PPP: Entertaining unsolicited offers

Shahiduzzaman Khan | Published: January 20, 2018 19:32:11

The government has been struggling for long to implement a large number of infrastructure projects under Public-Private Partnership (PPP) arrangements. Every year, a significant amount of fund, to the tune of Tk 30 billion, is earmarked for the PPP to implement such projects.
The authorities also introduced a number of rules and regulations on different occasions to rejuvenate PPP initiatives. But, success rate, so far, is insignificant. Officials at the PPP Office claimed that they had undertaken 37 small-scale projects under PPP. All these projects are now reported to be under the process of implementation.
On many occasions, the officials said they used to receive 'unsolicited offer' from different international companies to implement large-scale infrastructure projects. But they could not entertain those offers for lack of any specific method to deal with such projects.
Against this backdrop, the government is now considering to introduce a new provision for entertaining unsolicited offers from the private sector to implement different projects under PPP. The proposed provision includes two systems -- Bonus System and Swiss Challenge System -- for entertaining private party's unsolicited offer for PPP projects.
In the Bonus System, the proponent of the unsolicited proposal is given bonus points in relation to its evaluation while the Swiss Challenge System enables the government to attract counter-proposals on unsolicited proposal during a designated period. The original proponent then has the right to counter-match the most attractive counter-proposal.
The Bonus Point System will be applicable for large and medium projects, while both the Bonus and Swiss Challenge systems could be applied for small projects. However, the sponsor of the unsolicited offer has to submit a detailed proposal for a project along with a feasibility study report in the Bonus System, according to a report.
If the project is found viable in the evaluation of the PPP Office, the sponsor company will be asked to submit its detailed proposal for the project through an open tender and face competition from other bidders. In this case, while all the bidders' proposals are evaluated, the unsolicited bidder will get a bonus point of 7.0 per cent as an initiator of the original project.
In the Swiss Challenge System, when unsolicited bidder's offer is not found to be the first lowest, it will be given a further chance to submit a revised proposal within 30 days to match the first lowest bidder's proposal.
Once the new provision comes into operation after approval by the Cabinet, the government expects that PPP projects would get a new momentum.
In addition, the government needs to frame a master plan to select and implement such projects to make sure those are efficient and effective. It may consider floating initial public offerings (IPOs) or special bond to collect funds for PPP projects because commercial banks are not interested to provide long-term loans as required by such projects.
Besides, there should be adequate discussion and analysis on the failure and success of PPP projects. The failed projects must receive punitive action. The PPP system needs to be made flawless and robust so that it can deliver according to the people's demand and purpose. It could expand its activities to the remotest areas so the private sector could effectively participate in development projects.
Many private entities, according to reports, shy away from investing when they see low 'internal rate of return' (IRR), a key indicator for investment. If the IRR is low, say 10 per cent, the private parties feel discouraged as there are opportunities to derive much more by investing in other areas.
The government has, so far, been successful in branding its power plants in attracting local and foreign investors. But in case of PPP, it failed to take such steps. It must share risks with the PPP projects. Guarantees on profit must be ensured. Otherwise, the investors will not be interested to come here.
On the other hand, the country lacks expertise in properly exercising the financial affairs applied for the private entities. There is no bond market to take funds on long terms. Under the PPP initiative, government agencies are committed to providing lands with existing structures. Private parties develop the project with their own funds or through loans, equity supports or grants.
However, a recent study of the Bangladesh Institute of Bank Management (BIBM) identified a number of factors, including selection mechanism of projects, unusual cost and corruption, as key impediments to implementation of PPP projects. Other barriers include non-completion of projects within the stipulated time, inadequate feasibility study, lack of monitoring from the government and poor capacity.
There is also the lack of corporate governance in PPP projects. Economists say more reforms are needed in PPP guidelines because a lot of time was spent in learning corporate governance. Many say costs and time overrun due to poor planning, performance and monitoring are the major challenges of implementing PPP projects. An integrated master plan for infrastructure investment is needed that complements but not compete between the sector-specific developments.
Countries like Canada, the United Kingdom (UK), the Philippines and India have taken a long time to successfully implement PPP projects. The authorities claim, considering those countries, Bangladesh has progressed much in developing a PPP model. What the country needs now is to raise investment in infrastructure requirements from the current $3.0-$3.5 billion to $12.5 billion a year to meet the development targets.
In order to extend financial support to the PPP projects, the government needs to open a separate window. In the upcoming budgetary measures, the government is expected to make some new announcements in support of PPP initiative in the country. It has already identified major areas that need improvement and necessary support.
All said and done, the PPP authority does not need to be overenthusiastic while taking up projects. It should take only those projects that would accelerate the country's growth. Such projects should adopt a mechanism to bypass bureaucratic complexities for their speedy implementation.
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