The National Highway Authority of India (NHAI) has announced plans to offer at least two highway upgrade projects to private players under the Public-Private Partnership (PPP) framework using the Build-Operate-Transfer (BOT) model. This article explores the various aspects of this approach including the BOT model, the advantages and challenges involved with it, the concept of PPP, and other models of PPP.
Understanding the Build-Operate-Transfer (BOT) Model
In the BOT model, a private player is given a concession to finance, construct, and operate a project for a specific period of time, typically 20 or 30 years. The developer recovers their investments via user charges or tolls imposed on customers using the facility, thereby taking on a certain level of financial risk.
The BOT model works as follows: Private companies agree to invest in a public infrastructure project, then secure their own financing to build said project. Once built, the private developer operates, maintains, and manages the facility for an agreed concession period, recovering their investment through charges or tolls. After this period, ownership and operation of the facility are transferred back to the government or relevant state authority.
The Benefits and Challenges of the BOT Model
Among the advantages of the BOT model are that it allows governments to benefit from the private sector’s finance mobilization and management skills in building, operating, and maintaining projects. BOT provides incentives for enterprises to improve efficiency through performance-based contracts and output-oriented targets and ensures the projects are completed at the lowest possible cost.
However, this model also presents some challenges. For instance, it can take a long time and significant upfront expenses to prepare and close a BOT financing deal due to the multiple entities involved and the complex legal and institutional framework required.
Deciphering Public-Private Partnership (PPP)
A PPP is an arrangement between the government and the private sector for the provision of public assets and/or services. This partnership model works well when private sector technology and innovation combine with public sector incentives to complete work on time and within budget. However, PPP projects have sometimes been mired in disputes over existing contracts, non-availability of capital, and regulatory hurdles related to land acquisition.
Exploring Other Models of PPP
Several other PPP models are worth mentioning. The Engineering, Procurement, and Construction (EPC) model sees the government bearing all the costs, inviting bids from private players for engineering knowledge. The Hybrid Annuity Model (HAM) is a mix of the BOT-Annuity and EPC models where the government contributes 40% of the project cost in the first five years through annual payments. The rest of the payment is made based on the assets created and the performance of the developer.
Other models include Build-Own-Operate (BOO), Build-Own-Operate-Transfer (BOOT), Build-Own-Lease-Transfer (BOLT), Design-Build-Finance-Operate (DBFO), and Lease-Develop-Operate (LDO). Each of these models offers a unique approach to partnership between the public and private sectors, catering to different kinds of projects and specific requirements.
The NHAI’s plan to offer highway upgrade projects under the PPP framework using the BOT model represents an important strategy for leveraging private sector resources and expertise in public infrastructure development. While this approach has its challenges, properly managed it can provide significant benefits in terms of efficiency, quality, and cost-effectiveness.