Making PPP initiatives successful
Thursday, 23 July 2009
Shahiduzzaman Khan
Private entrepreneurs from India have expressed their willingness to participate in Bangladesh's large infrastructure projects under the Public-Private Partnership (PPP). This is a positive move on the part of the Indian private investors. But before making any investment decision, the Indian entrepreneurs would, as the reports said, like to know about the country's fiscal incentives, life-cycle of the projects, their financing requirements and modalities, management and operations. They said they are ready to invest a sizeable amount of funds in Bangladesh.
According to reports this week, Indian investors, during their recent visit to Bangladesh, expressed their eagerness to invest in some of "good and viable" PPP projects, especially in the communications sector. The government is yet to prepare a policy for execution of the PPP projects. As such, the Indian investors expressed the view that the Public Procurement Act and its relevant rules could be used as the legal basis for project implementation and contract execution under the new window.
On its part, the planning ministry has reportedly completed recently the revision exercise relating to the public procurement rules (PPR). Reports further said the mandatory provision about the work experience to bid for a government project involving expenditure up to Tk 20 million has been proposed to be relaxed. The revised PPR has been sent to the law ministry for vetting.
The concept of PPP has been conceived on the basis of the Bangladesh Private Sector Infrastructures Guidelines (PSIG) formulated back in 2004. However, the private infrastructure committee of the PSIG-2004 was found to be indecisive about the size, institutional framework and organisational structure. Indian investors said that these infirmities would need to be removed at the earliest by bringing amendments to the PSIG-2004. Besides, the institutional framework is not robust and coordinated enough for private participation by the overseas investors, they added.
Experiences with PPP initiatives in India suggested that the New Delhi government had launched PPP mode of infrastructure delivery before a decade ago. It moved forward to accept it as an efficient and effective methodology. As with any new projects, there were initial hiccups but the PPP initiatives reportedly delivered goods favourably to the Indian economy over the years.
Many developed countries have set up specialised PPP units to facilitate and manage large infrastructure investments. Others have established public institutions that support PPP development. Such units have recently begun to proliferate in the developing world as well. Consideration of such units in regions like Africa, East Asia, and South Asia has been driven by the increasing recognition of the need to boost infrastructure investment. Yet a PPP unit is bound to fail if there is no high-level political support. Public support is also necessary for successful implementation of PPP projects.
Indeed, the concept of the PPP has generated a lot of interest in today's corporate world. It is a scheme for a government service or private business venture, which is funded and operated through a partnership of government and one or more private companies. In some types of PPP, the government uses tax revenue to provide capital for investment, with operations run jointly with the private sector or under contract. In other types, the scheme could be the other way round.
However, PPP may sometime pose as a big challenge as well if the government fails to put in the befitting legal support and institutions to identify appropriate projects, with solid private sector participation. The country's private sector is otherwise still fragile to attract large capital. It is also physically constrained to implement large projects. In such a situation, PPP initiatives are unlikely to bear fruits, unless the government selects projects that are sound, viable and easy to implement.
The final guidelines for the PPP are yet not known. But some analysts are of the view that the private sector should be allowed to make up to 70 per cent of the entire investment in power and energy infrastructure projects. However, PPP schemes for social, healthcare and education projects may be different. In such projects, the government is expected to share the major part of the total investment.
In the budget for current fiscal year (FY), an amount of Tk 25 billion has been earmarked for the PPP initiatives to implement different projects in communications, health and education sectors. This allocation is purported to ensuring government partnership in equity and loan assistance from the government to different projects such as expressways, elevated expressways, sky-trains, and underground railways etc. Others are for link and approach roads to bridges, flyovers, underpasses and tunnels, university residential halls and hospitals. In his budget speech, Finance Minister AMA Muhith pointed out that such initiative was taken in the country for the first time with the aim of involving private sector in public service infrastructures.
However, the government needs to ensure competitive bidding to meet transparency, accountability and creditworthiness of PPP projects. Large infrastructure projects need a relatively longer period for implementation. The required time to implement the projects may go beyond the tenure of a government. If there is a change of government through the periodic electoral cycle, uncertainty may arise over the implementation of PPP projects, in the event of changes in the political power matrix in a situation where the next government is not favourably disposed towards their continuation. This has happened to many large projects in the developing countries. As such, the government should make effective efforts for wide-ranging consultations and, thus, for forging a broad consensus about the needs and imperatives for large PPP projects. Some members from the opposition parties may be inducted in the project implementation committees. Multilateral donor agencies also favour broadly representative participation involving all concerned agencies and political parties during the implementation phase of large PPP projects.
The Indian economy has been moving forward at a faster pace in recent years than before largely because of its increasing dependence on PPP initiatives. In order to make such initiatives successful in Bangladesh, the government needs to formulate appropriate policy framework, incentive packages and mechanism for implementation, and build trust and confidence of the investors, irrespective of the policy regime. As the Indian and other overseas entrepreneurs are already showing their interest in new moves for PPP initiatives in Bangladesh, this provides an opportunity to make the best use of foreign direct investment. There is no time to waste.
szkhan@thefinancialexpress-bd.com
Private entrepreneurs from India have expressed their willingness to participate in Bangladesh's large infrastructure projects under the Public-Private Partnership (PPP). This is a positive move on the part of the Indian private investors. But before making any investment decision, the Indian entrepreneurs would, as the reports said, like to know about the country's fiscal incentives, life-cycle of the projects, their financing requirements and modalities, management and operations. They said they are ready to invest a sizeable amount of funds in Bangladesh.
According to reports this week, Indian investors, during their recent visit to Bangladesh, expressed their eagerness to invest in some of "good and viable" PPP projects, especially in the communications sector. The government is yet to prepare a policy for execution of the PPP projects. As such, the Indian investors expressed the view that the Public Procurement Act and its relevant rules could be used as the legal basis for project implementation and contract execution under the new window.
On its part, the planning ministry has reportedly completed recently the revision exercise relating to the public procurement rules (PPR). Reports further said the mandatory provision about the work experience to bid for a government project involving expenditure up to Tk 20 million has been proposed to be relaxed. The revised PPR has been sent to the law ministry for vetting.
The concept of PPP has been conceived on the basis of the Bangladesh Private Sector Infrastructures Guidelines (PSIG) formulated back in 2004. However, the private infrastructure committee of the PSIG-2004 was found to be indecisive about the size, institutional framework and organisational structure. Indian investors said that these infirmities would need to be removed at the earliest by bringing amendments to the PSIG-2004. Besides, the institutional framework is not robust and coordinated enough for private participation by the overseas investors, they added.
Experiences with PPP initiatives in India suggested that the New Delhi government had launched PPP mode of infrastructure delivery before a decade ago. It moved forward to accept it as an efficient and effective methodology. As with any new projects, there were initial hiccups but the PPP initiatives reportedly delivered goods favourably to the Indian economy over the years.
Many developed countries have set up specialised PPP units to facilitate and manage large infrastructure investments. Others have established public institutions that support PPP development. Such units have recently begun to proliferate in the developing world as well. Consideration of such units in regions like Africa, East Asia, and South Asia has been driven by the increasing recognition of the need to boost infrastructure investment. Yet a PPP unit is bound to fail if there is no high-level political support. Public support is also necessary for successful implementation of PPP projects.
Indeed, the concept of the PPP has generated a lot of interest in today's corporate world. It is a scheme for a government service or private business venture, which is funded and operated through a partnership of government and one or more private companies. In some types of PPP, the government uses tax revenue to provide capital for investment, with operations run jointly with the private sector or under contract. In other types, the scheme could be the other way round.
However, PPP may sometime pose as a big challenge as well if the government fails to put in the befitting legal support and institutions to identify appropriate projects, with solid private sector participation. The country's private sector is otherwise still fragile to attract large capital. It is also physically constrained to implement large projects. In such a situation, PPP initiatives are unlikely to bear fruits, unless the government selects projects that are sound, viable and easy to implement.
The final guidelines for the PPP are yet not known. But some analysts are of the view that the private sector should be allowed to make up to 70 per cent of the entire investment in power and energy infrastructure projects. However, PPP schemes for social, healthcare and education projects may be different. In such projects, the government is expected to share the major part of the total investment.
In the budget for current fiscal year (FY), an amount of Tk 25 billion has been earmarked for the PPP initiatives to implement different projects in communications, health and education sectors. This allocation is purported to ensuring government partnership in equity and loan assistance from the government to different projects such as expressways, elevated expressways, sky-trains, and underground railways etc. Others are for link and approach roads to bridges, flyovers, underpasses and tunnels, university residential halls and hospitals. In his budget speech, Finance Minister AMA Muhith pointed out that such initiative was taken in the country for the first time with the aim of involving private sector in public service infrastructures.
However, the government needs to ensure competitive bidding to meet transparency, accountability and creditworthiness of PPP projects. Large infrastructure projects need a relatively longer period for implementation. The required time to implement the projects may go beyond the tenure of a government. If there is a change of government through the periodic electoral cycle, uncertainty may arise over the implementation of PPP projects, in the event of changes in the political power matrix in a situation where the next government is not favourably disposed towards their continuation. This has happened to many large projects in the developing countries. As such, the government should make effective efforts for wide-ranging consultations and, thus, for forging a broad consensus about the needs and imperatives for large PPP projects. Some members from the opposition parties may be inducted in the project implementation committees. Multilateral donor agencies also favour broadly representative participation involving all concerned agencies and political parties during the implementation phase of large PPP projects.
The Indian economy has been moving forward at a faster pace in recent years than before largely because of its increasing dependence on PPP initiatives. In order to make such initiatives successful in Bangladesh, the government needs to formulate appropriate policy framework, incentive packages and mechanism for implementation, and build trust and confidence of the investors, irrespective of the policy regime. As the Indian and other overseas entrepreneurs are already showing their interest in new moves for PPP initiatives in Bangladesh, this provides an opportunity to make the best use of foreign direct investment. There is no time to waste.
szkhan@thefinancialexpress-bd.com