PPP model and its significance in Nepal

PPP and how it helps development

Public Private Partnership (PPP) is a long-term arrangement in which the government and a private party share the finance, risk and responsibilities for building and running infrastructure or providing a public service. The private party usually recovers its investment from user charges or from payments by the government.

Common forms: Build-Operate-Transfer (BOT), Build-Own-Operate-Transfer (BOOT), Build-Own-Operate (BOO), concession, lease, and management contract.

 Government ----- agreement ----- Private company
 (policy, land,                   (finance, design,
  regulation)                      build, operate)
        \                           /
         +------ Public (service, tariff) ------+

Benefits

• Mobilises private capital, so projects can start without waiting for the government budget.
• Brings private management, technology and efficiency, with faster completion and better maintenance.
• Shares and transfers risk (construction, cost and demand risk) to the party that can best manage it.
• The government can use its limited funds for social sectors like health and education.
• Creates jobs and skills.

Significance for Nepal

Nepal needs huge investment in hydropower, roads, airports, water supply and urban infrastructure, but the government's budget and capacity are limited, so PPP is very important. Examples are independent power producers such as Khimti (60 MW) and Bhotekoshi (45 MW), which sell electricity to the Nepal Electricity Authority under power purchase agreements. Nepal has the Investment Board Nepal Act 2068, the PPP Policy 2072, and later the Public Private Partnership and Investment Act 2075 to support large PPP projects.

Cautions: weak contracts, unfair tariffs, political instability, land acquisition problems and lack of transparency can cause failure, so the private partner should be selected by the fair, open and competitive procedure of the Public Private Partnership and Investment Act 2075.