The Financial Express

PPP beyond rhetoric

| Updated: October 24, 2017 04:59:33

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PPP beyond rhetoric

The prospect of Public Private Partnership (PPP) looks dim for many countries, including ours. Despite the promised deliverance from tight regulatory control that most advocates of this model of growth are so keen to celebrate, PPP, as yet, is far from being what it was meant to be. However, recent projections of development in many regions of the globe suggest that PPP-led growth in both advanced and developing countries is gaining increasing recognition as a fitting model. 
Such forecasts are based mainly on projects taken up under PPP in the past two years in different regions and the successes that many of them have either already met or are set to meet in the near future. The Goldman Sachs, a leading global research organisation, in its evaluation of various economic fronts has found that there has been considerable breakthrough in paving the way for exploring the best potential of PPP in the immediate future and beyond. This, needless to say, is a welcome message for many countries in the developing world eager to go for big PPP projects but are constrained by the lack of suitable modus operandi. Citing examples of around 100 PPP projects in North America, Africa and the Asian region in disaster management, heath care, solar power distribution, urban infrastructure building and so on, the research body is highly optimistic that public-private partnership for development will play a decisive role in the near future with more and more countries following in the footsteps of those who already have to their credit accomplishments in this field. 
Optimism about the growing popularity of PPP, especially in the developing world, is attributed to the increasing understanding of the hurdles common to most PPP schemes and facilitations extended to remove those. It is well known that PPPs often counter several risks that lead to cancellations and/or significant renegotiations. Evidences from developing countries indicate that actual or perceived rise in tariffs, macroeconomic fluctuations in currency or purchasing power, inadequate regulatory and institutional environments, political reneging etc are some of the key reasons for failure of PPP projects.
Being a collaboration of government and one or more private sector companies, PPP provides a public service or implements a project that involves substantial financial, technical and operational risks. In some types of PPPs, the cost of using the service is borne exclusively by the users of the service. In others, investment is made by the private sector on the basis of a contract with government to provide agreed services and the cost of providing the service is borne wholly or in part by the government. Government contribution to a PPP may also be in kind (notably through transfer of existing assets). In projects that are aimed at creating public goods, as in the infrastructure sector, the government may provide a capital subsidy in the form of a one-time grant so as to make it more attractive to the private investors. In some other cases, the government may support the project by providing revenue subsidies, including tax breaks or by removing guaranteed annual revenues for a fixed time period.
There is one fundamental driver for PPPs in that PPPs are claimed to enable the public sector to harness the expertise and efficiencies that the private sector can bring to the delivery of certain facilities and services traditionally procured and delivered by its partner. 
Operationalising PPP in Bangladesh has been a challenge fraught with many barriers. In August 2010, the government issued the PPP guideline and Tk 25 billion was allocated for the first time in the budget. But over the next three years no amount was spent from the allocation although the government later increased the allocation to Tk 30 billion.  A PPP office has also been established to facilitate the process. In the budget for FY16-17, the government reallocated Tk 20 billion additionally. 
The reason why the government of Bangladesh, like its many other counterparts in the developing world, considers PPP capable of delivering significant improvement in infrastructure building is because of the growing capacity of the private sector and its eagerness to undertake big projects. To put it differently, mega projects successfully implemented by the private sector makes it highly convincing for the government to partner with them, in taking up big and challenging undertakings. But what remains still unattended is the required facilitation - and indeed security of funds invested - to attract the private sector in a satisfying manner. Equally important is the understanding and appreciation of the fact that unlike a typically government-run project stuck with time and money over-run and eventually salvaged by the government by way of fund recasting and time extension, a private sector investor in a PPP project may end up nowhere in similar situations, if not sufficiently cushioned against such adversities. Countries in the developing world which were successful in revitalising their PPP schemes in recent times and are optimistically looking for more, have resolved these issues. Bangladesh, while keeping faith in PPP, should develop its schemes in a manner that does not warrant unforeseen and unmanageable difficulties for the private parties in firming up partnership with the public sector.
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