Zakir Hossain and Kazuaki Nohara
The concept of public-private partnership (PPP) originated from the United Kingdom. In the period of the Thatcher Administration, the government there introduced PPP to improve the deficit financing and to realise the small government. It was expected that PPP would increase new business chances and activate the national economy by reducing public sectors. Now, it can be said that the concept of PPP has become a worldwide movement. Many countries have introduced this method. The French government has imported this idea and waterworks and sewerage have been privatised. In the US, many facilities like prisons, hospitals etc have been privatised at each self-governing body. Some of African and Asian countries have also introduced PPP.
China promoted PPP through the market reform. China has applied various models of private sector in over 300 water supply and wastewater projects. Both transnational and domestic companies have reacted to the call of the Administration. One main foreign investor, Veolia Water invested more than 1300 million dollar in 2004. India has also introduced PPP. Kerala, which is one of the states in India, introduced PPP and realised higher infrastructure level than other states. It has the best infrastructure in the country such as social infrastructures or access infrastructure. Special Economic Zones (SEZs) have been connected to PPP. In Kerala, there is one of SEZs, which was built with investments of 15.69 US million dollars. It has given good results of export amounts. Effects of PPP such as promotion of foreign investments or increase of employment coincide with the purpose of SEZ.
In Southeast Asia, Thailand also has experienced of PPP. In 1980s, the Thai government had not been able to keep up with the increasing demand for infrastructures and it decided to introduce the concept of PPP. Since early 90s, PPP has been used in many areas including power, ports, and water and transport sectors. One example is PPP on the electricity. The Electricity Generating Authority of Thailand (EGAT), the State Enterprise, implemented a PPP plan -- Independent Power Producers (IPP). In the case of this plan, private producers needed no contract with the government. The payment structure was output grounded. This project has been well carried out and it is regarded as one of the most successful PPP projects in Thailand.
In Africa, some countries have introduced PPP. One instance is Chad. The project was to lay a pipeline from Chad to Cameroon. In those days, Chad was the fifth poorest country and people were suffering from poverty. That project was really needed for Chad. Actually, the project devoted to the growth of gross domestic product (GDP). GDP increased from 0.8% in 1999 to 8.9% in 2002.
Recently, there has been a movement to spread the concept of Public Private Partnership (PPP) in Bangladesh. For Bangladesh, it is required to equip enough infrastructures immediately to keep up with global economic competences. In addition, there is a movement to establish a SEZ in Bangladesh. In these points, introducing PPP is effective for Bangladeshi society. For several reasons, the proposed SEZ in Sylhet could be the first SEZ.
Meanwhile, the government of Bangladesh (GoB) has been suffering from financial deficits. The structure of Bangladeshi finance has been to make up for financial deficits by foreign aids and loans from domestic banks. It is said that this situation has been caused by the lack of the government's ability to collect taxes, weakness of the revenue foundation and making up for deficits of state operated companies, which are inefficient. The government is trying to improve this situation by strengthening the collection of taxes. However, it means that people's burdens will increase.
Before increasing taxes, why don't we introduce the concept of PPP? It will improve financial deficits. What's more, it will help the growth of domestic industries. In general, there are many merits to introduce PPP. Firstly, it will help the growth of private companies and it will lead the growth of domestic industries. That will contribute to solve the problem of employment. Activating private companies will make a great demand for employees. Secondly, introducing PPP will enable the government to reduce costs and it will lead to the improvement of the finance. Thirdly, to import PPP will bring the improvement of the standard of services. Exposed to the severe market economy, suppliers must improve the contents of their services. PPP aims for realising to offer the most efficient and the best services. This idea is called the best Value for Money (VFM).
To introduce and realise PPP, there are some important ideas. Firstly, it is necessary to ensure construction of the environment of competences and the transparency of competences. To maximize the effects of VFM, determining suppliers in the competitive market is indispensable, on the assumption that the government ensures the accountability for people. Secondly, it is required for the government to establish the concept of customer-orientation. That means that output or outcome should be more important than income or budget. Customers are the final purpose of public services. Introducing the assessment based on output or outcome will enable to reflect the satisfaction of customers for valuing public services. For example, to make a new road, it has been important to get the budget as much as possible so far. However, if we introduce PPP, what is important will not be the budget, but how many cars and how many people will use that road. Thirdly, it is requested to build a new relationship between public and private sectors. Until now, public services have been guaranteed by public sector, directly maintaining and managing facilities.
However, to introduce PPP and realise VFM, we need to apply managing techniques of private companies instead of the idea of public direct managing. Concretely, it is one method to divide public sectors into two departments -- policy department and a department to put policies into practice. In addition, private companies can take charge of the most of the latter part. In addition, it is important to construct a new idea for the public benefits. Until now, the public benefits have been regarded as being offered by only the administration. Nevertheless, from now on, it is required to have a new idea that suppliers of the public benefits are not only the administration but also private companies and even individuals. In other words, this concept relates to the offers by plural actors. There are other ideas needed when we introduce PPP.
This concept is favourable for Bangladesh. However, such a good idea is apt to accompany difficulties. There are many problems, which are required to each government to solve when it introduces PPP. Firstly, there is a problem about budget and accounting. Private companies need flexibilities for the duration of a contract to realise the sufficient efficiency. It is required to make rules for elasticizing the managing deft burden supposing ensuring the accountability for VFM, fair competitions. Secondly, each administration may need to revise rules regarding managing public goods. Current rules must have been made on condition that the public controls the management of public goods. Such rules will probably regulate the contents of work offered by private companies. The third example is how to ensuring the enough number of private companies. Even if an administration introduces the concept of PPP, it will be meaningless without the availability of a plenty number of private companies. To make the principle of markets work well, it has to equip a system of rules that enables many companies to join competences. Promoting many kinds of industries from the infrastructure to others, it will be required to provide the industries with an environment which will help them grow. In addition, it is required to solve the problem related to existing civil officials. Regarding this matter, the Western countries have promised to protect current conditions of civil officials. Moreover, they have promoted job-changes by offering better conditions. These problems are not all of the problems that must be solved.
Can Bangladesh introduce PPP in the area of infrastructure? In the past, Bangladesh experienced PPP. The government has experiences of PPP with non-government organisation (NGOs) especially in social services. The worldwide trend in 1990s of opening public services to private companies and reforming the relationship of public and private sectors has affected many developing countries, of course, including Bangladesh. There are many NGOs active in Bangladesh and they have become partners of the administration. Thousands of NGO workers are working for social service sector. For example, BRAC, which may be the largest non-sectarian and national private development organisation in the world, has played an active part in various social sectors. It has more than 50000 employees including part-time employees and reaches more than half of all the villages in Bangladesh.
In addition, there are PPP cases with private companies. One example is PPP with KAFCO. KAFCO, the Karnaphuli Fertilizer Company Limited is the largest multinational joint venture project in Bangladesh. Marubeni Corporation, one of Japanese large trading companies has invested money. Since 1996, KAFCO has started its new job for the country. It started to supply the government with its urea. In addition, government has been able to meet the country's demand for urea. This project saves the government a large amount of money from the exchequer. Another example is PPP with Power Grid Company of Bangladesh (PGCB).
PGCB was created under the restructuring process of Bangladeshi power sector aiming at introducing commercial environment and more efficiency. Now, PGCB is carrying out 10 number of transmission projects with the government to equip sufficient infrastructures and reduce poverty.
Nevertheless, in this case we need to be careful. That is because PGCB was once a fully government-owned company. This fact made PGCB and the government carrying out the project easily.
However, there are some concerns to spread the concept of PPP in Bangladesh. One main concern is whether the government can ensure the transparency of markets and the accountability for people. According to Transparency International which is one of NGOs and surveying corruption index of many countries, Bangladesh ranked 162nd. I have to say that this is a remarkably bad result. To see India which has already implemented PPP, it ranked 72nd. All of other western countries, which have introduced PPP, ranked above India.
There is another concern. That is whether a plenty of competitors can be secured or not. We need to ensure a number of companies to establish and maintain a sound competitive market. To solve this concern, the instability of the political situation arises as a big obstacle. To introduce PPP, at first Bangladesh will need participations of foreign companies. However, the political situation prevents them from investing in Bangladesh. According to the BOI (Board of Investment), foreign and local investments dropped 33% compared to that of last year. Especially, the amount of foreign investments dropped by more than 40%. The total amount of foreign investment is Tk 171 billion. This is less than that of 2004-2005. Improvement of this situation is a pressing need for Bangladesh. Fortunately, since last year, the government has been tackling corruptions, and people are favourably disposed towards this the movement. However, it will be a long way to solve the problem almost completely.
The government also needs to encourage domestic companies and entrepreneurs. Although it is important to attract foreign companies, it is more important to increase the number and the competitive power of domestic companies. From the points of view of creating employment opportunities, the growth of the domestic economy and alleviation of poverty, domestic private companies can play great roles. Here, there remain a number of problems to be solved by the government. Industries related to infrastructures accounted for 10% of Bangladesh's real GDP in 2007. Electricity, gas and waterworks occupied 1.6%. These ratios are not so different from those of Japan. However, they are largely different in economic scales. In addition, Bangladesh needs to develop enough infrastructures. The government of Bangladesh will be required to provide rules to promote the growth of private companies in every area and especially it will need to make a rule to support companies, which are related to infrastructures.
There may be some people who think it is impossible to spread the concept of PPP in Bangladesh. However, it is a too pessimistic view. One reason is the incontestable fact that there are PPP projects, which have been carried out in Bangladesh. Another reason is that Chad which ranked 172nd in the corruption index in 2007 has been successful with PPPs. We think main reason for this success is that not only the government but new private companies carried out the project. The World Bank has joined the project. That means that the development partners have kept a watch on PPPs. That is why private companies invested and such projects could be carried out.
These facts never mean that we do not need to combat the problems of corruption in administration. However, they also mean it is possible to promote PPP in the area of infrastructure in Bangladesh. It may be difficult to introduce PPP by only local or foreign private companies right now, but the example of Chad indicates there is a method to carry out large PPP projects in Bangladesh. In the near future, we will find relief from uneven roads and sudden power cuts, which must be irritating to all concerned in Bangladesh.
Zakir Hossain is Chief Executive of Young Consultants and Kazuaki Nohara is an International Intern from Hitotsubashi University, Japan
