The beginning of Public Private Partnership ("PPP") can be traced back to the Roman Empire over two thousand years ago in Europe when postal stations were developed and maintained around a vast expanding highway system1. However, over the last two decades, there has been a dynamic shift towards PPP projects globally. Under PPP projects, the public sector (Government) and the private sector enter into a specific time-bound partnership for carrying out a project or service usually provided by the public sector.

One of the Conditions Precedents of PPP projects is the preparation and submission of a Financial Model. It amounts to creating a summary of a company's expenditures and revenues in a spreadsheet form that can be used to calculate the impact of a future event or decision on a project. Financial Model is prepared based on the details provided along with the bid documents. Financial Model is made to check the financial/economic viability of the project and for bidders to secure financing for the project. It has future projections and expected profit returns based on year-wise growth. It is on the basis of the financial model projections that lenders provide financing to a project Financial Model is used to evaluate disputes as it has future projections based on the project assessment and it also protects the Net Present Value of the project. Using the Financial Model assessment of claims is a practice followed under various jurisdictions.

Financial Model under European and United Kingdom jurisdiction

PPP projects have been prominent in the United Kingdom since the 16th Century, and they got a major push during the industrialization in the 19th Century with rapid urbanisation and the growth of a public network of transport. The United Kingdom's Private Finance Initiative started in 1992 has a major stake in the infrastructure sector till now. Financial Model is of key significance in the PPP projects undertaken in the UK jurisdiction. As per the Guidance Manual prepared by the European PPP Expertise Centre2, Financial Model is one of the most important operational management tools for the Authority. Financial Model is a major tool for decision-making for both the Authority and the private partner, as per the manual. The Financial Model prepared is placed at the centre of the project and is used for various purposes throughout the Agreement period.

Some of the various purposes the Financial Model is used for are:

a. To periodically calculate the payments due by the Authority to the private partner and estimate future payment commitments.

b. To in user-pay arrangements, periodically assess the long-term economic and financial sustainability of the contract.

c. To evaluate the impact of changes.

d. To facilitate the preparation of financial statements and monitor key financial indicators such as gearing, debt cover ratios and internal rate of return; and

e. To calculate the compensation sums due by the Authority in the event of an early contract termination.

As per the Standardisation of PFI Contracts Version 43 the Financial Model is a calculation of compensation payable to the Contractor on early termination will have reference to the amounts owed to its lenders under the financing documents. The financing documents must reflect the terms of the financial model agreed upon at Financial Close.

Financial Model under United States of America jurisdiction

The United States has seen public-private partnerships as early as the 1700s. However, the first State legislation related to PPP was in 1989 in California. Since then, there has been a substantial increase in public-private partnerships in the United States.4

Under the PPP project in the United States, compensation for loss of IRR for early terminations due to default will be calculated based on the approved Financial Model.5 As per the Public-Private Partnership (P3) Procurement guidebook,6 Financial Model provides critical information for the evaluation of the financial proposal and is used to price compensation payments required by the contract due to variation from base assumption and to make calculations such as for refinancing gains that are to be shared between the public agency and the concessionaire.

Financial Model under Indian jurisdiction

The origin of public-private partnerships in India can be traced back to the latter half of the 1800s with private sterling investing in Indian Railroads. In the year 1991, the Central Government decided to allow private participation in the power sector which was a crucial step towards public-private partnership. In the year 2006, a PPP cell was created in the DEA, which acts as the Secretariat for Public Private Partnership Appraisal Committee (PPPAC), Empowered Committee (EC), and Empowered Institution (EI) for the projects proposed for financial support through Viability Gap Fund (VGF). The PPP Cell is responsible for policy-level matters concerning PPPs, including Policies, Schemes, programmes, Model Concession Agreements and Capacity Building.

The PPP Cell is also responsible for matters and proposals relating to clearance by PPPAC, Scheme for Financial Support to PPPs in Infrastructure (VGF Scheme) and India Infrastructure Project Development Fund (IIPDF).7

As per the Public Auditing Guidelines issued by the Comptroller & Auditor General of India, 20098, auditing of PPP requires reviewing a financial model to test the feasibility and justifications for the grant of concessions, testing revenue generation using quantitative techniques. The Hon'ble Supreme Court of India in Soma Isolux NH One Tollway Private Limited Vs. Harish Kumar Puri & Ors9, in its judgement, has touched upon the relevance of the financial model in PPP projects and stated that "All the financing agreement dealing with the administration occurred between lending institutions and the Petitioner as well as the financial model for the project has been submitted that their revenue and approval prior to the commencement of the project."


Public Private Partnership agreements have been around for centuries and have gotten more sophisticated with time. Currently, most countries are heavily relying on PPP projects for public sector services and works. It is an efficient approach through which the services in the public sector can be improved and utilized better. But with the advancement of time, such PPP agreements have gotten more complex, involving various financial aspects to it. For the private sector, the objective for entering a PPP project is financial gain and revenue generation. Financial Model becomes a primary source for evaluating the economic feasibility of a project for the private sector and for the financing authorities. Developed and Developing nations have placed heavy reliance on the projections made in the financial model to value the project and to calculate compensation in cases of termination/default. Computation of claims based on financial model projections provides a reliable methodology which is used by the Authorities to ensure the compensation is equitable and justified.


1 (Toolkit for Public-Private Partnerships in roads & highways, 2009)

2 (European PPP Expertise Centre, 2014)

3 (Standardisation of PFI Contracts Version 4, 2007)

4 (Esq., 2018)

5 (Sarad, 2021)

6 (Public-Private Partnership (P3) Procurement:, 2019)

7 Overview - public private partnerships in India. (n.d.). Retrieved February 16, 2023, from .

8 and Auditor General of India, C. (n.d.). Public private partnerships - comptroller and auditor general of India. Retrieved February 16, 2023, from

9 Soma Isolux NH One Tollway Private Limited v. Harish Kumar Puri and Ors. (Supreme Court of India April 17, 2014).

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