Public private partnership: Part II

PPP is an agreement/contract between Public agencies and Private sectors. Public and Private sectors joins hands to undertake a project.

Public and Private Partnership may be defined as ” A corporate venture between the Public and Private sectors, build on the expertise of each partner that meets clearly defined Public needs through the appropriate allocation of resources, risk and rewards.

PPP is a joint venture of Public and Private sectors and collaboration between Public and Private sectors. The PPP depend on the expertise of both the Public and Private sectors. PPP is a contract that involves a contract between Public and Private sector in which Private sectors provide a Public services/Projects and assume substantial, financial, technical and operational risk in the project. PPP is a step toward involving Private sector and to hold them accountable for input. PPP address peoples needs clearly through the appropriate allocation of resources, risk and rewards. PPP is growing day to day because it is an efficient way of delivering the Public services to the masses.

ADVANTAGES OF PPP:

Some of the advantages are

1. Diversification of Risk.
2. Efficiency.
3. Cost effective ( time and money saving).
4. Creation of value added goods and services.
5. Accountability for provision of quality services.
6. Effective utilization of state assets.
7. Innovation and diversity in Public Private services.

DISADVANTAGES OF PPP:

Disadvantages of PPP are

1. Complexity of the Project.
2. A construction delay in the projects.
3. Operational difficulty.
4. Financial risk.(the risk that the project don’t get funds/finance).
5. Commercial risk (Demand and payment risk).
6. Changes in Exchange rates.
7. Regulatory (Changes in laws like tariffs)
8. Political situation.
9. Force majeure (Natural disasters).

TYPES OF PPP MODELS:

Different types of PPP models are

1. Service contracts.
2. Management contracts.
3. Leasing contracts.
4. Concession contracts.
5. Green field contracts.
6. Build, Operate transfer contracts.
7. In design build finance contracts.

Now a brief overview of these contracts and their strengths and weaknesses.

Service contracts:

Service contracts is a contract between public agencies and private sectors and is suited for simple and short term requirements. It is the limited type of PPPs model. In this agreement the Private party procure operation of an assets for short period. The period of two to five years. In this contract the responsibility for investment and management of the project are of the Public sector and also bears the financial and residual value risks. While the Private sector provides the services.

Potential Strengths:

The main advantages of service contracts are

• It provides us relatively low risk option for the expansion of Private sector.
• It is less expensive to deliver the public services.
• It encourages the competition the Private sector.
• It is a good source of technology transfer.
• It is less costly.

Potential weakness:

The main disadvantages of this contract is

• It is a short term contract/project and is not suitable for to pool up capital.
• Loss of managerial control.
• Loss of flexibility.
• Loss of internal and external focus.
• Loss of competitive edge.

Management contracts:

In this type of Contracts the responsibility for the operation and management is passed to the Private sectors. The life of these types of contracts are from three to five years but can be extended. The Private sector/party is remunerated/hired on a fixed fee basis or on the incentives or bonuses basis linked to a related or specific task. In these types of contracts the Public sector bears the financial and investment risks. This is an efficient way undertaking a project because the Private sector is efficient and have enough skills and strong interest in improving the service quality.

Potential strengths:

The main advantage of these contracts are that the ownership remains with the Government and only the operation and management is transferred to the Private party. Management contracts are less controversial in nature. These types of contracts are less expansive because the Private sector is more efficient and can do the job betterly than the Public sector because of the experienced and skilled management.

Potential weakness:

Some of the major disadvantages of management contracts are

• The government gives a certain portion of control to the Private sector which may lead to low quality services.
• Delay in time.
• The flexibility in these contracts are finished or reduced.
• The quality of the product is reduced.
• The Private party must be clearly evaluated for best performance.

Leasing contracts:

Leasing means when one party lesser gives his assets to another party lessee on some fixed payments. In leasing the Private party purchase the income streams generated by the Public owned assets for an exchange of fixed leased payments and the Private party is responsible for maintenance and operation of the assets. The duration of leasing is from ten to twelve years.

Leasing contract is best for Infrastructure development.

Potential strengths:

The leasing finance is a fixed rate finance. Leasing is inflation friendly. Through leasing and this contract brings efficiency in the Public service delivery. In leasing contracts the Private sector competitively bid for the lease means providing the services to the general people. The increase in the leasing contracts is almost due to the improved and new technology.

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Potential weakness:

As we know that the leasing contract is based on the streams of payments/installments made by the Private sector but if the Private sector doesn’t make payment in time than a problem arises and one of the main disadvantage of leasing contract for the Private sector is that the responsibility for maintenance and capital investment is of Private sector.

Concession contracts:

Concession contracts is a type of leasing contracts in which the ownership of the assets remain with the Government and the Private party is responsible for the maintenance of the assets and also to provide the capital investment and at the end or completion of the project the Government receive the project and pay a certain sum of amount to the Private party according to the contract. In these type of contracts the Government gives concession to the Private sectors to explore some thing like oil and gas.

Potential strengths:

The advantages of the concession contract is that it mobilize the funds/capital from the Private sector for the construction and exploration of existing projects. In concession contracts the Government assets are properly utilized and maintained by the Private sector efficiently and after completion the Private sector gives the project/assets to the Government and the Government pays a certain amount of money to the Private sector according to the contract. Through bidding the contract Government creates competition among the Private sector which leads to low cost.

Potential weakness:

One of the major disadvantage of this contract is that the timing/validity of these projects are more and these contracts are long term contracts which leads to complexity. The maturity of these projects are more than 20 years. Due to the longer period it is difficult to manage and organized. It requires complex monitoring and design system and also reduce competition because a few big Private contractors are available.

Green field contracts:

These types of contracts are mostly used for the development of new projects. In these type of contracts the government only provide the land to the private sector. Examples of Greenfield contracts are projects like new factories, airports, development of parks which are build from scratch.

Potential strengths:

In green field contracts the Government only provide the assets and the Private sector build, design, develop and manage the assets. It is used for developing the new projects like parks and airports etc.

Build, operate transfer contracts:

In these types of contracts the Private party is responsible for the designing, constructing and the operation of the assets. In these types of contracts the government bears the financial risk but have control to stop the project at any stage.

These types of contracts are best for water and wastage projects.

BOT has the following types.

• Built own operate transfer (BOOT).
• Built lease operate transfer (BLOT).
• Built rent operate transfer (BROT).

Potential strengths:

The risk is shared with the Private sector. Due to the efficiency in the Private sector the Government gives projects to the Private sector. The Private sector is responsible for the design, construction and service delivery. The Government gives these types of projects mostly to the experienced and skilled Private sectors. It also facilitate the transfer of advanced technology by introducing international contractors in the host country. It is an effective way to bring the Private funds for development of new projects like infrastructure and water enhancement development.

Potential weakness:

Some of the main disadvantage of this contract is that it is not suitable for small projects. The transaction cost in the BOT is higher as compared to the other contracts. The success of the BOT project depends upon the funds raising and when substantial revenue are generated in the project during the operation phase. BOT contracts may be costly some times.

In design build finance contracts:

In these types of contracts the Private sector/party design the goods and services according to the requirement setted by the Government entities.

These type of contracts are best for roads construction and water.

Potential strengths:

The Private sector contractor is responsible for the design and the construction. Subject to the provision that the contractor is not, under an unamended JCT WCD, responsible for any design provided to him in the Employer’s Requirements document, the employer should have a single point of responsibility and liability against the contractor. This is more advantageous than the traditional forms of contract where the employer has entered into separate construction and design agreements. A common problem being that if a claim is made, the contractor, architect or other design consultants may argue over the extent of their responsibility.

This contract is time saving means that the Private sector are interested to complete the project quickly and is also cost saving and the product is of good quality because the Private sector is more efficient than Public sector and the product is prepared according to the government requirements.

Potential weakness:

The main disadvantage of this contract is that government mostly give the projects to the large Private sectors and ignores the small Private sector and also reduce the competition through ignoring the small sectors. There may arise the problem of favoritism and also the cost of project may arise through reducing competition in the Private sector and also may arise problems in designing. The perception remains, certainly amongst architects, that design and build is not the appropriate procurement method where design quality is a high priority. There is only limited scope for the employer to make changes to his

requirements once the Employer’s Requirements and Contractor’s Proposals have been agreed otherwise the cost consequences may be prohibitive.

A case of Public Private Partnership of the Melaka-Manipal Medical College:

Background:

Melaka-Manipal Medical College is the first Indo-Malaysian joint venture in private medical education. The proposal was conceived from the ‘Look East Policy’ of the former Prime Minister, Tun Dr Mahathir Mohamad. He recognized the need for greater South-South cooperation in the economic and social sectors. This led to the signing of an agreement in New Delhi in 1993, witnessed by both the Prime Ministers of Malaysia and India. The agreement was between the Joint Venture Medical College Corporation (JVMC) Malaysia and the Manipal Academy of Higher Education (MAHE) India to offer a twinning programme leading to the MBBS degree. The objective was to provide additional doctors for Malaysia and offer opportunities for students in this region to study medicine at a cheaper cost than in the West. From 1953 to 1993, Manipal had trained over 2700 doctors from Malaysia. The situation changed in 1993 with the new policy on admission of foreign students to medical colleges in India. Malaysia was suddenly in urgent need of training opportunities within a minimum lead period. The Melaka-Manipal

Medical College seemed to be an excellent idea.

The Partnership Process

The partners in the Joint Venture Medical College are:

• State Government of Melaka.
• Manipal Group.
• Members of the Indian Diaspora.

Contribution of Government of Malaysia

Use of Hospitals and Health Centers in two states MMMC is allowed to use the facilities of the General Hospital at Muar and Melaka and Health Centers for the purpose of the teaching and training of students.

• Teaching Staff

• Consultants in the hospitals assist in the clinical training of the students. Over 100 consultants work as part time teachers. The Malaysian Medical Council considers the services of 3 part time faculty equivalent to 1 full time employee.

• Supervisory and Advisory Services

• The government regulatory bodies i.e. the Malaysian Medical Council and the National Accreditation Board supervise and provide advisory services to ensure maintenance of minimum standards in conformity with government regulations.

• Financial Assistance to students

• Government agencies provide scholarship to deserving students admitted to MMMC.

Contribution of Private Partners

Basic Science Training at Manipal

There is a shortage of basic science Faculty in Malaysia hence the excellent facilities at the Manipal Campus India are used for the first phase.

• Infrastructure for the Melaka Campus

• Construction of the campus at Melaka including hostel and recreational facilities comparable to the best in the country.

• Provision of Patient-Care Service

• MMMC provides faculty to augment patient-care at the hospitals and health centers.

• Provision of trained medical officers to meet country’s requirement

• The newly graduated doctor is required to undergo compulsory rotating resident houseman ship for a period of one year.

• Training of staff in the Health Centers and arranging CME for doctors

• These activities help in upgrading the standards of doctors and Para medical personnel in the health centers. The CMEs arranged allow doctors to keep abreast with advancing medical knowledge.

BENEFITS FOR ALL, A WIN WIN SITUATION:

Outcomes and Benefits for Malaysia

• The Joint Venture helps the health sector in Malaysia to move towards the desired doctor: population ratio in a planned manner. MMMC has contributed 213 doctors in the past two years.
• Since the clinical training is carried out in Government Hospitals and Health Centers in Malaysia, the graduates are very conversant with the functioning of the government health sector and national health policies. Induction of trained faculty from India augments the specialist manpower in Malaysia. The Melaka-Manipal Medical College would otherwise have drawn a large number of specialists from the Malaysian health delivery system.
• There is an extreme shortage of teachers in Basic Sciences hence this phase of training is carried out in India. The college helps to create an academic and research environment in the Government Hospitals used for teaching, thus upgrading their quality of care.

Benefits for the Students

• An opportunity to study medicine in a situation where capacity is restricted.
• Cost of education is considerably less than studying in the western countries. Living on a multidisciplinary university campus at Manipal gives the student a unique cross-cultural experience and builds confidence and independence.
• The student becomes a part of an esteemed educational system with an international reputation and a worldwide alumnus.
• The clinical phase is carried out in government hospitals in Malaysia where the students work with patients and staff from different ethnic backgrounds akin to their own. This allows for effective communication and rapport and seamless merger into the environment into which they ultimately will work.

Benefit Outcomes for the Private Partners

For Manipal, the establishment of the college in Malaysia, gives the opportunities

to:

• Establishing a medical college in the minimum lead period and at favorable costs because of the public-private partnerships.
• Retain old links with India, having trained 2700 Malaysian doctors in Manipal
• To establish its reputation and brand name Overseas to acquire the best practices in medical education and health delivery and to prepare for global competition

Limiting Factors for A PPP:

Medical Education in India is regulated by the Medical Council and the Ministry of Health. The present statutory conditions imposed by the MCI do not allow for the flexibility that is required to foster partnerships between the Public and Private sectors.

The regulations are too stringent with regard to ownership and operation of teaching hospitals,

For the local partners to share in the thrill of creating an institution in the service of their

country and the reputation and financial gains that will accrue in the future.

Conclusion of the Case:

It has been a very rewarding experience to work with the public sector in Malaysia. Good governance and an enabling environment have allowed for a trickle down effect, in that the value of such cooperative efforts seems to be known to all categories of employees. This facilitates excellent work relationships allowing for a participatory process which is stimulating. The Regulatory process is positive with the correct focus on quality. As an

incremental approach Manipal is exploring the possibilities of starting Dental, Pharmacy, and Allied Health Programmes. The success of the venture is due to the pragmatic approach of the Government of Malaysia towards Public Private Partnerships in education and healthcare.

Conclusions:

From the above discussion and after studying the models of PPP it is clear that The Partnership is not always fruitful for the Government SO a Government should enter to contracts with Private sector after assessing the Private sector efficiency and the Government must have to share the risk with the Private party. If Government does not transfer an appropriate level of risk to the private sector then it should not be availed. But after entering the successful contract with the Private sector the Government can easily deliver quality services.

References:

• Articles from Newsletter.
• www.pppcouncil.ca
• www.pcp.org.pk
• www.books.google.com.pk
• Kathmandu University Medical Journal (2005) by Nagra JS.
• Article by Mohammed Jalaudin.