Public-Private-Partnership is relatively
a new concept for Bangladesh. During its first forty years, the country has
gone through rigorous nationalization followed by vigorous privatization. With
taking power by the new government that believes in “Change” or “Din Bodol”,
time has come to try the third dimension, the Public-Private-Partnership. To
reflect the aspirations of the people, the present government has committed to
raise the GDP growth rate to 8% by 2013 (Vision 2021 of Bangladesh Awami
League).
In August 2010, the Government of
Bangladesh issued the Policy and Strategy for Public Private
Partnership (PPP) to facilitate the development of core sector public
infrastructure and services vital for the people of Bangladesh. The PPP program
is part of the Government's Vision 2021 goal to ensure a more rapid, inclusive
growth trajectory, and to better meet the need for enhanced, high quality
public services in a fiscally sustainable manner
The Finance Ministry’s preliminary
estimates, cited in the budget document for FY2009-10, show that for achieving
the targeted 6.0-8.0 percent GDP growth in the next five years – 6.0 percent in
FY2010, 6.8 percent in FY2011, 7.5 percent in FY2012, and 8.0 percent in both
FY2013 and FY2014 – the country will need investments amounting to $24.59
billion, $30.63 billion, $37.18 billion, $43.82 billion, and $49.69 billion in
the respective fiscal years, which will be impossible to generate from
available domestic and foreign sources. The budget document shows that the country would
face an investment shortfall of $1.04 billion in FY2009-10. The shortfall would
increase to $3.53 billion in FY2010-11, $5.82 billion in FY2011-12, $8.27
billion in FY2012-13, and $9.40 billion in FY2013-14 when the cumulative
shortfall would stand at $28.06 billion.
Obviously, the Government alone
cannot meet the huge investment deficits without jeopardizing macroeconomic
stability. Hence, the initiative to attract investment from the private sector
and utilize their expertise and experience through PPP has been a step in the
right direction. The Government in its budget document proposes to source $1.04
billion from PPP in FY2009-10, intending to raise a total of $28.06 billion by
FY2013-14.
The Government has already placed
six projects for implementation under PPP in the current fiscal, which, in
total, would cost some $13.85 billion or Tk.951 billion. The projects are
Dhaka-Chittagong Access Control Highway at an estimated cost of $3.02 billion,
a Sky Rail around Dhaka City (estimated cost: $3.02 billion), Dhaka City
Underground Railway (estimated cost: $3.1 billion), Dhaka
City Elevated Expressway (estimated cost: $1.23 billion),
Dhaka-Narayanganj-Gazipur-Dhaka Elevated Expressway (estimated cost: $1.90
billion), and two 450 megawatt gas- or coal-fired power stations at an
estimated cost of $1.80 billion. Besides, the Government has plans to construct
smaller link and approach roads, bridges, flyovers, underpasses and tunnels,
University residential halls and hospitals under the PPP. It is also worth
mentioning in this connection that the Government had earlier decided to
construct the Sonadia Deep Sea Port (DSP) under PPP outside the budget. The DSP
project would cost approximately US$ 3 billion.
To attract private investment through PPP, the
Government has allocated a lump sum of Tk.25 billion in the current national
budget. Of this total amount, Tk.1 billion is earmarked for technical
assistance to potential private sector investors for undertaking feasibility
studies and preparation of project documents, Tk.3 billion for Viability Gap
Funding (VGF) as subsidy or seed money to attract private investors, and Tk.21
billion for setting up an Infrastructure Development Fund, from which
Government will provide equity or loan to private investors to ensure their
participation and also extend different financial incentives to encourage
investments.
The PPP is a major policy
initiative by the Government and, if properly implemented, it would help
mobilize additional resources for financing large, costly, infrastructure
projects. The success of the initiative would, however, depend on a number of
factors, as the experience of many developed and developing countries would
indicate.
First of all, there is the need for
an appropriate legal framework to govern the mechanism of the PPP framework. A
new PPP law will be needed for that purpose, replacing or revising the existing
Private Sector Infrastructure Guidelines prepared in 2004 (PSIG-2004). The
legal framework would lay down the obligations of the private sector partners,
allow provisions for cost recovery, and address compensation and redress
mechanisms. The PSIG-2004 is not comprehensive enough to deal with these
complexities. Global experience suggests that the most successful PPP projects
are those that are managed under a legal regulatory mechanism, not under
executive guidelines.
Second, there is the need for
setting up a PPP Cell at the Ministry of Finance with proper manpower support
and resource base. Up till now, a number of public private partnership projects
have been implemented in Bangladesh but there is as yet no central institutional mechanism to govern the
PPP scheme. There are at present three government institutions associated with
the implementation of projects by the private sector under the PPP initiative.[1] However,
while it was possible for these institutions to handle the tasks of raising
funds for small infrastructure projects and their implementation, it might be
difficult or even impossible on their part to appropriately design and
implement large PPP infrastructural projects. It is being widely felt that the
prevailing mechanism is grossly insufficient to efficiently carry out the
diverse tasks of choosing between alternative modes of project implementation,
completion of projects on an expeditious basis, project supervision, and
providing inducements to potential private sector entrepreneurs to participate
in PPP projects. In the prevailing system, there is more than one committee in
government Ministries, Divisions and Agencies that perform the diverse tasks of
project identification, conducting feasibility studies, project approval,
invitation of bids, and issuing work orders, but there is no institutional
mechanism to maintain communication among, and coordination of, these
committees. In the absence of a specific institutional apparatus, decisions on
PPP-related works are taken at different times by different Divisions or Sections
of the Ministries or their Agencies. In order to strengthen PPP efforts and
prepare and implement the PPP budget, the setting up of a full-fledged and
dedicated PPP Cell is therefore necessary and expedient.
Challenges & Recommendations
First of all, there is the need for an
appropriate legal framework to govern the mechanism of the PPP framework.
Second, there is the need for setting
up a PPP Cell at the Ministry of Finance with proper manpower support and
resource base. Up till now, a number of public private partnership projects
have been implemented in Bangladesh but there is as yet no central institutional
mechanism to govern the PPP scheme
Thirdly, PPP projects being very large
undertakings, the selection of private sector partners will need to be based
strictly on their financial and technical capacity.
Fourth, a critical determinant of the
success of PPP initiatives will be the capacity of the private sector partners
to raise resources for investment.
Fifth, the Government will need to
provide an incentive package to attract private sector investors to the PPP
projects.
Finally, it should be remembered that
the major partner in the PPP framework is the private sector. The public
sector’s participation in it should mainly be as a facilitator. Hence, in order
to make the PPP concept meaningful and effective, rules and regulations
governing the PPP mechanism should be framed in line with that same partnership
spirit so that there is equitable sharing of profits/losses between the two
partners.
To date, there is not much to cheer
about PPP in Bangladesh. This third dimension has hardly paid off in any sector
of the country. The second PPP budget of Tk. 3,000 crore allocated in financial
year 2010-2011 also remained unimplemented like the first one. Every year, PPP
allocation had to be reverted due to lack of implementation (Prothom Alo, May 30,
2011). Unlike Bangladesh, many countries have succeeded in implementing PPP
projects. It is a matter of optimism for Bangladesh that many ASEAN and SAARC
countries are among the list of the stand-out performers. In the process,
countries have managed to increase productivity without putting any stress on
government revenue. Keeping those in mind, our government has approved (in
National Economic Council) Tk. 3,000 crore for PPP in the coming budget of
2011-2012. A total of 16 projects of Annual Development Program (ADP) are there
to be implemented under PPP in the next fiscal (3 being Satellite city projects
and the rest 13 being energy and power projects). Apart from these, Bangladesh
Infrastructure Financing Fund (BIFF) has been registered as a non-banking
financial institution to manage PPP projects. So there are reasons to be
