PPP still long way off: Projects piling up

Around 40 projects are likely to be ready to run under public-private partnership (PPP) in next three to four years, in a belated takeoff. The PPP projects waiting to get the go-ahead, which were only a few in number two years back, increased substantially as of middle of the current year.
These projects are now in formulation stages, with the PPP Office trying to prepare those in a way so that private investors feel confident to come forward for investment, officials said.
The office hopes that if these projects get investors, it would bring at least $10 billion in the country in foreign investment. The inflow would start in a couple of years.
The PPP Office has been placed under the Prime Minister's Office (PMO) with the high hopes of making potential PPP projects attractive to investors.
It screens and does pre-feasibility study of the PPP projects which are considered by different line ministries and agencies of government potential to include in its pipeline.
The projects have already completed such stage of preliminary testing and are now lying in the phase of feasibility study and preparing bid documents.
The transaction advisors of each project will do the job. They help develop the respective project to the tender process to turn those competitive at international level.
So it is expected that when the tender process starts, international investors will show their interest in these projects and the country will be reaping benefit by securing faster growth spurred by the fresh flow of investment.
Necessity of doing such laborious spadework is felt when we see the fate of the country's first PPP project -- Dhaka Elevated Expressway (DEE).
The expressway was awarded in 2011 without going through all these formal procedures under the PPP Office. The project was supposed to be completed this year, but it could not be even be readied till date to commence construction.
Blames should go to both sides. The government is yet to hand over the land to the Thai investor. For not having feasibility study, detailed design, other studies like resettlement plan, environment-impact assessment etc. before the signing of concessionaire agreement, the foreign concessionaire of the DEE was also unable to submit financial record up till now. This record is important to know the company's other funding sources apart from its equity.
When the PPP Office was opened in 2010, different quarters expected a surge in private-sector investment in the country and massive development as a result. Instead, the expectation was shattered for its failure to award any PPP project after the passing of several years.
The first two years of the PPP Office had passed by with even no progress in formulating any project. Recapping the performance during the period, the PPP Office finds its lack of knowledge and understanding about the concept of PPP which is new not only in Bangladesh but also other parts of the world.
The time loss is inevitable to go through the process to understand what support the PPP Office would need to make projects go ahead, know investors, formulate related laws and policies, including fiscal and monetary.
For that reason, the maiden Tk 30 billion PPP fund of the government created to support the PPP projects in fiscal year 2010-11 could not be spent.
Now the PPP Office says it has attained the maturity and gradually overcomes challenges. By this time, institutionalisation process of the PPP has taken a turn.
The PPP Office has drafted the PPP law and got the policy and strategy, guidelines, screening manual etc to facilitate the run of PPP projects in the country.
Most important is that the office is now able to differentiate between the PPP and traditional procurement systems clearly, which eventually helps them prepare the PPP projects on case-to-case basis.
Main difference between PPP and public procurement requirement (PPR) is risk sharing by public and private sectors. The risk of the public sector is transferred to the private sector in the PPP, which is to bear by the government in the case of the PPR.
The private sector takes the entire responsibility of construction, financing, detailed designing, operation and maintenance, project management and payments for all kinds of work in the PPP project. But except for the construction, the other above-mentioned works are done by the public sector in the PPR.
The PPP Office now understands its bigger role on giving more importance on the private sector than the public sector. It argues that it is the private sector that bears major risk in all stages of the PPP. Though government contribution is made through viability gap funding (VGF), PPP experts argue that government's win from the project rather comes in the long run.
In PPP -- conceived worldwide as a latest development paradigm -- the private investors ultimately hand over the built-in structures to the government after its tenure of withdrawing investment is over.
The question of possibility of poor performance by the private sector in the PPP is also ruled out by them, saying that any poor design or structure would be boomerang for investors as they have to take back their investment. If an infrastructure or service under the PPP is not good or attractive enough, or if flaws are there in the design and construction, investors will finally be the losers.
At present, the PPP share in the world is increasing to divert the funding responsibility to private sector and give them scope of business on long-term basis.
The PPP Office research shows that global use of PPP modality has increased to more than 85 percent. More than 50 multilaterals and donor agencies now work with the PPP.
In Bangladesh, the government has also extended support through IDCOL, BIFFL and IPPF where a fund worth more than Tk 45 billion was created to provide support to the PPP projects.
Government's cash crunch in developing different structures and services is redirected for PPP choice. In the road sector itself, the demand for road and highway construction, renovation goes up beyond government control to manage budget.
This equally happens in other sectoral budgets, too.
But the challenge is still there to offer fiscal, monitory supports, including in terms of import duties and taxes, to the investors. The PPP Office has to provide support to the government in assessing levels of exemption for the investors as incentives.
The PPP Office now assesses that increased land price should not be an important component of government share in the PPP projects. It argues that the government will not have to spend the funds for acquiring land, not only for the PPP projects but also in all other cases.
Finally, inclusion of the PPP as the key element in the 6th five-year plan has also generated the hope for getting the PPP projects going in coming years.
The government incorporates PPP into the five-year plan to achieve its goal to make Bangladesh graduate to middle-income country by 2021. The government now recognises that strong PPP can play a catalytic role in mobilising additional resources and creating additional capacity for implementing public-supportive programmes.
It is learnt that among the PPP projects now in the pipeline, transport sector dominates with 16 projects. For lack of physical infrastructures, the country's economic potential could not be exploited.
Eight more PPP projects are now in the pipeline, for heath and education sectors and zone development.
Of the 39 projects, 30 are large ones which are likely to bring over $10 billion in investment in the country.
Four medium-sized and five small PPP projects are also likely to fetch another amount of $100 million.
The PPP Office says 12 of the pipeline projects have already shifted to the procurement stage, which means possibility of investment coming in the country within a year or two.
According to the PPP Office, at least one and a half years are needed for the development of PPP projects. Completing procurement stage of the project needs nearly 12 to 16 months, depending on single-stage or two-stage bidding.
Of the 39 projects approved in principle after project screening, 33 are in the stage of transaction advisory.
Though procurement of the first PPP project to set up two haemodialysis centres in Dhaka and Chittagong was finalised, the PPP Office expects completion of eight more projects by 2016.
Still the challenges remain until and unless the internationally reputed investors take the lead when these projects will go to the procurement stage. The PPP chief also could not rule out the possibility of low response in some cases as they have yet to pass trial period.
Experts also opine that lack of good governance, and corruption, irregularities etc still remain as challenges for the country to earn real investor confidence.
The sizeable jump in preparing the PPP projects does not mean that the PPP would get focus in coming years in the development activities. Until and unless a system is developed, fruit of the PPP cannot be enjoyed.
Besides, commercial structure of the PPP projects must be right and attractive and vary from one project to another.
Accuracy in offering 'viability-gap funding', fiscal incentives and special facilities like exemption from income tax, VAT, specific regulatory relief etc. in support of the investors and government is also a must to develop a system.

The writer is FE Special Correspondent. She can be reached at: [email protected]