PUBLIC & PRIVATE PARTNERSHIP (PPP)
Public and Private Partnership (PPP) is a commitment between the public and the private sector organization to recognize the cost effective and cost efficient infrastructure and services.
This analysis is done with respect to financing decision and risk associated with them. The survey is based on international literature review of public and the private partnership and market survey of public and the private partnership (PPP) projects. Market survey of public and private partnership is done with collaboration of German Federation experts.
Public and Private Partnership (PPP) Financing Model:
Public and Private Partnership (PPP) facilitates hundreds of projects in Germany to develop the country for the future under the state and federal legislation for both in the private and public sector to finance the project. Private financing is the key element for any investment, because private investor can raise huge amounts as compared to public investment. In the same way public & private partnership also involves private financing to estimate the best cost of the project by considering all relevant cost, that is maintenance cost, risk involves, initial investment, and any other borrowing cost associated with the project. Borrowing cost is one of the important costs of all these above costs; it is due to the liquidity risk associated with borrowing. Borrowing cost allows the borrower to make money from others money. Public & Private Partnership (PPP) normally transferred their risk to the private sector to achieve their desire goal more efficiently and effectively. Private sectors have access to capital markets all the time to finance the project even when public investment is not available. Public & Private Partnership (PPP) first takes investment from investors and then starts work and returns investment to investors as dividend or bonus and principal repayment.
The financial models adopted by the public & the private partnership (PPP) in Germany are;
- Project Financing Model, and
- Non-recourse Forfeiting Model.
Project Financing Model:
Project financing model is the model in which investor considers all the outcomes of the project in which investor is investing and any other asset, which is mortgaged against its investment. It represents the size of investment, terms and conditions of that investment in which investor is investing and benefits receive from this investment. While the other financing is the public financing in which the investor only considers the outcomes, not the overall results of this investment. Focus of investor inthe project financing model is on the outcome of the project to cover all the financial perspective of the project that is associated with the project.
The project financing is the risk borne financing by all the related parties of the contract. If any default made by the private contractor, investor has the option to change the contractor of the project in project financing model. It is the benefit of the project financing model in public private partnership (PPP). The project financing is the off balance sheet investment in the organization, which is beneficial for a private contractor, because off balance sheet financing only shows the liability in the balance sheet with no asset or investment on behalf of that liability. These types of off balance sheet financing are prohibited by different accounting and regulatory bodies, where there is a majority of shareholders' investment is in debt instruments.
Investment to the investor of public private partnership (PPP) would be returned in given time as specified in the terms and condition of the contract with certain limit of risk associated with the investment of an investor. The limited risk in financing model of public private partnership PPP secures the investment of the investor. Project financing model of the public private partnership (PPP), risk and return is associated with all the contracts and investments. The most of the financing in the project financing model would made through the mixture of debt financing, equity financing and mezzanine financing capital structure. Mezzanine capital financing is the expensive financing as compared to debt financing and equity financing in the project financing model of the public private partnership (PPP).
Non performance by the private contractor in the project financing model of public private partnership (PPP), investment of the investor would not be reduced by any additional cost which incurred due to insolvency of the private contractor. This additional cost would bear by the administrator of the insolvent private contractor. This contract would then be completed by the new contractor of the public private partnership (PPP) under project financing model.
Project Finance is the better option for investment if the investment high volume, risky and more complex projects in the public private partnership (PPP).
Non-Recourse Forfeiting of Installments (Forfeiting Model):
The non-recourse forfeiting model is the special contract of public and private partnership (PPP), in which the private contractor partially sells the right of claim on investment against the construction agreement with the bank..................
This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.
Related Case Solutions & Analyses:
Tesco PLC Case Analysis
Justin Anson Distillery Inc
The Case of the Unidentified Ratios
Cahiers du Cinema and The French Film Industry
Weathering The Storm of Investor Risk At RWE: WWF’s Assessment
China Merchants Bank (A): Ma Weihua’s First Challenges
Failure Of Corporate Governance At Ubs
Fortis Venturing (D2): Fortis Yacht Services
Foxconn And Blood iPhones?
General Maritime Corporation: Reaching Toward A Milestone
