October 05, 2014
Abstract: A business moves from a start-up toa company listed on a stock exchange by climbing five rungs (or steps) on a capital ladder—angel, early-stage venture, late-stage venture, private equity and finally, public equity. A key differentiating factor between various steps is the intrinsic level of risk. Each step is typically catered to by specialized entities which have developed the capabilities to assess and manage inherent risks.
In its public-private partnership (PPP) models for infrastructure projects, India made exceptions to the ladder rule bypassing a few steps. However, challenges have been encountered during implementation. With frequent cost and completion over-runs due to inaccurate initial risk assessment, specialized entities are often unwilling to engage. The implication is that the PPP models need to be recast with the recognition that the government is best placed to shoulder the risk for the early rungs of the ladder for the infrastructure sector through a combination of public funding and private execution. The initiative might be re-labelled as FPTP— First Public, Then Private!
Keywords: public-private partnership (PPP); infrastructure; risk; capital-ladder