mechanism and size.

Building on this innovation strategy, the government developed a set of National Research Priorities in

2002: An Environmentally Sustainable Australia; Promoting and Maintaining Good Health; Frontier

Technologies for Building and Transforming Australian Industries; and Safeguarding Australia.

Australia has used both BOT and BOOT models successfully to establish PPP ventures. In order toincrease the level of private sector research and to improve the linkages between the many actors of the

innovation system, the Australian government has undertaken a range of policy measures since the

1980s, ranging from measures supporting the research undertaken in industry (e.g. competitive grants,

R&D tax concession) and programs encouraging multinational firms to establish a research base in

Australia, to measures aimed more directly at the establishment of contacts, interaction, collaboration

and partnerships between public sector institution and the private sector. The latter received an

increasing priority in the 1990s.

Developments in Middle East, Africa and South Asia and SAMENA position

In the last decade 12 countries of Middle East and South Africa had PPP investments of around US$54

billion the emphasis was on new green field projects. New telecom operators attracted US$26.5 billion

investment. South Asia was dominated by India getting almost three quarters of regional investment

with a total investment commitment of around US$189 billion (PPI, Worldbank).

GCC countries are facing market saturation and falling ARPU which has led them to exploit mobile

internet access proactively and also other alternative sources of revenue. Since most Gulf governments

hold majority stakes in 10 out of the 15 mobile operators in the GCC region private competition has to

be introduced to allow the sector to grow. PPP can help by allowing private sector to invest in provision

of VAS and manage the entities either through BOT or concession to squeeze more revenue out of the

saturating market where traditional streams of revenue are no longer growing. Vodafone Qatar was able

to increase penetration by targeting lower income segment and further as the Telecom Special Report

by Ford (2011) suggests more growth is possible. The onus is on governments to let in competition to

fuel market growth otherwise ARPU will keep on falling.


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SAMENA can help in highlighting opportunities in GCC telecom and initiating dialogue with respective

GCC operators on need for bringing in private partnership to increase competition and ARPU. Further in

MENA countries telecom has been the most significant investment option so there is need for

highlighting opportunities in countries like Syria, Lebanon, Iraq, Yemen, and even in Bangladesh and Sri

Lanka of how private partnership can foster growth using existing USF funding and engage with

governments for management/lease type contracts or concessionary funding to utilize the opportunities

for growth.

Conclusion

Information and communication technologies drive economic growth, the debate on universal access

policies is shifting from access to basic voice services toward national broadband coverage. Developing

an economy whose workforce is able to create, adopt and access technology requires policies that take

advantage of market forces while maintaining technology neutrality to remain effective. Broadband has

been in focus by many USFs what needs to be done to ensure that Broadband development in

underserved and un-served areas can deliver an improvement in citizens quality of life.

More than 50 countries have been listed by Hudson as having some sort of USF program, however most

countries were not able to disburse more than quarter of funds collected policies need to be

developed to ensure that designated development does ensure the charter of USF. State regulation of

the telecom sector must be independent, effective, and transparent, in order to inspire investors

confidence and ensure fair competition that will benefit consumers.

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MENA Countries

Energy Telecom Transport Water and sewerage


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Sources:

1. http://www.usf.org.pk2. www.lirneasia.net3. Public-Private Partnership in Indian Infrastructure Development: Issues and Options by

Lakshmanan, Reserve Bank of India Occasional Papers

4. PPP for research and innovation: An evaluation of Australian Experience, OECD Report, 20045. Towards a New Public Private Partnership Model PPP Model6. Public Private Partnerships: Managing Opportunities and Risks7. PPP ICT Case Studies8. Public-private partnerships an international analysis9. The European Internet Industry and Market10.Public-private partnerships in Qatar lauded, Gulfbase11. (2008), ADB PPP Handbook12.PPI, Worldbank database13.Peter Curwen, Jason Whalley, (2011) "The restructuring of African mobile telecommunications

provision and the prospects for economic development", info, Vol. 13 Iss: 2, pp.53 71

14. John M. Peha, (2007) Bringing Broadband to Unserved Communities, Hamilton ProjectDiscussion Paper

15.Neil Ford, (2011) Changing the focus of Middle Easterntelecoms, The Middle East16.Sumit K. Majumdar, (2010) Do cross-subsidies hinder telecommunications market entry?, info,

VOL. 13 NO. 2 2011, pp. 85-96

17. John Luiz, (2010) "Infrastructure investment and its performance in Africa over the course of thetwentieth century", International Journal of Social Economics, Vol. 37 Iss: 7, pp.512 536

18.Heather E Hudson, (2010) Defining Universal Service Funds, Inter media, Vol 38, issue 1

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