PPP: Making a balance between profitability and public accountability

Public-Private Partnership (PPP) is an alternative source of financing for public infrastructure development where the main objective is to reduce government's borrowings and overdependence on foreign loans. The meaning of PPP is clear within the name itself i.e., it is a partnership between the public and the private sectors. More specifically, it is a long- term economic partnership between a public sector authority and a private party for the purpose of an infrastructural project development and operation.
There are many contracts between the government and private parties but all contracts are not PPP. Only a contract under which a private party is allowed to build and operate a project that would normally have been built and operated by the government is treated as PPP.
Normally, the private sector is not allowed to invest in an infrastructure project without a contractual agreement with, or a licence from a government authority. PPP is an economic model under which, a private party is given a concession to develop a particular infrastructure or public service project that has historically been preserved for the public sector. However, unlike fully privatised approach, the government retains strategic control over a PPP project which is back to the public sector at the end of the concession period. The private party builds and operates a PPP project for a specified period of time (concession period) on commercial terms but hand over the same to the government at the end of the contract period at no cost. The concession period/PPP contract period may be 20, 30 or, 40 years or, even more.
The significance of PPP is that it has no financial implications to the government for infrastructure development in the country in general because in most of the cases, the private party brings the money for it and the government gives policy supports. Through PPP, the government becomes able to reduce budget deficit and burden on public finance. In PPP, the private party provides a public service or project and assumes substantial financial, technical and operational risks in the project. Moreover, private investments in public service increase the quality of services, reduce project implementation time and create opportunities for innovations.
However, there are also a few problems in PPP and the main problem is that the private parties want to get higher rate of return without considering public interest. The general tendency of the private investors is to ignore public accountability but the government has the responsibility to protect public interest.  So, it is a challenge for the government to make a balance between profitability and public accountability in a PPP project. India has done very well in this regard balancing the profiteering attitude and national interest through incorporating necessary provisions in its Constitution to ensure social, economic and political justice to the people against PPP projects.  
In spite of a few shortcomings, PPP has ushered in a new era for infrastructure development in Bangladesh. The developed countries have introduced PPP long before and have got positive results. The United States, the United Kingdom, Australia, India, Japan, Russia and many other countries have implemented a number of PPP projects mainly aimed at reducing public sector borrowings. In 1992, the British government of Prime Minister John Major introduced PPP under the scheme of 'Private Finance Initiative (PFI)' which was strongly criticised by the Labour Party. But when the Labour Party came to power, the PFI was continued because of its usefulness.
However, the PPP approach requires the government's patronisation, support and participation. Revenue incomes of some PPP projects like power plant entirely depend on purchase agreement with the government. In that case, the government needs to provide necessary support for the expected revenue generation of the project. So, depending on the nature of a PPP project, the government may provide revenue subsidy, guaranteed annual revenue for a fixed time period, tax incentives and even capital subsidy in the form of a one-time grant. Moreover, legislative, regulatory, administrative and even financial supports may also be required for PPP projects. In a few particular cases, the government may also consider to undertake linked activities such as acquisition of land, rehabilitation and re-settlement, provision of utility services, construction of approach roads for the PPP projects etc.
A big PPP project may need participation of more than one private investor and in that case, a private sector consortium forms a special company called a 'Special Purpose Vehicle (SPV)' for the PPP contract period. All the investors are allotted equity shares in the SPV and the SPV signs the contract with the government. If the situation demands, the government may also have equity participation in the SPV.
The government of Bangladesh (GoB) now sincerely looks forward for PPP. The GoB  introduced the concept of PPP in its national budget for the fiscal year 2009-10 for the first time in the country. It has adopted the policy of promoting the development of infrastructure projects through private sector and allocated necessary funds for developing credible PPP projects. But the progress in this regard is not encouraging.
The first generation PPP started in Bangladesh with Independent Power Producers (IPPs) after the Private Sector Power Generation Policy, 1996 was approved. The second generation PPPs in Bangladesh was carried out in multiple sectors after the GoB approved the Bangladesh Private Sector Infrastructure Guidelines in 2004. The third generation PPP was introduced after the approval of the national budget in 2009 and issuance of PPP Policy Framework and Guideline in 2010 in which the GoB has taken a two-pronged strategy for PPP: one is to attract private participation in infrastructure development and the other is to attract innovation and sustainability of public service delivery to citizens.
In Bangladesh, there has been some success in attracting PPP in power, gas, land port and telecom sectors and the GoB looks forward to have more investments under PPP in sea ports, fly-over roads, bridges, motor ways, railways, water supply, waste management, medical college, hospital, medical research centre, senior citizen health care, hospitality complex, hi-tech park, e-service delivery, tourism etc. But the time selection for PPP in Bangladesh seems not perfect because the big economies of the world are now experiencing negative response for PPP due to the last global economic turn down and the present slow financial recovery. Many big multinational giants have become bankrupt and lost their financial ability to invest; rather governments of the countries of big economies have come out with bailout program to rescue them.
However, Bangladesh situation is different. But even then, things are not easy to get desired response for PPP due to lack of proper understanding on the vision and spirit of PPP. Due to the obvious reason, bureaucrats do not have commercial and business focus and there is a preconceive perception among the public administration, labour unions,  and even a segment of civil society that private investors come to eat up public properties and resources through PPP projects. There is also a politically biased propaganda of selling the country to the private investors. As a consequence, the bureaucrats adopt a dilly-dally technique, things are delayed; the private investor becomes frustrated and finally lost interest of doing business in association with the government.  
However, the GoB seems very much sincere and serious for PPP. As such, it has issued the "Policy and Strategy for Public Private Partnership (PPP), 2010" to facilitate the development of core sector public infrastructures and services vital for the people of Bangladesh. Under this policy, a separate autonomous office named "Public Private Partnership Office" has been established in Bangladesh under the Prime Minister's Office to support Line Ministries in the matters of identification, development and tendering of PPP projects. Apart from this, a PPP Unit has also been established under Ministry of Finance to foster an environment of fiscal responsibility and sustainability in PPP projects. Public Private Partnership Act, 2013 has already been drafted and awaiting for finalisation. The draft act has incorporated various legal and economic aspects of PPP along with a provision of giving compensation to the private partners, if any loss incurred due to changes in laws and policies of the government.
PPP projects are classified into large, medium and small projects. A project which needs a total investment above 2.5 billion taka is classified as large project. A medium project should have a total investment between 500 million to 2.5 billion taka. Small projects are those where the total investment is below 500 million taka.
There are various forms of PPPs  and these are : BOOT (Build, Own, Operate, and Transfer), BOT (Build, Operate, and Transfer), BOO (Build, Own and Operate), BT (Build and Transfer), BTO (Build, Transfer and Operate), BLT (Build, Lease and Transfer), ROT (Rehabilitate, Operate and Transfer), ROM (Rehabilitate, Operate and Maintain), SOT (Supply, Operate and Transfer), Joint Venture Agreement, Management Agreement, Service Contract, Lease Management Agreement etc.
The GoB has designed an institutional framework for identification, formulation, appraisal, approval, and evaluation of PPP projects which is consists of : i) Public-Private Partnership Advisory Council (PPPAC), ii) Cabinet Committee on Economic Affairs (CCEA), iii) Public-Private Partnership Office, iv) Line Ministry/Implementation Agency, v) Finance Division and vi) Planning Commission. PPPAC is consists of total twenty-three members where Prime Minister is the Chairman and Finance Minister is the Vice Chairman.
The detailed procedure of formulation, appraisal and approval of PPP projects are done by CCEA which is also the final approval authority of large projects. The final approval authority of medium projects is Finance Minister whereas the final approval authority of small projects is Minister of Line Ministry. The Planning Commission has been given the responsibility to include linked components of PPP projects into the ADP.
Any for-profit or not-for-profit entity legally registered in Bangladesh or abroad may submit proposal for PPP projects in Bangladesh. However, at the time of contract awarding, the foreign entity must be registered as a legal entity in Bangladesh.
The writer is Vice-President of the Institute
of Cost and Management Accountants
of Bangladesh (ICMAB).
[email protected]