Question

Describe the PPP and PFI financing models and how they work. Compare the two models.

Answer 1

Let us know what is meant by PPP and PFI financial Models

PPP - PPP Refers to Public Private Partnerships

Public Private Partnerships are one of the todays most widely used financial models in which the public(Government) and private enties share the capital outlay. This is generally done inroder to achieve cost optimisation to government entities. This type of model can be very widely seen in india where metros in well developed cities were constructed. PPP will be done in projects where it is a necessity for the public but the government does not have adequate funding.

Government intervention in PPP helps to put better welfare to the public and this helps to regulate the prices and also private intervention helps to reduce costs and overcome the flaws in the government sector .

PFI - PFI refers to Private Finance initiative

Private finance initiative is done where the private firms infuse the capital inorder to develop or construct a project generally this is done for infrastructure projects like roads etc. After the completion of the projects the projects were given back to public i.e the government and it is later on maintained and managed by the public . It is pertinent to note that the private firms get payments for the projects over the long term and the public entities pay the private firms interest and principal. This is well suited for government as it reduces the burden on them. Over a period of time the public entities can collect revenue from these projects and this revenue can be used to pay the private firms with principal and interest