Innovation the key for PPP project operational models

In addition to the traditional BOT (build-operate-transfer), TOT (transfer-operate-transfer), and ROT (rehabilitate-operate-transfer) models, a vast number of innovative operational models for PPP (public-private partnership) projects have arisen in light of the specific circumstances of each such project.

Project bundling model

Looking at current PPP project practice, on the one hand there is a stampede by investors towards for-profit type projects that produce good returns, whereas quasi-for-profit projects are unable to cover the investment costs and produce reasonable returns, and non-profit projects are unsaleable, requiring fiscal subsidies or the injection of capital by the government. As an answer to this problem, a number of projects appeared in 2015 where the private investor was selected by project bundling. A non-profit project or quasi-for-profit project is bundled with a for-profit project that produces relatively good returns, thus ensuring that the private investor receives a reasonable return while also driving the development and construction of the non-profit or quasi-for-profit project.

The authors have seen a variety of ways in which projects can be bundled. For example, highway projects with different traffic volumes and different return rates can be bundled together. Or a public interest project and its adjacent extension or complementary commercial projects can be combined into a project bundle and investors then sought to operate in the same way as a single PPP project, e.g. the “subway plus the property above the subway” development model, and the stadium plus adjacent catering, leisure and other such complementary facilities model. Or small and scattered projects can be bundled together as one to achieve economies of scale, e.g. rural sewage treatment projects.

One of the infrastructure projects handled by the authors in a certain area falls into the typical project bundling model, with the types of project involved covering a shanty area improvement, a railway project, a new coastal city, and construction of a new economic development zone.