Public Private Partnership

in Agriculture in India

Submitted To

Dr. Rajshree Upadhyay

Professor, Deptt. Of HECM

College of Home Science, Udaipur

Submitted By

Shalini Pandey

M.Sc. Final, Deptt. Of HECM

College of Home Science, Udaipur

Meaning

A public-private partnership is a contractual agreement between a publicagency (federal, state or local) and a private sector entity.

Through this agreement, skills and assets of each sector (public and private)are shared in delivering a service or a facility for the use of the general public.

Each party shares risks and rewards potential in the delivery of the serviceand/or the facility.

The public partners in a PPP are government entities, including Ministries,departments, municipalities, or state-owned enterprises.

The private partners could be local or international and may include businessesor investors with technical or financial expertise relevant to the project.

PPP broadly refers to long term, contractual partnerships between public andprivate sector agencies, specially targeted towards financing, designing,implementing, and operating infrastructure facilities services that weretraditionally provided by the public sector.

PPPs may also include non-government organizations (NGOs) and/orcommunity-based organizations (CBOs) who represent stakeholders directlyaffected by the project.

Effective PPPs recognize that each of the partners -the public and the privatesectors have their comparative advantages in performing specific tasks.

The government‘s contribution to a PPP may take the form of capital forinvestment (available through tax revenue), a transfer of assets, or othercommitments or in-kind contributions that support the partnership. Thegovernment also provides social responsibility, environmental awareness, localknowledge, and an ability to mobilize political support.

The private sector‘s role in the partnership is to make use of its expertise incommerce, management, operations, and innovation to run the businessefficiently. The private partner may also contribute investment capitaldepending on the form of contract. The structure of the partnership should bedesigned to allocate risks amongst the partners based on their capabilities tomanage those risks and thus, minimize costs while improving performance.

In a PPP, each partner, usually through legally binding contract(s) or some other mechanism, agrees to share responsibilities related to implementation and/or operation and management of a project.

This collaboration or partnership is built on the expertise of each partner that meets clearly defined public needs through appropriate allocation of:

Resources

Risks

Rewards

Responsibilities

Common elements of PPP includes:

a contract or an arrangement;

the provision of public infrastructure or services;

the transfer of risk from the public sector to the private sector;

a reward system based on performance or output; and

a focus on service delivery.

Definition

According to IMF(International Monitory Fund):

“Public-private partnerships refer to the private sector financing, designing,building, maintaining and operating infrastructure assets traditionally provided by thepublic sector.”

According to National PPP Policy, 2011

“Public Private Partnership means an arrangement between a government or statutoryentity or government owned entity on one side and a private sector entity on the other,for the provision of public assets and/or public services, through investments beingmade and/or management being undertaken by the private sector entity, for a specifiedperiod of time, where there is well defined allocation of risk between the private sectorand the public entity and the private entity receives performance linked payments thatconform (or are benchmarked) to specified and pre-determined performance standards,measurable by the public entity or its representative.”

The Planning Commission of India has defined the PPP in a generic

term as “the PPP is a mode of implementing government

programmes/schemes in partnership with the private sector. It

provides an opportunity for private sector participation in financing,

designing, construction, operation and maintenance of public

sector programme and projects”.

PPP Model on the basis of

Participation

Different Models of PPP

Supply and management

contracts

Supply or service

contract

Maintenance management

Operational management

Turnkey projects

Lease Concessions

BOT model and its

variations

Supply and management

contracts

Supply of equipment, raw materials, energy and power, and labour

are typical examples of supply or service contract.

Government provide license for supply of particular services/inputs.

The main purpose of such licensing is to ensure the supply of the

relevant service at the desired level of quantity and quality.

Examples of such an arrangement include, catering services forpassengers on railway systems (the Indian Railways).

Turnkey projects

Turnkey is a traditional public sector procurement model forinfrastructure facilities.

A private contractor is selected through a bidding process.

The private contractor designs and builds a facility for a fixed fee, rateor total cost, which is one of the key criteria in selecting the winning bid.

The contractor assumes risks involved in the design and constructionphases.

The scale of investment by the private sector is generally low and for ashort-term.

In this type of arrangement there is no strong incentive for earlycompletion of a project.

This type of private sector participation is also known as Design-Build.

The primary benefits of DB contracts include time and cost savings,efficient risk-sharing and improved quality.

Lease types of arrangements

In this category of arrangement an operator (the leaseholder) is

responsible for operating and maintaining the infrastructure facility

and services, but generally the operator is not required to make any

large investment.

In this types of arrangements, the operator takes lease of both

infrastructure and equipment from the government for an agreed

period of time. Generally, the government maintains theresponsibility for investment and thus bears investment risks.

The operational risks are transferred to the operator.

Under a lease, the operator retains revenue collected from

customers/users of the facility and makes a specified lease feepayment to the contracting authority.

Concessions type

In this form of PPP, the Government defines and grants specific rights

to an entity (usually a private company) to build and operate a

facility for a fixed period of time.

The Government may retain the ultimate ownership of the facility

and/or right to supply the services.

In concessions, payments can take place both ways:

concessionaire pays to government for the concession rights andthe government may also pay the concessionaire, which it provides

under the agreement to meet certain specific conditions.

Example of this type of agreement is BOT (Build-Operate-Transfer)

and its variation

BOT (Build-Operate-Transfer)

A model that entails a concession company providing the finance,

design construction, operation, and maintenance of a privatized

infrastructure project for a fixed period, at the end of which the

project is transferred free to the host government.

The granting of a concession by the government to a private

promoter, known as the concessionaire, who is responsible for the

financing, construction, operation, and maintenance of a facilityover the concession period before finally transferring the fully

operational facility to the government at no cost

Variation of BOT model includes:

BOO = Build-Own-Operate

BLT = Build-Lease-Transfer

BOOM= Build-Own-Operate-Maintain

BOOT = Build-Own-Operate-Transfer

BOOTT = Build-Own-Operate-Train-Transfer

BTO = Build-Transfer-Operate

DBFO = Design-Build-Finance-Operate

DBO = Design-Build-Operate

DBOM = Design-Build-Operate-Maintain

DOB = Design-Operate-Transfer

ROO = Rehabilitate-Own-Operate

ROT = Rehabilitate-Operate-Transfer

Preference of PPP Model in India

pre-liberalisation

• Used for two-thirds of the total PPP projects in India

• User-fee based BOT model: Widely used in medium- to large-scale projects, especially in energy and transport (road, ports and airports)

• Annuity-based BOT model: Commonly used in sectors/projects not meant for cost recovery by levying a fee on sectors such as health and education

BOT (Built-Operate-Transfer) model

• Contracts yield time and cost saving benefits; also enable efficient risk-sharing and improve quality

Modified

design-build

(turnkey)

contracts

• Suitable for sectors (water supply, sanitation, solid waste managementand road maintenance) constrained by the availability of economicresources to improve efficiency

Performance based

management/ maintenance

contacts

Need of PPP in Agriculture

Slow growth rate of agriculture in India (average growth rate of2.7% per year)

Agriculture is the primary source of livelihood for about 58 percent of India’s population

the country accounted for 2.07 percent of global agriculturaltrade in 2012

India, the second-most populated country in the world, has tomeet food consumption needs of around 1,210 million people.This is a key demand driver of agricultural growth in the country.

India’s consumption expenditure is likely to reach USD3.6 trillionby 2020, up from an estimated USD1.0 trillion in 2010

Development of Hybrid and genetically, modified seeds,mechanisation, irrigational facilities needed which requires moreinstitutional credits.

Source: Census of India 2011, Asian Development Bank

Need of PPP in Agriculture

Challenge to make agriculture and allied sectors more profitable, and toensure that rural population has a larger income to share..

The role of technology in meeting challenge is critical. So the need for newtechnologies with potential to provide holistic solutions, and the issues thatrelate to their dissemination and commercialization.

Government has limited resources.

Innovation and knowledge are critical factors for achieving sustainablecompetitiveness. We become involved in partnerships to gain access toknowledge and technologies and to develop innovations that otherwisewould be more costly for us to obtain or develop.

The growing complexity of technologies, the knowledge necessary todevelop chains and segments, and the scarcity of resources mean researchcannot be carried out in isolation, whether by science and technologyorganizations or enterprises from the productive sector.

Teamwork increases the quality and relevance of the results and the synergiceffects that occur when we collaborate with actors who have knowledgeand resources that we do not.

Need of PPP in Agriculture

There is a need of PPP in agriculture sector for following reasons:

Increasing focus on research and Development in agriculture

Rising MSP incentivize farming

Institutional credit for farmers

Growing yield and use of quality seeds

Increasing mechanization of farming

Growing area under irrigation

Food securing for increasing population

Agricultural inputs (Crop protection, Agricultural services, Seeds and fertilizers)

“What takes the government 50 years to achieve can be done by the private sector in a tenth of the time”

- Milton Friedman.

Advantages

On‐time delivery

Maximizes the use of each sector’s strength

Help in to modernize agriculture and revitalize rural economies

benefit to small-scale, resource-poor and marginalized farmers

efficient and cost effective delivery of projects

Increased efficiency

Advantages

Creation of added value

Leads to innovation

Alleviation of capacity constraints and bottlenecks

Competition and greater construction capacity

Increased accountability

Helps in providing better public services

Advantages

A way of developing local private sector capabilities

Creating diversification in the economy

Supplementing limited public sector capacities

Shared risk

Shared responsibility so more effectiveness

Integration of resources

Challenges of PPP

Misperceptions between public and private sectors with regard to intentions, goals and credibility of achievements.

Lack of accurate mapping of proprietary assets and responsibilities between these sectors for effective functioning.

Lack of appreciation and follow-up of best practices

Lack of political leadership, vision and strategy.

Risky investment for private organization.

Challenges of PPP

Gap between private sector and government ideology

lack of legal and policy framework.

Cost in PPP projects are likely to be greater than for traditional government procurement processes

There is a cost attached to debt

politically or socially challenging projects

Challenges of PPP

Private sector will do what it is paid to do and no more than that , Government responsibility continues

After taking expertise private sector may take advantage in the data relating to project..

it is difficult to identify all possible contingencies during project development

Inappropriate definition of project goals and scope

Inadequate attention to monitoring and evaluation

Present Status

According to the Department of Economic Affairs (DEA), around

758 PPP projects with a total value of USD71.7 billion were operative

in India by mid-2011 across various sectors.

India Infrastructure Finance Company Limited (a non-banking

financial company) was established to provide financial support for

projects with long gestation period.

To further simplify the compliance process, a Public Private

Partnership Committee (PPPAC) was formed. Since 2006 till date,

PPPAC has granted approval to 204 projects with a total project

cost of USD37.5 billion.

PPP in India : pre-liberalisation to

the present time

• The Great Indian Peninsular Railway Company (1853)

• The Bombay Tramway Company's tramway services in Mumbai (1874)

• PPP models in power generation and distribution in Mumbai and Kolkata

pre-liberalisation

• Just 86 PPP projects worth USD157.1 billion were awarded until 2004

• Large-scale private financing has been limited to Vishakapatnam andTirupur

1991-2006

• Growth in PPP to 758 projects costing USD70.1 billion by July 2011 from450 projects costing USD45.7 billion in November 2009After 2006

Source: The Department of Economic Affairs (DEA)

Sector wise PPP projects in India

Source: 12th Five Year Plan Document, PPP India database

Some examples of PPP Project

Project Golden Ray

PPP between the Government of Rajasthan and MIL which aims at

improving economic self-sufficiency of tribal maize farmers by

enhancing maize yields and incomes in five districts; Banswara,

Dungarpur, Udaipur, Pratapgarh and Sirohi.

e-Choupal,

(run by ITC, a private sector entity) shows how mutual cooperation

between ITC, rural entrepreneurs, state agricultural universities and the

Indian government's extension machinery has served to bolster the

farmer's expertise and day-to-day awareness of what needs to be

done to cope with myriad agricultural needs.

Project Management Agency (PMA): Small Farmer’s Agri-business

Consortium (SFAC), an organization promoted by Ministry of

Agriculture, Govt. of India has appointed AFC as a Project

Management Agency for Publicity and Awareness Building Plan to

support Venture Capital Assistance Scheme (VCAS) during XII Five

Year Plan(2012-2017).

To promote organic farming, AFC India Limited has been given theopportunity to implement the organic farming project named as

“Adoption and Certification of Organic Management System withonline Traceability for Facilitation Domestic Retail Chains and Export

in Gujarat, Chhattisgarh, Orissa and Haryana”.

Maharashtra government has initiated a Private-Public Partnership(PPP) for Integrated Agriculture Development (PPP-IAD) project

under the World Economic Forum’s (WEF) “New Agriculture

Initiative”. The idea is to create a value-chain in agriculture by

involving corporates that will work with farmers’ groups or

associations from production to marketing stage. Twenty-two

companies, 12 of them private sugar mills, have been selected and

have agreed to partner with such group in everything — from inputsand processing to marketing. They will be working in seven

categories of produces — sugar, cotton, oilseed, pulses, fruits,

vegetables and poultry.

PPP in Health

Public-Private Partnership or PPP in the context of the health sector is

an instrument for improving the health of the population.

PPP is to be seen in the context of viewing the whole medical sector

as a national asset with health promotion as goal of all health

providers, private or public.

The Private and Non-profit sectors are also very much accountable

to overall health systems and services of the country.

Therefore, synergies where all the stakeholders feel they are part of

the system and do everything possible to strengthen national

policies and programmes needs to be emphasized with a proactive

role from the Government.

Health Project on PPP mode

Yeshasvini Health scheme in Karnataka

Arogya Raksha Scheme in Andhra Pradesh

Contracting in Sawai Man Singh Hospital, Jaipur

The Uttaranchal Mobile Hospital and Research Center (UMHRC)

Emergency Ambulance Services scheme in Tamil Nadu

Urban Slum Health Care Project, Andhra Pradesh

Rajiv Gandhi Super-specialty Hospital, Raichur, Karnataka

Community Health Insurance scheme in Karnataka

PPP in Education

In the case of education, PPP has been proposed as an important strategy in the EleventhFive Year Plan.

Among many things, the Eleventh Plan has proposed the setting up of 6,000 new modelschools in secondary education, affiliated to the Central Board of Secondary Education.

Of these, 2,500 are to be under the PPP model. The intention is to set up these schools inthe backward regions and remote areas where good schooling facilities do not exist, sothat quality education is accessible in the backward regions as well.

According to the model finalised by the Planning Commission in consultation with theprivate sector, these schools will be set up by 2014 and will have the capacity to educate65 lakh students, of whom 25 lakh will be from the deprived sections.

Each school will have about 2,500 students, 1,000 of whom will be from deprived sectionsand charged a token fee. Fifty per cent of the 1,000 students will be from the ScheduledCastes, the Scheduled Tribes and the Other Backward Classes.

They will be required to pay a monthly fee of Rs.25 each. The rest of the children, who willbe from other deprived sections — non-income tax paying families — will be required topay a fee of Rs.50 a month . The remaining costs of these students, estimated to beRs.1,000 to Rs.1,200 a head per month, will be reimbursed by the Union government to theschools.

Suggestion for further: Need to introduce a course on agricultural regulations at graduation

level so that student are familiarized with the complexities of managing agricultural business.

Need for transparency and trust for mid-term review and for bilateral agreement for developing new technologies.

Clear laws for transfer of technology and sabbatical provisions for scientists to work with industry need to be established.

There is a need to create awareness among the stakeholders regarding various Government Schemes.

Moreover, to mitigate high risk in the sector, the investment proposal/schemes should include sufficient incentives to attract private entrepreneurs.

Collective action is needed for fulfill the needs of resource poor farmers and food‐insecure consumers.

In order to increase this share, policymakers should look at setting up an independent institutional structure for PPP handling, sector-specific regulatory mechanisms and higher level of transparency of information for PPP.