Private money, public good

Public-private partnership, commonly known as PPP or P3 is a powerful tool. Governments around the world are using it to leverage the private sector's knowledge, experience and financing capacity to improve the volume and quality of basic services. Accordingly in  Bangladesh, for the foreseeable future, the government is going to partner up with the private sector to build elevated expressways, economic zones, universities, hospitals, ports, IT villages and five-star hotels, to name a few.

There is no universal definition of PPP. According to the World Bank, it is a long-term contract between a private party and a government entity, for providing a public asset or service, in which the former bears significant risk and management responsibility and, return on investment is linked to performance. Designing a project includes managing environmental and social risks.  

P3s manage construction better than traditional government procurement, with projects coming in on time and on budget more often - typically attributed to incentives created by a defined structure. The longer-term investment perspective under PPP contracts can also help ensure proper maintenance of assets.  

Projects are carried out under various models including, but not limited to, build-operate transfer (BOT), build-own-operate-transfer (BOOT), build-own-operate (BOO) and build-lease-transfer (BLT). BOT agreement commits the private company to build and operate a facility such as a power plant for a period of time then transfer ownership to the government. BOOT is an arrangement in which a developer designs and builds a project or a facility such as an airport, power plant, port, at little or no cost to the government, owns and operates the facility as a business for 10 to 30 years, after which transfers it to the government at a previously agreed-upon or market price. 

Countries with a successful PPP programme have built it on a solid framework. The Government of Bangladesh passed the PPP law last year. Before that, in 2011, it formed the Bangladesh Infrastructure Finance Fund Limited (BIFFL), a government-owned non-banking financial institution with a mandate to invest in large infrastructure projects, including power and energy, ports, connectivity, tourism and economic zones. And a year before, the Office for Public-Private Partnership was established with staff from both private sector professionals and civil servants. 

Also, the Finance Division of the Ministry of Finance has set up a PPP unit with the responsibility of overseeing the fiscal viability of projects and sanctioning support funding. The MOF PPP Unit overseas three important aspects: catalytic fund, the PPP Technical Assistance Fund, Viability Gap Fund and Bangladesh Infrastructure Finance Fund. 

Forty four projects - on transport, health, education, economic zones, housing, tourism and social infrastructure - have been approved. Three have kicked off; two are in the award stage, eight in the procurement phase, and sixteen at project development stage while the rest have been approved by the Cabinet Committee on Economic Affairs.

Md. Abul Bashar, Director (Investment Promotion) of PPP authority, says, "It has the goodwill of the top leadership. All processes from EOI to signing of the deal are standardised. These processes take 18 to 35 months in most countries. We have done it in 11 months. However, there is a lack of understanding among bureaucrats. We are building capacity through training and other progammes." 

These are mega projects that need huge investment and several years for completion. Abdul Matlub Ahmad, President of FBCCI, says, "We have to have patience. For the economic zone at Mirersharai, there have been multiple biddings. But to see it implemented we have to wait two and a half years. Government needs the private sector for development. The country will greatly benefit from it."  

Partnership between government and business is nothing new. In the US, President Obama has created the Build America Transportation Investment Center (BATIC), to assist companies to navigate the process involved in designing, financing, building, and permitting large-scale transportation improvement projects. 

In Canada, P3s have been used to build major infrastructure projects like transit systems, such as bus rapid transit and Ontario Highway 407. In line with the National PPP Policy Framework, the Australian State and Territory governments consider a P3 for any project with a capital cost in excess of $A50 million.

In this region, in India, between 2007 and 2012, $225 billion was invested by the private sector in infrastructure, equivalent to 12 percent of GDP in 2012, much of it through PPPs. And Pakistan has experimented with many variants of PPPs, ranging from independent power producers (IPPs) to the Hyderabad-Mirpurkhas Expressway.  

Opportunities for P3s abound in Bangladesh. For example, the blue economy remains mostly untapped. IDCOL or Infrastructure Development Company Limited, a PPP initiative, has inspired awe by installing almost four million solar home systems that provide clean electricity to eighteen million rural people. It has also financed infrastructure like land ports and invested heavily in the telecommunication sector. 

Public-private partnership has not seen the anticipated success for the same reasons FDI do not flow into the country," Dr. KAS Murshid, Director General of Bangladesh Institute of Development Studies says. "Investors are skeptical. Some of it is real while some of it is a matter of perception. The confidence remains in deficit.  The risk factors are not quantifiable." 

The writer is a member of the editorial team at The Daily Star.