Progress of public-private partnership programmes
Wednesday, 7 April 2010
Syed Jamaluddin
THE government allocated funds in the current budget for implementation of public private partnership projects(PPP). It is committed to take timely measures to attract investments in the country through PPP. The allocation is to be used for setting up an Infrastructure Investment Fund. Depending on the type of projects, the government will provide equity or loan to the private investors. Different financial incentives will be extended from this fund to encourage investment. In the beginning of the financial year, government had high hopes about the success of such projects.
The challenge before the government is to set up an institution for preparation and implementation of PPP budget which will ensure innovative ways, independent operation and accountability of planning and budget process of the private sector. This body is expected to provide incentives to PPP initiatives in different sectors and expedite project approval process. The government believes that this institution will follow the best practices of modern management philosophy. Government thought that the PPP budget management system would be operational by September next.
But its target of operationalising the PPP project is not being fulfilled. PPP guidelines have not yet been finalised. The draft prepared by the Board of Investment (BoI) is being reevaluated by a committee headed by an adviser of the Prime Minister. This committee has proposed to set up a new entity. This is perhaps because the BoI is a promotional organisation and has no orientation about implementation. The draft is now stuck up in the government. It is not yet decided as to who would implement the PPP projects. If a new entity is approved by the government, then the new organisation will implement projects.
Instructions have been issued to the ministries to propose projects for inclusion in the new Annual Development Programme(ADP). No indication has been given as to how much money will be allocated for PPP projects in the next budget. All concerned are waiting for the cabinet to consider the revised guidelines.
The ministry of finance was in charge of the PPP projects initially. Thereafter, the subject was transferred to the BoI. The reasons for such transfer were not made public. It is learnt that in other countries PPP projects are implemented under the ministry of finance or the ministry of planning. The Finance Minister did not say anything on this for reasons best known to him. The Prime Minister authorised the transfer of the subject in a cabinet meeting.
In the current year's budget, there is an allocation of Taka 25 billion (2500 crore) for PPP projects. But it was not possible to utilise this fund. Taka 5.0 billion (500 crore) have been cut from the allocation in the revised ADP. The resource committee could not decide on the allocation for the next budget. Once the detailed structure of the project authority is defined finally, allocation could come later. In the meantime, a lump sum amount may be allocated.
It has been suggested that PPP projects under implementation in India and Malaysia need to be studied to draw lessons for Bangladesh. About a year is passing by and it will not be wise to delay it further. The Finance Division is of the view that the proposal of BoI has complications and it may not attract the private sector. In this connection, it may be mentioned that private sector has not been associated with the formulation of the proposal. Since the implementation of these projects will largely depend on the participation of the private sector, their involvement at the initial stage of project formulation would be desirable. Even the planning commission has not been associated in a meaningful way.
At the time of introduction of PPP projects, the stock market offered to provide Tk 200 billion in the next five years in setting up power plants under the PPP. The Dhaka Stock Exchange authorities suggested that the government may raise a big amount of the total cost from the stock market. But a lot of formalities are to be completed before money can be drawn from the stock market. But this is a good gesture from the stock market.
Public private partnership is a good concept in principle. It can help mobilise additional funding in financing large scale projects. But there are many challenges. The government will have to review the financial and economic viability of a PPP project because success will depend on costing and pricing. The legal framework will lay down obligation to private sector partners, keep provision for cost recovery and address the issue of compensation and redress mechanism. Action will be required to establish a comprehensive policy and regulatory framework for competitive and transparent bidding.
PPP projects will be very capital intensive. Therefore, ensuring competitive bidding process is very vital. A match between asset and liability and cash flow is crucial. Reviewing the private partner's financial and technical capacity will be a big job for the government.
A heavy reliance is placed on private sector participation. It is intended to utilise the idle money of the private sector in big infrastructure building projects. Potential private sector partners will look for good return on their money. International experience shows that the institutional arrangement for implementation is the key. PPP units needs to be staffed with technically sound and experienced negotiators. The government of Bangladesh will have to be extremely cautious in setting up an outfit for PPP projects.
The latest position is that the Asian Development Bank(ADB) has offered its services to the government of Bangladesh in the task of formulating the much-discussed private-public partnership policy. This offer has come when the government is struggling hard to finalise the PPP policy. A draft prepared by the Prime Minister's Office (PMO) has drawn criticism for incorporating some controversial clauses. The Bank deserves appreciation for making the offer. It has adequate expertise in preparing PPP-related rules, guidelines and policy. It is in the interest of the country to utilise the services of ADB for PPP policy making. Even if it takes time to absorb the ADB assistance, it is worth trying.
.................................................
The writer is an economist and columnist. He can be reached at e-mail: syedjamaluddin22@yahoo.com
THE government allocated funds in the current budget for implementation of public private partnership projects(PPP). It is committed to take timely measures to attract investments in the country through PPP. The allocation is to be used for setting up an Infrastructure Investment Fund. Depending on the type of projects, the government will provide equity or loan to the private investors. Different financial incentives will be extended from this fund to encourage investment. In the beginning of the financial year, government had high hopes about the success of such projects.
The challenge before the government is to set up an institution for preparation and implementation of PPP budget which will ensure innovative ways, independent operation and accountability of planning and budget process of the private sector. This body is expected to provide incentives to PPP initiatives in different sectors and expedite project approval process. The government believes that this institution will follow the best practices of modern management philosophy. Government thought that the PPP budget management system would be operational by September next.
But its target of operationalising the PPP project is not being fulfilled. PPP guidelines have not yet been finalised. The draft prepared by the Board of Investment (BoI) is being reevaluated by a committee headed by an adviser of the Prime Minister. This committee has proposed to set up a new entity. This is perhaps because the BoI is a promotional organisation and has no orientation about implementation. The draft is now stuck up in the government. It is not yet decided as to who would implement the PPP projects. If a new entity is approved by the government, then the new organisation will implement projects.
Instructions have been issued to the ministries to propose projects for inclusion in the new Annual Development Programme(ADP). No indication has been given as to how much money will be allocated for PPP projects in the next budget. All concerned are waiting for the cabinet to consider the revised guidelines.
The ministry of finance was in charge of the PPP projects initially. Thereafter, the subject was transferred to the BoI. The reasons for such transfer were not made public. It is learnt that in other countries PPP projects are implemented under the ministry of finance or the ministry of planning. The Finance Minister did not say anything on this for reasons best known to him. The Prime Minister authorised the transfer of the subject in a cabinet meeting.
In the current year's budget, there is an allocation of Taka 25 billion (2500 crore) for PPP projects. But it was not possible to utilise this fund. Taka 5.0 billion (500 crore) have been cut from the allocation in the revised ADP. The resource committee could not decide on the allocation for the next budget. Once the detailed structure of the project authority is defined finally, allocation could come later. In the meantime, a lump sum amount may be allocated.
It has been suggested that PPP projects under implementation in India and Malaysia need to be studied to draw lessons for Bangladesh. About a year is passing by and it will not be wise to delay it further. The Finance Division is of the view that the proposal of BoI has complications and it may not attract the private sector. In this connection, it may be mentioned that private sector has not been associated with the formulation of the proposal. Since the implementation of these projects will largely depend on the participation of the private sector, their involvement at the initial stage of project formulation would be desirable. Even the planning commission has not been associated in a meaningful way.
At the time of introduction of PPP projects, the stock market offered to provide Tk 200 billion in the next five years in setting up power plants under the PPP. The Dhaka Stock Exchange authorities suggested that the government may raise a big amount of the total cost from the stock market. But a lot of formalities are to be completed before money can be drawn from the stock market. But this is a good gesture from the stock market.
Public private partnership is a good concept in principle. It can help mobilise additional funding in financing large scale projects. But there are many challenges. The government will have to review the financial and economic viability of a PPP project because success will depend on costing and pricing. The legal framework will lay down obligation to private sector partners, keep provision for cost recovery and address the issue of compensation and redress mechanism. Action will be required to establish a comprehensive policy and regulatory framework for competitive and transparent bidding.
PPP projects will be very capital intensive. Therefore, ensuring competitive bidding process is very vital. A match between asset and liability and cash flow is crucial. Reviewing the private partner's financial and technical capacity will be a big job for the government.
A heavy reliance is placed on private sector participation. It is intended to utilise the idle money of the private sector in big infrastructure building projects. Potential private sector partners will look for good return on their money. International experience shows that the institutional arrangement for implementation is the key. PPP units needs to be staffed with technically sound and experienced negotiators. The government of Bangladesh will have to be extremely cautious in setting up an outfit for PPP projects.
The latest position is that the Asian Development Bank(ADB) has offered its services to the government of Bangladesh in the task of formulating the much-discussed private-public partnership policy. This offer has come when the government is struggling hard to finalise the PPP policy. A draft prepared by the Prime Minister's Office (PMO) has drawn criticism for incorporating some controversial clauses. The Bank deserves appreciation for making the offer. It has adequate expertise in preparing PPP-related rules, guidelines and policy. It is in the interest of the country to utilise the services of ADB for PPP policy making. Even if it takes time to absorb the ADB assistance, it is worth trying.
.................................................
The writer is an economist and columnist. He can be reached at e-mail: syedjamaluddin22@yahoo.com