Public Private Partnership (P3) Designs
Updated: May 16, 2019
What's the difference between a normal project and a government project? How do you determine what to select? What's the most important factor to consider. Before we jump into the considerations we need to focus on fundamentals.
Let's talk about three types.
1) Build Operate Own (B.O.O.)
In a BOO project ownership of the project remains usually with the project company for example a mobile phone network. Therefore, the private company gets the benefits of any residual value of the project. This framework is used when the physical life of the project coincides with the concession period. A BOO scheme involves large amounts of finance and long payback period. Some examples of BOO projects come from the water treatment plants. These facilities run by private companies to process raw water, provided by the public sector entity, into filtered water, which is after returned to the public sector utility to deliver to the customers.
2) Build Operate Own Transfer (B.O.O.T.)
A BOOT structure differs from BOT in that the private entity owns the works. During the concession period the private company owns and operates the facility. The prime goal for a BOOT is to recover the costs of investment and maintenance. At the same time projects try to achieve higher margins on the project. The specific characteristics of BOOT make it suitable for infrastructure projects like highways, roads mass transit, railway transport and power generation. These projects have political importance for the social welfare but are not attractive for other types of private investments. BOOT & BOT are methods which find very extensive application in countries which desire ownership transfer and operations including.
3) Build Operate Transfer (B.O.T.)
A BOT finds extensive application in infrastructure projects and in public–private partnership. In the BOT framework a third party, for example the public administration, delegates to a private sector entity. The private sector entity designs and builds infrastructure. The private sector usually operates and maintains these facilities for a certain period. During this period the private party has the responsibility to raise the finance for the project. For raising funds the private party is entitled to retain all revenues generated by the project. Typically the private party is the owner of the regarded facilities. The facility will be transferred to the public administration at the end of the concession agreement, without any remuneration of the private entity involved.
When selecting a structure it's important to address the following
1. Who is financing the deal?
2. What are the tax exemptions and concessions?
3. What authority will the private party have to charge citizens?
4. Who is the payor (citizen or government)?
5. What are the work requirements for hire?
6. Is the country investment grade rated (BBB by Standard & Poor's, Moody's, or S&P)?
These questions greatly influence the viability of how, what, and where you utilize to making your P3 project a reality. All projects require money. A P3 is no exception. If you are looking at a P3 project that has no government funding gear up for owning the facility past the concession period. Margins for P3 are generally low. Without safety investors will not participate.
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Knight Advisory & Planning (KAP) is the only company to primarily focus on Public Private Partnerships (P3) since 2006. KAP operations are spread across countries of the world to serve this need. KAP Network consists of core partners surrounded by interlocking networks of consultants and affiliates in key trading countries and disciplines. We maintain Master Project Manager (MPM) who are American Academy of Project Management (AAPM) certified and are experienced in the following industries: construction, development, finance, technology, FinTech, biotechnology, production, R&D, and manufacturing. With over twenty (20) years of experience let us guide you through the P3 process.