Feasibility, Implementation and

Policy Framework of Public

Private Partnership in the

Indian Education System

ABSTRACT This paper Identifies and critiques the models of Public

Private Partnership (PPP) implemented in the Indian

school and higher education system. It Examines the cost-

benefit analysis of the current structural models existing in

India and other nations using the data highlighting the

expenses for project appraisal, and the role of various

parties (public andprivate). Lastly, it proposes effective

solutions to enfore PPP in Indian education.

Sudiksha Joshi Intern, National Institute for Transforming India (NITI) Aayog

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UNIT 1: INTRODUCTION

There are more than 8.1 million children out of school in India despite numerous governmental initiatives.

Heralded in 2001, the Sarva Shiksha Abhiyan program has enrolled over 60 million additional children into

school, achieving near gender parity. Nonetheless, India stands in crossroads with inequality, poor education

quality and high dropout rates in the deteriorating education system.

The Ministry of Human Resource Development has targeted to achiever 30% Gross Enrollment Ratio (GER)

by 2020. To achieve this target wherein 40 million students would be enrolled in higher education system,

the CAGR needs to push up the growth rate to 8% yearly. Currently, 14.6 million students are enrolled in the

higher education sector, and an estimated 25 million new vacancies would be required by 2020 to cater to

the increased demand. Further, India would require additional 6,000 universities and 35,000 colleges over

the next 12 years.

There is a huge demand-supply gap in this sphere- while the demand is mushrooming at 20%, supply is

struggling to catch-up at 11%. Considering the finite financial resources with state and central governments,

and the gaping gap between demand and supply, we should unleash the power of Public Private Partnership

in lower and higher education system by devising and revising old and new models, facilitative norms and

regulatory mechanisms.

The mandate for PPP in higher education comes from The National Knowledge Commission with dual role of

government in supplying land, and private’s role in administering finances. Under the PPP approach, private

sector usually delivers the services, and the government is responsible for pumping in the resources. PPP

brings together actions based on mutually agreed goals and principles, entailing mutual accountability,

reciprocal obligations, partaking risks and investment, and jointly executing administrative duties.

Objectives of Public Private Sector Participation in Education:

● Facilitating trust between public and private sector.

● Designing transparent and accountable management system and

● Achieving higher quality education through an accreditation system.

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UNIT 2: PPP IN INDIA AND CHALLENGES FACED

EXISTING OR PLANNED PPPs

School Management and School Adoption PPP Models:

● Punjab Adarsh Model School Scheme

● Rajasthan Education Initiative

● Municipal Corporation of Greater Mumbai’s PPP policy

● Gujarat PPP policy and the central government’s Model School scheme

AIDED SCHOOLS

Aided school models unlock PPPs in school education where the goal was to widen access to schools.

Using government funds, Private partners run aided schools. Currently, aided schools enrol 16 million

elementary level students.

Financial Model

Private partners incur costs for infrastructure and state governments renumerate teachers computed on per

student basis. Private partners derive non salary grants for repair and maintenance costs, purchase of

educational aids and other utility receipts. These grants compose of estimated 5% of total governmental aid.

PUNJAB: ADARSH MODEL

Adarsh Model School Scheme was launched to expand and address the defaults for secondary schools in

villages. Students are exempted from fee and 25% of the vacancies are filled with children of panchayat

body, which had provided land.

Scaling 8-10 acres of land, the panchayat leases them for 99 years priced at Rs 50 per acre. They apportion

Rs. 7.5 crore of capital expense in a 7:3 ratio between government and private partners to maintain each

school of up to 2,000 children. Unavailing to perfect the standards, private operators can take over the

school from the government and charge fees from 75% of the enrolled children other than those from the

villages whose panchayats provided land to the operator. If the private operator also defaults on its

obligations, the state level Punjab Education Development Board (the overarching department for managing

Adarsh Schools), can take over the schools.

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State Level Management: Primary Responsibilities of PEDB

● Changes in state policies affect Adarsh schools.

● Display grants for capital disbursement and operating expenses punctually to the private partners.

● Inspecting the work of Adarsh schools, producing annual comprehensive reports of each Adarsh

school and ruling actions, wherever deemed appropriate.

● Determining benchmarks that define improvements and achievements in Adarsh schools.

RAJASTHAN EDUCATION INITIATIVE

Rajasthan’s 2 models of PPP in education are – the school adoption model and the Design Build Finance

Operate and Transfer (DBFOT) model. Both aim to leverage the private sector to amplify technology in

middle and senior schools in villages.

Bharti Foundation

Bharti Foundation recompenses refurbishment expenses and stipends teachers. Presently, government

does not reimburse the operational funding on a per student basis. It particularly enrolls girls, drop-out

children and socially and economically backward children.

Block Resource Coordinators periodically audit schools and Bharti Foundation submits monthly progress

communiques to REI elaborating strides on definitive parameters. The government evaluates the project

quarterly and deploys third party committee to assess every alternate year. Members of this committee

include personnel from multilateral agencies and consultancy companies.

Challenges:

● Originally, government officers doubted the efficacy of the entire project especially they mistrusted

that the adopted school would charge a fee.

● Infrastructural matters included haphazardly maintained buildings, dysfunctional toilets, lack of

electricity and water.

● Adversarial relationship with the pre-existing teachers in the adopted government schools.

● Operational sustainability is hampered due to lack of operational capitalization.

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DBFOT Project

DBFOT model of PPP has an execution time of 30 years. It covers 5 schools in each district, and a total of

165 schools in the state, 50 schools in Phase I in Ajmer and Udaipur divisions. Its key features include

voucher-funded students, partial fee payment and operational autonomy of providers. Central government

subsidize and provides a cap of 20% of the project’s cost of Viable Gap Funding (VGF), mainly for

infrastructure. Additionally, Asian Development Bank financially assists this project.

However, the government terminated the project as teachers protested, saying that the government wanted

to “saffronize” education by handing over the land to big corporates, and schools to right wing organizations

such as RSS. Lastly, they feared that they would be replaced or transferred by private partners once PPP’s

advent in education starting spreading over the state.

SCHOOL ADOPTION MODEL IN MUMBAI

Private partners in this PPP model ‘adopt’ a Municipal Corporation of Greater Mumbai (MCGM) school, but

the government (MCGM) commissions, retains teachers and principal, and renumerates them.

Naandi Foundation is a non governmental organization that has collaborated with civil societies, private

partners and government agencies to uplift girls’ rights through education. It monitors routinely activities such

as student and teacher attendance, provides curriculum support, teacher training and mentoring, innovative

pedagogy, feedback and other critical school operations.

Teacher Assistants (TAs) in pre-primary classes service MCGM teachers with forming coursework,

conducting group initiatives, managing classrooms, tutorials and sometimes grading. Contractual agreement

obliges government to reimburse 60% of per child cost to Naandi Foundation, while private donors pool the

remainder fee. Moreover, the government also supplies free items to students. Naandi’s intervention has

helped to contextualize and modernize the school affairs according to the needs of community and schools.

ALL ABOUT EDUCOMP: THE ENGINE DRIVING INDIAN EDUCATION SYSTEM

Educomp is the largest education company in India, reaching out to 26,000 schools and 15 million learners,

that has refashioned the education ecosystem by assimilating digital and online products in everyday

classroom teaching. Standing at the forefront, it has evolved in a span of 16 years, and transcended beyond

borders into a global education solution provider. It devises and enforces innovative models in schools,

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constructs and dispatches content to elongate students’ learning capacity, and its applications have

revolutionized the usage of IT in the digital age.

Furthermore, Educomp has helped state governments to implement PPP projects by developing content,

education infrastructure and upbringing teachers. Educomp makes upfront investment for hardware,

software, and related services for schools. Currently, its projects are widespread in Assam, Karnataka,

Orissa, Tripura, Gujarat, Uttar Pradesh, West Bengal, Tamil Nadu, Haryana, Jharkhand, Rajasthan, Punjab,

Chhattisgarh, and Andhra Pradesh alongside government support. Offering computer aided education in

schools on PPP (BOOT) model, Educomp makes initial investments, that the government departments

reimburse periodically over the years, and receives 30% of revenue from computer aided projects. It has

also partnered with Punjab government to build and run Adarsh schools.

Other constraints from Educomp’s perspective:

● The government earmarks very limited revenue to suffice Information and Communication

Technology (ICT) to the colossal masses.

● ICT content will not be amply applauded and used unless it accommodates regional languages in its

network, especially till senior schools. Thereupon, language is a barricade in espousing ICT to all

citizens.

● Teachers, students and the societies largely are oblivious of the boundless technological potential

and dither to explore the perks from ICT.

● There are scarcely skilled teachers in rural areas. Even when a trained person is available, s/he has

limited exposure to methods of professing and training ICT and higher order thinking skills to

students.

CHALLENGES OF ENFORCING PPP FRAMEWORK IN INDIA

● Scant and deferred governmental reimbursements

At time the government procrastinates reimbursing private partners on a per student basis. This

reimbursement covers the expenses of private partners and is vital for functioning a PPP contract, yet the

problem resonates. For instance, NGOs that operate Municipal Corporation of Greater Mumbai (MCGM)

schools are reimbursed up to 60% of the per child cost, creating a funding gap in the operations of the

provider. Gap funding is a blow to the sustainability of school operations as operator has to divert its

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organizational energy in procuring finances separate from supervising daily work. Moreover, schools don’t

present an economically attractive and commercially viable investment where they can reap considerable

dividends, as opposed to other PPP in other segments.

In a nutshell, inadequate, untimely government funding, and administrative aspects hinder professional

private school chains and low-cost private schools to enter to PPP agreements.

● Uncertainty of clash from teachers’ union

Teachers union might oppose, protest when new schools under PPP models introduce and alter

pedagogical, management and governance structure. Teachers in Mumbai have opposed it because they

believe it's a form of privatization. Beyond the philosophical opposition to privatization, they are misguided

into thinking that they would lose their jobs although such policies don’t exist.

● Controlled sovereignty

Bounded in the School Adoption Model where private partners have limited autonomy over hiring, firing and

daily management of teachers, private operators’ hands are tied in deciding whether or not to hold teachers

accountable for student learning.

● Paucity of competent managers

Viability Gap Funding is fundamental as it allows quality private operators participating in PPPs, to facilitate

outcome at economies of scale, uplifting sustainability and scalability. Actually, private partners entering PPP

contract don’t have fundraising capacity to bear full operational expenses, including the per student cost that

the government does not reimburse. This limits the number of organizations that would be able to enter

PPPs.

Moreover, institutional donors are circumspect to joining the funding arrangements in which they can’t visibly

see an eventual exit.

Finally, there are inadequate number of private operators with surplus staff, and are willing to operate in

vernacular languages, as most private operators provide instruction in English language. Since, the

government operates few english medium school, this is a constraint for private partner in scaling PPP

schools.

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● Observed administration of different stakeholders

Implementing PPP schools is mired by challenges of steering expectations with government, parents and the

broader education ecosystem. Private partners have to relay concerns to the government about their profit

motive driving them to invest business in PPP education system. Similarly, they have to dissuade family

members from sending their children to government schools because such schools lack the skills,

equipments and faculty to harness and unleash the true calibre hidden in children. PPPs in education is

devoid of a thorough political backing, and the skepticism among both the government and private agencies

prevents continuity of constructive dialogue. In the absence of an organised lobby for PPPs, the

implementation of these policies has been dependent on ad-hoc interest in PPPs by elected officials or

bureaucrats.

● Absence of the requisite ecosystem to implement

We need an agent that can enable chart policies and guide trust and invalidate misgivings between public

and private entities, given the nascency of education PPPs. For instance, the US-based NewSchools

Venture Fund (NSVF) is a catalyst that helps seed new operators and brings different stakeholders on a

common platform.

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UNIT 3: PPPs ACROSS THE WORLD AND LESSONS FOR INDIA

CHARTER SCHOOLS IN USA

Charter schools are special type of schools that receive government funding, but are independent of the

typical public school system. They exemplify ‘alternative education’ where pedagogical approaches differ

from the mainstream learning environment such as by emphasizing on small class size and closer teacher -

student relationship.

Private partners autonomously regulate charter schools, rather than getting directions from state or district

level. Receiving funds based on per student, schools are responsible for ensuring quality as stated by the

authorizing body in the contractual agreement or charter. Contracts assigned to schools last for 3-5 years,

although they can be extended up to 15 years.

Preferably, charter schools run elementary schools (40% of the total) as they are small in size, have fewer

discipline issues, less deviation in students’ performance, and can readily recruit employees.

Notwithstanding underperformance in selective charter schools, they gain learning momentum rapidly and

witness increment in the mean scores, as they are under strict surveillance. The nationwide labyrinth of

Knowledge is Power Program (KIPP) college preparatory schools offer free open enrollment in poverty

driven and underdeveloped societies across the US. Established under state charter school laws, KIPP

leads in the network of charter schools.

Charter School Development Center funds, grants and administers alternative sources of financing, usually

with preferential interest rates backed by philanthropy. If a school does not render its obligations, it loses

the right to acquire funds from the state, and is ‘deauthorised’ until reinstated by another school

management company.

In the US, private agencies such as Standard & Poor’s analyse academic, financial and demographic trends

for school districts to arrive at benchmarks for school performance. In addition, efforts like

www.SchoolResults.org have tools that allow parents to compare the performance of various schools within

school districts.

ACADEMIES IN ENGLAND

Just as charter schools, ‘academies’ schools independently function from local government and don’t have

to adhere to the national curriculum and regulations for teachers’ remuneration. The Department of

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Education directly funds these state funded schools which are mostly secondary schools. Further, the

Academy Funding Agreements outlines and monitors the terms and conditions for setting up these schools.

They are non profit charitable trusts and can procure funds from corporate or personal sponsors.

Types of Academies:

● Free Schools: Governed as a PPP

● Convertor Academies: Previously government operated schools, but now have willingly chosen to

run as independent PPPs because they have been rated as ‘good’ or ‘outstanding’.

● Sponsor Academies: These are similar to converter academies except they are compelled to be

managed by private charitable ‘trust’.

Impact of academies

● The Academies Annual Report 2011-12 stated that underperforming schools are recovering faster

than similar schools that the government supervises.

● According to research by the National College for Teaching and Leadership, three or more schools

in a consortium/ trust improved speedily than the standalone academies.

Structure of academies

Through an annual competitive process, operators can apply to open a new academy school for funds that

the Department of Education yields. Accepted applicants draw funds and backing to open a school within 18

months.

The Funding Agreement grants all academies 7 year rolling contract, provided that the operators meet the

performance standards. The Office of Standards in Education, Children’s Services and Skills scrutinizes

them and students’ conduct of work via annual tests for 7, 11, 16 and 18 years old students.

If an academy underperforms, the school gets a pre-warning notice followed by a warning notice. Later on,

the funding agreement terminates if the performance doesn’t raise to the expectation, whereby either the

school shuts down or another operator takes over it.

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Occasionally, state owns land and lease it to the operator. The government creates a national funding

formula to fund based on per pupil irrespective of school type to ensure transparency, and fair funding

system. Additionally, government gives ‘top-up’ payments to students requiring the most- for example, those

depended on school meals, living with disability or foster parents.

Ideally, governments should wholly, not partially reimburse operating costs of the schools. International

evidence exhorts that governments have strived to refund for all operating expenses that private partners

undertake. For instance, England’s first VGF amounted $2 million (Rs.12.3 crore) and as they steadily

succeeded, the government has heightened their reimbursement.

PAKISTAN

● Foundation Assisted Program (FAS)

The semi-autonomous organization, Punjab Education Foundation (PEF), enforces the FAS program. Its

main component is the per student cash subsidy for existing low-cost private elementary and secondary

schools and schools are forbidden to charge fees beyond the subsidy. With subsidy of Rs. 350 in

elementary and Rs. 400 in secondary schools, the government directly pays them to the schools. These

schools must have 100-750 students only.

The school executive has entire operational autonomy to fix the budget, pedagogy, recruit teachers and uses

its own discretion to utilize subsidies. However, PEF officials are given unrestricted access to partner

schools to monitor enrolment, attendance, physical facilities and infrastructure.

The programme combines incentives and assessments to cultivate quality. A secondary non-partisan agency

organizes ‘School Quality Assurance Tests’ semi annually to gauge learning outcomes and quality

standards. If schools fail the tests twice, they are expelled from the program.

To stimulate, the PEF provides professional development courses for partner FAS schools. 5 outstanding

teachers and one best performing school in every district earn bonuses.

● Adopt-A-School Programme

Pakistan’s second model of PPP is Adopt-A School (AAS) program, that engages philanthropies to in the

operation of government schools. Each type of partnership works with every government school differently.

NGOs are responsible for managerial and service deliveries. Alternatively, other partnerships target to uplift

infrastructure.

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WHAT INDIA CAN GAIN FROM INTERNATIONAL EXPERIENCE:

● Schools must expand only if we can predict they can be accountable for their performance:

Mismanaged schools can go unnoticed if schools with unacceptably dismal quality schools can diffuse

exponentially. Governments should licence only those schools which they can monitor, and when they have

agreed mutually to share data to supervise the quality.

● Ensure access to quality teachers:

From the example of US, charter schools have well qualified teachers who are at least university graduates,

and school operators have refined training modules and teacher recruitment processes. For instance,

graduates in Boston schools have to enroll in a one year residency programme where they are Teaching

Assistants (TA) and are a ‘master’ teacher trains them to be full time teachers. Likewise, KIPP network

facilitates a hard core school leader development programme, and invests in shaping strong school leaders.

● Be clear about ‘take-over’ processes and quality expectations:

When schools are converted to academies, they should be absolutely clear on the quality standards

expected from them and the notification process when problem arises.

● Schools do better when they operate in groups of three or more:

With over 600 trusts functioning the schools in groups of 3 or more as a consortium, they achieve better

results with their students, allowing flexibility for students to pursue courses on the other schools in the

consortium. This widens the scope of opportunities from a wide array of course, facilities and programs

taught under multifarious teachers and staffs. This atmosphere also scales up innovation rapidly, providing

effective support to individual students.

For example, Cabot Learning Federation manages 5 primary and 6 secondary schools, centrally appoints

teachers which are delegated across those schools, enhances training and rotates the staff according to the

needs. Organizing central services, its ‘school improvement team’ consults with struggling teachers.

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UNIT 4: PPP MODELS IN EDUCATION

● Basic Infrastructure Model: The government manages and operates the institutions (schools and

universities), while the private sector invests in infrastructure and earns annualized receipts from the

government.

● Equity/Hybrid Model/ Design and Build Model: Both government and private invest in

infrastructure although private sector conducts operations.

● Lease or own-develop-operate: The government contracts or sells facilities to the private partner

private, while the latter develops and operates the facility under the government auspice for a

specific time period as mentioned in the contract.

● Build-operate-transfer (BOT): The private partner can exclusively lease to finance, build, operate,

maintain, manage and collect user fees in exchanging for providing facilities. To amortize its

investment, it earns fee for a fixed period, and at the end of the contract tenure it hands over the

reigns to the government.

KEY ELEMENTS OF PPP

● Viability Gap Funding (VGF)

Customarily provided in competitive bid projects, in VGF, government will meet at most 20% of capital cost

of a PPP in education project. It can pitch in another 20% of the project’s expenses to attract more private

investors in the bidding stage, and the project will be bestowed to those private partners which need the

minimum VGF support. Ministry of Finance administers the distribution of VGF scheme and money. In this

way, it is a force multiplier, enabling government to leverage its re-sources more effectively.

● Corporate Social Responsibility (CSR)

Corporate sectors can harness their interest in taking the lead of student education to a higher next level

through a framework. They can give one time assistance to meliorate infrastructure and facilities by their

sound prowess, as it will be unreasonable to expect them to endow recurring costs periodically in the long

term. However, even to reach this step, the PPP framework should portray responsibilities of corporate

sector. PPP and CSR can work in conjunction to lower costs, and enhance quality.

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Alternatively, government should back package—funded and contingent—to achieve minimum leverage and

optimal exposure (fiscal risk). It should vigilantly de-risk debt as more debt is de-risked, the fewer incentives

are available to lenders/private operators, shrinking the probability of success.

CLASSIFYING PPP IN SCHOOL EDUCATION

● Provision of infrastructure (Private Financing Initiative)

Here the private partner builds, owns and operates the infrastructure facilities and the government runs the

school via a long term concord using these resources. The private entity systematizes the budget and

operates in lieu of the fee it receives during the 20-30 years contract timeline. After the contract expires, the

government takes over the ownership and assets, though the private can extend its retention of the contact.

There are rigorous performance criteria for perpetuating school services, and based on the satisfactory

maintenance, school gets paid quarterly.

Usually, the land where school is build belongs to the government or local body, and the private owns it till

the contract terminates. The government uses the infrastructure against payment of a fee.

Adding a minute deviation to this model, private sector, instead of the government, can avail land and

construct school framework for a fee from the government, which banks on satisfaction of certain

performance parameters. The government will manage the school activities, and return it to the counterparty

when the contract is due.

The government will make annuity payments quarterly after an independent agency has certified about

reaching the targeted administrative standards- standards of promptly delivering and refurbishing physical

infrastructure.

Only after the physical infrastructure is ready, and accessible, the contractors will procure their first payment.

This feature will incentivize private partners to taper their construction duration, and evenly address the time-

overrun problem- commonplace when public agencies construct buildings. This would wipe out copious

government agencies in lending their hands.

Additionally, private partners can expand innovative designs, and the government need not stipulate the

design prototypes, but rather should understate its requirements and layout architecture, subject to approval.

Initially, the government could promote developing consortium of financial institutions and builders to take up

these projects. It has to timely pay annuities by setting escrow accounts. There should be a clear cut

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document which emphasizes on how to refurbish the dilapidated buildings that will be constructed to the

satisfaction of government in lieu of the annuity payments. If the expenditure of investment is not very large,

this annuity payment can be reduced to a period of 10 years subject to satisfactory maintenance of

refurbished infrastructure during the period of contract.

● Whole School Management

Here the private partner constructs school building, appoints staff and educational services in exchange for

money based on the the number of students sponsored by the government. The private partner fully bears

the capital cost.

As the school functions, the government reimburses the recurring cost of the sponsored students. Private

operators bear the full autonomy of recruiting its staff and setting school service conditions. The per capita

fee is determined by a process of bidding among the technically competent and responsible private partners.

Further, they can manage quotas for which it is charged a higher fee.

● Town Schools:

Infrastructurally faulty, these private schools run in suburban areas and non metro towns. So, a PPP model

for these town schools could revamp the fragile, and decrepit schools. The government could grant capital at

a truncated interest rate, repayable over 5-8 years. A banking channel will release government shares and

will recover the funds from the school, payable at an interest in future, incentivizing private partners to

ameliorate infrastructure. Accommodating 40 students in one class from 6th-12th grade, government will be

their benefactor.

ANALYSIS OF EFFICACY OF PPP MODELS

Perceptively, teachers in private schools are more accountable than those in government schools because

of the inherent structure of management. Hence, even low income families make their best efforts to educate

their children in private schools at the cost of higher fee in contrast to nominal or negligible fee at

government schools.

Moreover, state governments are either opening fewer or no high schools since the past decade due to

acute financial constraints, and although many private schools have opened to alleviate this precarious

situation, their quality lacks in extremely rural and downtrodden areas. Since school fee is indispensable to

the functioning of unaided schools, and very few parents can afford it, PPP entry can drastically abate the

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problem. Also if these schools receive payments of per student enrolled which is equivalent to the actual

costs in the government school, they can strikingly reinforce quality.

Likewise, it takes much longer time to fill up the vacancies of teachers, to search and recruit contractors to

build government schools. To trump the discrepancies, private sector can uphold and impart professionalism

into the system, given that they have government support.

Lastly, bringing more private sectors in the arena would spurt a robust competition for improvement, enabling

them to truncate costs. Thus, PPP could augment the government school system ponderously and liquidate

the budgetary bottlenecks and lack of capacity rampant in the extant system by expanding phase-wise.

Availing facilities

Although the government is responsible to pay for the capital investment, private sector finds it difficult to rely

on a single customer whose political and policy priorities vary as new leaders form the government after

elections, fueling predicament on the riskiness to invest or not. Consequently, contracting private

institutions to finance and build schools is more challenging than contracting other projects.

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UNIT 5: RECOMMENDATIONS FOR SUCCESSFULLY IMPLEMENTING PPP IN

EDUCATION

FINANCING: EXPENDITURE AND FUNDING SOURCES

● Financing of Public–Private Partnership Projects

Selecting appropriate funding instruments can make a huge difference in equity, efficiency and potency,

while implementing the PPP models. Efficiency fluctuates with respect to leakages or loopholes in the

system, and the time delayed for funds to reach the next level. Similarly, equity in allocation banks on who

manages the passage of money, and the compliance of a firm is a precursor to transparency and stringent

rules of oversight. In a nutshell, which funding channel is effective depends on where the funds arise, how

they pass, who pays and the intermediate source that controls the movement of flow from source to

destination.

The government must coherently sell its PPP strategy to allude private sector because private companies

will invest and take associated risks in such a project only if they can visualise its success. So, it is

imperative to pay heed to manifold preconditions before discharging a PPP project.

Firstly, the government should assure that the project is sustainable and bankable for private financing as

the private enterprises pursue returns for delivering its services and capital invested. They also have incur

development costs especially in a project as sensitive as higher education.

Projects are bankable if there is an explicit and balanced exit scenario. This allows private parties to quantify

the worst-case outcomes and project potential losses that can manifest due to defaults or mismanaging due

to bureaucratic bottlenecks.

Secondly, the government must test the expected project structure with private bidders, before tendering to

the project. This will beckon private companies and augment the scale of bidders. This structure will lay out

the planned and proportionate risk sharing, business case, financing structure and services carved by each

of the private and state government, will be negotiable to adjustments, instead of wiping out the project.

The government can show a few, say, 3-6 pilot projects and delineate a time frame for tendering these

projects to mitigate political risks to the bidders. This could satisfy the prospective private contractors that

there will an unimpeded and durable pipeline where lies their credible business stronghold.

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Public and/or Private Funding

Financing customarily comes from both public and private banks. For instance, equity obtained from

institutional investors, loans from commercial or development banks, and capital (assets) injected from

public.

Government should provide “viability gap funding”, as it would reimburse unsustainable activities or those

which offer very marginal return rate to the private party, although, are essential to running the PPP project.

For example, resources used to host professional networks related to science in schools and universities.

International organizations can pump equity capital and loan in early stages to uplift investments which have

sufficiently long time horizons. Habitually, private enterprises are least interested as they expect short term

returns on their investments. Therefore, international sectors can partner with banks to mitigate investment

risks while implementing the project.

Availability Payment or Payment per Student

For simplicity’s sake, private companies should be responsible to make and provide infrastructure to the

public students. In return, they will be annually paid from the government upon achieving agreed-upon

performance indicators. Both the public and private parties would monitor and report the service and

performance delivery.

Alternatively, private party could be paid on a per student basis. However, the drawback of this approach is

the following- usually public party controls how many students enroll in higher and secondary education, and

if they install public funded schools in close proximity to a private university, then the students will prefer the

former as it is cheap or even free. So, private parties usually reject this model.

Student Fees

There are two interdependent ingredients of a lucrative pro-equity financing for higher education:

1. Variable fees for students- fee that depends on the family’s overall income and asset status

2. Income-contingent loans- loan is repaid after fixed time periods based on income

These are a means to end even for students coming from impoverished background, as need based

scholarship or financial aid coupled with student loans at cheaper rates can be saviour.

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In the variable-fee schemes, students’ family elaborates the maximum they can afford towards the

education. Moreover, the government sets a ceiling on the maximum fee the institute can charge and

contributes some towards their education. Needy and qualified students are not liable to pay a fee to ensure

that they are not compelled to study in low-cost and deteriorating quality institutions.

Furthermore, the government should increase admittance of income contingent loans. While students from

threshold economic background can accrue conventional mortgage-type bank loans, those not from well-off

economic background can avail their tuition fee from government provided income-contingent loans.

Repayment is contingent on the future income of the borrower: people with low earnings make low

repayments, and people with low lifetime earnings do not repay the loan principal in full. Such a loan protects

a student from excessive risk and can promote efficiency (by the protection from risk) and access (fees

financed by the loans free up resources for access).

VOUCHER PROGRAMS: THE PANACEA OF PPP?

The government provides school vouchers which are certificates/entitlements given to mainly

underprivileged families to educate their children at their prefered school. For example, the Right to

Education Act, 2009 (RTE) reserves a quarter of seats for Economically Weaker Sections (EWS) of the

society. This voucher program reimburses private schools on a per student basis.

Features of Voucher System:

● Demand for vouchers determines funding for it.

● If schools cannot attract enough schools even after providing vouchers, they will have to shut down

their schools.

● Parents can freely choose among public, private and PPP schools. Schools have to comply with the

defined state standards, keeping a distinction between finance and provision of services.

The intent of voucher system is to give the disadvantaged societal sections with equal set of choices that

their well-off counterparts have. If the students from well off backgrounds don’t acquire satisfactory quality

education, they can either exit the current school for a better one, or voice their concerns by engaging in

activities that improve the existing conditions of the school.

However, the poor students don’t have the prerogative to “exit” to a superior school, as their rich

counterparts have. Not only that, they possess a minimal political “voice” to raise their concerns, and thus

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are doubly incapacitated. Thus, voucher system is the best option to offer as it give equal rights to everyone,

and warns public school operators to upgrade the defaults inherent in the system- such as hiring best

teachers, holding them accountable, and being responsive to parents’ needs- otherwise they will witness a

high dropout and low enrollment rates. Vouchers in PPP models will inherently eliminate the status quo in

public and private schools and ensure equality of opportunities, harness individual capabilities and empower

the potential of downtrodden children.

Infrastructurally, voucher system will stimulate investment by the private partners, attributing this feature to

the greater security of streams of revenue. By computing the arithmetic mean of private school fees in the

entourage, the government can fix that as amount of a voucher. Enforcing would necessitate pooling need

based children, having an electronic database that can track the attendance, performance of every student in

each school, and setting up of bank account where vouchers will be directly transferred as school fee (to

avoid double payment).

Essentially, vouchers will be distributed proportional to income, disability status, and/ or merit. It will lessen

stratification as vouchers will be targeted at individual level, not based on discriminatory hierarchical

casteism as widespread in many rural and urban areas. We can augment the number of vouchers as a

function of a composite measure of ‘backwardness’ (that includes income, family educational history, gender,

and if necessary caste).

IMPORTANCE OF PRIVATE FINANCING OF THE PUBLIC-PRIVATE PARTNERSHIP CONCEPT

Private financing of the up-front infrastructure is crucial as it gives the sponsor the option of not paying the

service fees if the PPP supplier doesn’t fulfill the quality obligations. This is measured over the whole lifetime

of the PPP project. Accordingly, if this tool shall work in praxis, the sponsor will only pay in instalments over

the whole project lifetime. Therefore the PPP supplier needs to finance the investment alone by drawing in

necessary loan capital and equity.

PPP’s discipling tools might lose their effects if the government wholly or partially finances and the PPP

supplier might confront austere ramifications during the project’s lifetime.

A. Primary Part of the Financing Will Be Equity

The PPP supplier should allocate adequate equity, and the government should not take up any part of the

equity proportion, as it could aggravate into conflict of interest and undercut PPP’s disciplining effects. The

government should dig deeper into the debt market and revitalize provident and insurance funds markets to

invest in infrastructure projects. Equity markets need to function optimally to attract equity partners otherwise

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the cost of capital will skyrocket. Also, the risks associated with these projects are analogously manageable,

provided that the government stands by during the project’s entire lifetime.

B. Normally Loan Financing Is Obtained at Fixed Terms over the Project Lifetime

A PPP contract with fixed costs or borrowing with fixed rather than adjustable rate loans is better, as it

makes procurement easier and more transparent. Moreover, most costs are kept under control and PPP

suppliers have to hedge risks.

Logically, it is better to contract particularly since the entire infrastructure will most likely be built from the

very beginning. Not doing so might impose implicit risk on the sponsor that the PPP supplier may fail to

allocate infrastructure equipments later on.

Debt ratings is crucial to attract financing as it ensures transparency. Ratings will plummet is risks are not

addressed, that will consequently surge margin costs.

Inasmuch as a sponsor covers all costs, he/she should oversee that the PPP contract distributes the risks

fairly. For instance, financial risks are paramount to counteract, so letting the PPP supplier take risks on the

financing should not be an option.

Mostly, a PPP project’s lifetime is 30 years but it could be shorter, and should not estimatedly overstep the

investment time horizon. 30 years time period connotes that the intended infrastructure will be durable, and

there is a long time to write off the investment. After that, the sponsor becomes in charge of the infrastructure

at scrap value or at a diminished value relative to the original investment.

C. Bank Loans on Fixed Terms

We must seek assistance from multilateral banks such as Asian Development Bank, Nordic Investment Bank

and World Bank group. Moreover, short term financing is integral wherever sponsors cannot procure loan

capital from multilateral banks. This will smoothen the payment model for the sponsor who will have to repay

the interest, margin payments and variable costs. The government should also undertake currency and

rollover risk associated with payments/loans given by such banks in foreign currency by carefully hedging in

a diverse portfolio of swaps and options. Additionally, risk should be borne best by that party which is best

equipped to handle it. This measure should not taken as a complication to a PPP model as every

procurement will carry similar risks for any project to be successful, regardless of how higher education is

financed.

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CURRENCY FINANCE

Opportunities from undertaking long term investment in school infrastructure arise from debt capital markets,

that settle robust yield curves, and inculcate market dynamism, and reforms. Governments can and should

mobilize long-term local currency debt in PPP in education to ensure that the projects are viable and

allocate bankable risk.

Fountainhead of Long Term Local Currency Funding

● Local commercial banks— They are less risk averse when assessing projects in India as they

pragmatically view the political, technocratic and bureaucratic risk.

● Global commercial banks— They are more convoluted than local commercial banks, but are a

window to the global financial markets. Usually, they have ample liquidity, loans with long tenures,

and possibly deal with local activities, that gives them limited access to local currency.

● Development financial institutions— These are bilateral institutions, multilateral institutions such

as World Bank and International Finance Corporation (member of the World Bank group), They have

low interest rates, long tenures, grace periods, provide guarantees and insurance in specific

financing risks that the PPP project faces. Anyhow, matching funds from DFIs are primarily in foreign

currency- can involve affixed costs correlated to circumstances (such as procurement, safeguards,

financial management), that should complying with DFI practices.

● Retail and Institutional investors— Pensions and insurance funds (example of institutional

investors) supply long term liquidity, and can hold large volumes of long-term capital.

Tamil Nadu Urban Development Fund (TNUDF)

Created as a trust fund with private equity and without state guarantees, TNUDF is the first such structure in

India. In 2000, the World Bank permitted it to avail the first non assured, unsecured bond issued by financial

intermediary. The proceeds from bonds are deposited in the fund, and subsequently lent back to the

participating local bodies as sub-loans to finance their infrastructure projects. Likewise, private operators can

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finance their PPP in education from organizations such as TNUDF, which can systematically pool in

securitized and unsecuritized loans and commercial papers to add money to the PPP project.

APPOINTING PRIVATE OPERATORS

● Selection process

Fundamentally, the PPP selection method should encompass transparent application, decision making and

review. To beckon more national and international competent bids, the government have a sound outreach

policy and should pre-identify schools that it intends the bidders to adopt.

Furthermore, the government should establish an accredited selection task force that comprises of eminent

educationists such as leaders/presidents from universities, civil society, private, ex-officio government and

philanthropy/ Altogether, they would empower the task force with the resources, information and skills

needed to design, develop and manage the complex contracting processes. There should be a multi stage

course of action in selecting education service providers, and these stages should include:

● Shaping goals of the contract, expected services and outcomes and formulating requirements.

● Evolving strategies to procure and hire teams;

● Writing the request for proposals and inviting expressions of interest;

● Supervising pre qualification checks of contracts by appraising or cross-checking the bids matching

the requisites;

● Interviewing contenders the shortlist of bidder, assessing proposals in greater depth, and negotiating

contractual issues with them;

● Awarding the contract and nominating the bidder

● Broadcasting the results of selection process;

● Commencing service

This selection task force should appraise propositions after accounting pre-qualification checks. Then they

would shortlist, interview desirable operators/bidders, and grade them based on a selection rubric.

Eventually, they should display the results publically speedily.

● Selection yardstick

A quality school arrangement should conceive a phase-wise avenue to student learning goals. Encircling an

instructional plan based on differentiated, curriculum, student needs, staff hiring, school culture, professional

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development and community engagement, this avenue would guide the users how to track progress and

report transparently via a data management. Likewise it would elaborate a levelheaded budget, where

expenditure preferences should be in tantamount with the school’s infrastructure and instructional plans.

● Fair and enforceable contracts

The PPP contract should explicitly characterize parameters that define the relationship between the

government and the operator. Additionally, it should chart the legal framework that governs the school

operations, financial partnership, and operator autonomy.

Contracts should specify prerequisites/requisites to evaluate performances and the school operators should

have the flexibility to turnaround affairs such as staff management including hiring, firing, training and

performance management of teachers; curriculum, pedagogy design; scheduling of timetable; rewards and

incentives for teachers; and the budget allocation.

● Evolve a potent communications strategy

Rather than piecemeal or ad hoc, effective strategic communication can extensively diminish political risk.

This plan is built on opinion research that gauges how the PPP initiative affects stakeholders. The results of

this plan can aid government in taking the next steps to support, promote participation, and mitigate social

opposition to, the private participation initiative.

Likewise, the government should enlighten stakeholders about the pros and cons of PPP, inform the general

public about the academic benefits that can accrue from involving private partners in education, and promote

best practices in developing and applying PPPs.

● Inspection and Evaluation

The contract should clearly define measurable and attainable academic, financial, operational and

organisational performance criterion, and third parties would rate the credibility of the outcomes, based on

the student’s achievements, behaviour and safety, teaching quality, school management and leadership.

This data provided by third party agencies would serve to redress grievances of operators pertaining to

quality issues, and intervention when schools underperform and don’t comply with norms.

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There should be a performance standard rubric that incorporates quantitative indexes such as standardized

test scores, attendance rates, and dropout rates, to evaluate the holistic progress.

Authorizers should monitor the school’s financial stability and viability via monetary parameters that elucidate

the fountainhead of fiscal data- evidence base of valuation.

Best evaluations comprise of experiments that randomly delegate benefits and include a true control group.

Other than using natural experiment or random design, operators could use rigorous techniques as

propensity score matching, local average treatment effects, and regression discontinuities.

Finally, authorizers should objectively gauge the school’s organisational health based on measurement

standards.These include qualitative measures through parents’ and teachers’ surveys and site visits by third

parties to assess progress in areas such as leadership development and quality of principals and teachers.

Teacher assessment, particularly could be based on expert in-classroom observations and student surveys.

● Authorize suitable performance measures, incentives, and sanctions for failing to perform in

PPP contracts

Quintessentially, performance measures actuate whether the service providers have fulfilled the agreed

terms and conditions of the contract, and whether they qualify to receive remuneration.

Assuming that the education authorities lack the capacity to audit contractor’s fruition of a project, the

sanctions and performance incentives will be deemed inefficacious. The audits should prevent fraud and

ensure timely completion of a project as convoluted as PPP in school management and school subsidy

program.

An exceptional risk that emanates in PPPs that receive per student funding is the harbinger for unscrupulous

contractors to inflate enrollment figures or to claim funds for schools that only exist on paper. Schemes

adopted to mitigate this risk involve school accreditation schemes, wherein contractors have to display

school enrollment data, and validate it with a third-party’s enrollment figures.

● Governance

The contract specify on what grounds to trigger intervention and types of action to undertake, including

timely applying evidence based procedure when contracts are violated or performance is deficient.

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Nonetheless, there should be a provision that allows reasonable opportunity and time for the school to

upgrade or remediate operations, provided they have technical assistance that meets the required

standards.

● Exit Framework

The contract should mention the circumstances for renewing the contract, financial penalty, authorized laws

and policies for early or late termination such as providers that underperform should be granted a year’s

notice before the contract terminates.

POLICY QUESTION TO PONDER

Which either of the two is the best instrument to fund a public private education?

● Supply-side financing -- Private schools acquire public money as per student grant.

● Demand-side financing -- Family directly get public money as vouchers for each student.

These two contrasting courses of financing private partners give varying incentives to PPP schools. A

pertinent question that sparks is which among the 2 methods of setting up PPP stimulates the school

members more?

Although research in this field is meagre, evidence proposes that supply-side funding has not generated a

fair outcome–it block grants to private schools and reduces learning outcome from children. Moreover,

aided-school teachers lobbied for the state government to directly pay them as public school teachers earn,

rather than wanting to be paid by the government grants paid to the private school operators. Other ways of

supply-side-funding of PPPs give greater impetus to schools and faculty. For instance, concession schools in

Colombia draw per-student public funding.

The Right to Education Act of 2009 had enacted a per-student financing model for PPP in education wherein

all private schools have to reserve 25% of the seats for students from deprived background, and the

government would compensate on a per student basis to the private schools for admitting the children.

Using a state-of-the-art impact evaluation methodology, evidence corroborating influence of demand- side

funding for PPPs via school vouchers to parents arises from Colombia, Chile, US and New Zealand. For

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example, as funds were scanty, the Colombian government issued school vouchers based on lottery. Then

they evaluated conditions of both lottery winners and losers (who were from similar background) after

randomly giving vouchers and sending their children to schools.

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