slum rehab through ppp model

7/31/2019 Slum Rehab Through PPP Model

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1. Introduction

A Public-Private Partnership (PPP) is a partnership between a public sector entity (sponsoringauthority) and a private sector entity (a legal entity in which 51% or more of equity is with the private

partner/s) for the creation and/or management of infrastructure for public purpose for a specified

period of time (concession period) on commercial terms and in which the private partner has been

procured through a transparent and open procurement system.(Department of Economic Affairs,

Ministry of Finance, Government of India, 2007)

In some types of PPP, the government uses tax revenue to provide capital for investment, with

operations run jointly with the private sector or under contract (see contracting out). In other types

(notably the private finance initiative), capital investment is made by the private sector on the strength

of a contract with government to provide agreed services. Government contributions to a PPP mayalso be in kind (notably the transfer of existing assets). In projects that are aimed at creating public

goods like in the infrastructure sector, the government may provide a capital subsidy in the form of a

one-time grant, so as to make it more attractive to the private investors. In some other cases, the

government may support the project by providing revenue subsidies, including tax breaks or by

providing guaranteed annual revenues for a fixed period.

Typically, a private sector consortium forms a special company called a special purpose vehicle

(SPV) to develop, build, maintain and operate the asset for the contracted period. In cases where the

government has invested in the project, it is typically (but not always) allotted an equity share in the

SPV. The consortium is usually made up of a building contractor, a maintenance company and bank

lender(s). It is the SPV that signs the contract with the government and with subcontractors to build

the facility and then maintain it. In the infrastructure sector, complex arrangements and contracts that

guarantee and secure the cash flows, make PPP projects prime candidates for Project financing.

A typical PPP example would be a hospital building financed and constructed by a private developer

and then leased to the hospital authority. The private developer then acts as landlord, providing

housekeeping and other non medical services while the hospital itself provides medical services.


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2. Basic PPP structure-:PPP structure can be quite complex involving contractual arrangements between a number of parties,

including the government, project sponsor, project operator, financiers, suppliers, contractors,

engineers, third parties (such as an escrow agent), and customers. The creation of a separate

commercial venture called a Special Purpose/Project Vehicle (SPV) is a key feature of most PPPs.

Fig13: PPP structure

The various parties and their respective roles in PPPs include:

Public agency: purchaseThe role of the public body is to specify clearly the desired outcomes or outputs, and to avoid

identifying a particular means of delivering these. If services are delivered in accordance with the

agencys performance standards, they then pay the PPP provider (most often, the SPV).


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Service providers: Design, construction, operation and maintenance

Private actors have a crucial role in developing innovative solutions in order to meet the requirements

of the PPP in an effective and efficient manner. Typically, the SPV will subcontract construction,

operations and equipment supply to suitable providers, who may be the parent companies of the SPV

and therefore, also equity investors in the project. The SPV also needs to raise the necessary capital to

build the assets required for service delivery. Once service delivery has commenced, the payment it

receives from the procuring agency can be used to pay suppliers and subcontractors and repay debts.

Private financiers: Equity investment and debt provision

Generally, the construction and operations companies which make up the SPV are also the equity

investors. Equity stakes may also be taken by fund managers and other financial institutions. Because

of their interest in generating a return on their outlay, equity investors have a strong incentive to

ensure high standards of service performance. The PPP contract provides the sole source of revenue

for the SPV and provided the latter meets the required standards, it will be paid by the public authority

and so can service its debts.

Consultants: Project advice

Both the public body and the private sector consortium may decide to engage technical, legal and

financial consultants to assist in structuring the tender or composing a viable PPP proposal.

Experienced advisors can bring their knowledge and expertise to highlight best practices, as well as

identify potential problems and pitfalls.


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3. Main features of PPPCooperative and contractual relationships

PPPs represent cooperation between the government and the private sector. PPPs are not the same as

privatization in that both public sponsors and private providers function as partners throughout project

development and delivery, and often in operation and maintenance.

PPP arrangements are long-term in nature, typically extending over a 15 to 30 year period. This is a

factor which helps to which establish productive and lasting relations between the public and private

sectors. Demonstrating an enduring public sector commitment to the provision of quality services to

consumers, under terms and conditions agreeable to both the government and the private sector, PPPs

are used to develop and operate public utilities and infrastructure.

Shared responsibilities

While the specific responsibilities for delivery will vary according to each project, a key feature of

PPPs is that these responsibilities will be shared between the public body and the private consortium.In some initiatives, this might require the private sector company to play a significant role in all

aspects of delivery of the service, while in others its functions may be more limited. However, unlike

instances of privatization, the overall role of government remains unchanged in a PPP: it is the

government which remains ultimately accountable and responsible for the provision of high quality

services that meet the public need.

Method of procurement

PPPs are instruments for government bodies to deliver desired outcomes to the public sector, by

making use of private sector capital to finance the necessary assets or infrastructure. The private

company is rewarded for its investment in the form of either service charges from the public body,revenues from the project, or a combination of the two. This renders affordable those projects that

might not otherwise have been feasible, because the public body was unwilling or unable to borrow

the requisite capital.

PPPs allow the private sector to play a greater role in the planning, finance, design, operation and

maintenance of public infrastructure and services than under traditional public procurement models.

Risk Transfer

A key element of PPPs is their potential to deliver public projects and services in a more economically

efficient manner. At the beginning of the relationship, potential risks associated with the project are

identified and each party adopts those which it is best equipped to manage. The public sector can

therefore transfer appropriate risks to the private partner, who has the necessary skills and experience

to manage them.

For example, overall risk to the public sector can be reduced by transferring those associated with

design, construction and operation to the private partner. The incentive for the private body comes in

the form of higher rates of return related to high standards of performance.

Flexible Ownership

PPPs enable flexible arrangements between public and private bodies, where the public body may or

may not retain ownership of the project or facility that is produced. In some cases, the private

organization may be contracted only to construct facilities or supply equipment, leaving the public

body as owners, operators and maintainers of the service.


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3. Requirement of PPP for Slum RehabilitationThe investments for creating and augmenting urban infrastructure comes from various sources -

Government of India, State Government, Financial Institutions, External Development agencies,

internal accruals of Urban Local Bodies and private entities.

Investment by Government of India is routed through Jawaharlal Nehru National Urban Renewal

Mission (JNNURM), but even in that program, the funds fall short of the investment requirements. A

preliminary analysis of the projects submitted to the Ministry of Urban Development for approval

under JNNURM shows the following pattern:

Fig14: Graph showing cost of City Development Plan

Therefore for investment requirements other than the projects submitted for approval under JNNURM

the funds will be limited. In such a situation it becomes imperative for the Urban Local Bodies to lookfor alternate sources of investment like financial institutions, external assistance and PPPs. This has

become the basis for growing interest of PPP among all levels of administration.

3.1.Benefits to the Private PartyThe rehabilitation programme which is implemented through Public Private Partnership (PPP) is

designed in such a manner that the private companies invest money in return for commercial benefits

from the special FSI concessions given to them under this programme. In this manner, private and

Government agencies could work together for the social upliftment of the slum dwellers and thus

help in reconstructing the city and in turn build a new India.


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4. ConclusionSlums play a number of essential roles in a city life. As a place of residence for lowcost labour, they

keep the wheels of the city moving in many different ways. As a first stopping point for immigrants,

they provide the affordable housing that enables them to save for their future absorption.

Slums play a significant role in producing the services and commercial activities that the formal sector

fails to provide through the mobilization of local enterprises and industry. Moreover, slums are places

where different cultures get a platform to mix among them resulting in new forms of artistic

expression.

However, on the negative side, slums are home to toxic and harmful industrial activities, waste

materials, ill health, crime, and polluted land.

The slums have mostly poor quality housing and residential infrastructure. Having said this, when

40% of the of the urban population lives in slums, it becomes extremely important to recognize both

these aspects of slum behaviour so that they are awarded their rightful place in the centre of policies

and politics

The PPP mechanism is facilitating the governments better responsiveness to consumer needs and

satisfaction. PPP is enabling the government in providing viability gap funding with the objective of

making the project commercially viable. This is further encouraging in creation of assets and their

management and operation through private investment.


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References

http://www.iipsenvis.nic.in/Newsletters/vol5no1/page_3.htm

http://escapefromindia.wordpress.com/2007/12/19/55-mumbai-44-meerut-40-of-pune-indias-top-list-

on-slum-population/

www.magicbricks.com

www.thetimesofindia.com

http://muinfra.com/ud.htm

www.pppindia.com

http://www.bharatestates.com/pune/

www.doccentre.org/

http://www.homeless-international.org/Our-Work/where-we-work

Asha Kiran, Seattle Quarterly Version,VOLUME 12 - ISSUE 2,APRIL 2006

http://shelter-associates.org/sites/default/files/Comprehensive-strategies.pdf

Ministry of Housing & Urban Poverty Alleviation

Government of India

Website:http://mhupa.gov.in

Prof. Vinit MukhijaEnabling Slum Redevelopment in Mumbai:Policy Paradox in Practice, Department of Urban

Planning, UCLA

Slums Improvement and Development Schemes & Policies

P K Das - Architect and Activist, 2005\

Department of Urban Development,Housing & Local Self Government,Government of Rajasthan

June, 2010

www.punecorporation.org/

http://hbswk.hbs.edu/item/6399.html

www.makingcitieswork.org/urban.../case-studies-and-lessons-learned.

SPECIAL REGULATIONS FOR PUNE AND PIMPRI CHINCHWAD,SLUM REHABILITATION

AUTHORITY

Times of India. 1990. August 11, Thackerays Housing Plan Unrealistic.

Times of India. 1991. February 21, Extra FSI for Social Service Bodies.Times of India. 1995. August 05, Builders See a Killing in State Housing Plan.
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slum rehab through ppp model

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