PPP: Putting the cart before the horse

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Shamsul Huq Zahid
The government has included the public-private partnership (PPP) initiative in the national budget for current fiscal year and kept a financial provision of Tk 25 billion for projects to be implemented under it.
But halfway through the fiscal, Finance Minister AMA Muhith has cast doubt on the active participation of the private sector investors in the much-publicised PPP.
The uncertainty that has prompted the finance minister to raise doubt is a very natural outcome. For, his ministry has put the cart before the horse. It has allocated money in the budget and identified some big infrastructure projects for imple mentation under the PPP without formulating the much-needed basic policy guideline. How can one expect the private sector to respond to a government initiative without knowing the details of it?
The finance ministry, which made some groundwork on the PPP concept before the formulation of the budget, probably, expected to complete the guideline within the first quarter of the current fiscal year. But the cabinet cold-shouldered a finance ministry proposal to create a PPP cell under it to prepare the necessary rules and regulations for PPP projects and, rather surprisingly, transferred the responsibility of preparing the guideline and making the concept functional to the Board of Investment (BoI). The BoI has started anew the work on the guideline preparation.
Neighbouring India has already implemented a number of large infrastructure projects both at the central and state levels. But it is the finance ministry that has so far called the shot. It has prepared the necessary guidelines for PPP and a Public-Private Partnership Appraisal Committee (PPPAC) comprising secretaries of a number of ministries, including that of finance, and representatives of project implementing agencies remains at the helm of PPP affairs at the central level.
The PPP concept that had originated initially from concerns about the level of public debt is a tricky and sensitive one for both the public and private participants in projects concerning public services and infrastructure. The concept has been designed with a view to bringing social priorities with managerial skills of the private sector, relieving, partially or wholly, the government of the burden of large capital expenditures and transferring the risk of cost overruns to the private sector.
In most infrastructure projects such as highways and bridges implemented under PPP initiatives, the cost of using the services is borne by exclusively by the users of the services, not the taxpayers.
The problem of inadequate infrastructure is often cited as a major obstacle to investment in Bangladesh. The government here always hesitates to take up large infrastructure projects for implementation because of resource constraints despite the fact such projects, if implemented, would provide a major boost to investment flow, both local and foreign, on a sustained basis.
There is no denying that the private sector investors, individually, are yet to acquire the required financial strength to partner with government in the construction of major infrastructure project such as elevated expressway, Dhaka-Chittagong access control highway, sky train etc. But private sector consortiums, if form companies called, special purpose vehicles (SPVs), can well contribute to the government's development efforts.
But it is necessary for the government to devise beforehand an appropriate policy framework to create adequate confidence among the private sector to invest in infrastructure projects and, at the same time, ensure adequate checks and balances through transparency, competition and regulations. It is also critical to design the projects in such a way that interests of the private parties as well as the government are well protected.
It would have been proper for the government to formulate PPP guidelines first and take up one or two less expensive development projects for implementation with the partnership of the private sector investors on an experimental basis.
The private sector investors would never build partnership with the government and invest their money in projects without being assured of the safe return of investment along with attractive profits. Naturally, they would demand concessions in the form of capital or revenue subsidies or guaranteed annual revenues for fixed periods. While agreeing to meet such demands the government would have to protect the taxpayers interests and maintain transparency and accountability.
So, getting into rather complex PPP initiative is easier said than done, particularly in Bangladesh where bidding process, in many cases, has not been that transparent. The guideline now being prepared by the BoI should ensure quality of projects to be implemented under PPP and seek value for money.