Initiating Dialogue for Public Private Partnership

Public Private Partnership (PPP) is recognised worldwide as an important means of spurring private investment in infrastructure building and improving public service delivery.

The participation of private sector in the development of social and economic infrastructure helps governments leverage their limited financial resources and improve efficiency of public service delivery by building partnership with private investors. In view of the widening gap in infrastructure financing in the province, the Punjab government has promulgated Public-Private Partnership Ordinance for Infrastructure 2009.

The ordinance, framed under the Punjab Resource Management Programme (PRMP) governance reforms project and promulgated in September, lays down rules governing public-private partnerships in the province and provides statutory framework and procedures for formalising the participation of private sector in building infrastructure.

The ordinance is hoped to lend confidence to private investors and create fiscal space for the provincial government, which may be utilised for improving delivery of other essential services to the people of the province.

The ordinance spells out the overall framework for undertaking projects in the public private partnership mode provides for a high level steering committee with the mandate to approve and/or reject the proposals. A specialised unit – the PPP Cell – has been established in the Punjab Planning & Development Department to assist the line departments in initiating, implementing, monitoring and evaluating the PPP projects. A Risk Management Unit in the provincial finance department has also been provided for in the ordinance to work in coordination with the cell.

Experience worldwide shows that infrastructure spending is closely linked to economic growth. An expanded service coverage and improved service quality in power, water supply, solid waste management, sewerage treatment, transport, logistics, health, education, etc are vital for any economy and the livelihood of people.

The Punjab government too needs to invest heavily to build new and maintain the existing social and economic infrastructure in the province. But it does not have the kind of funds required to meet the growing needs of infrastructure for improved and efficient public service delivery.

“The Medium Term Fiscal Framework 2009-12 for the province -- again prepared by the PRMP, highlights a wide gap of around Rs90 billion a year in infrastructure financing,” says a PRMP official.. “All infrastructure investment requirements cannot be met from public funds. The government needs private sector to help it fill the gap in resources.” Economists also maintain that there is no denying the fact that the Punjab has little money to spare for its infrastructure construction. “No one need mind if the private investors are involved in this effort. It allows the government some room to divert the resources available with it to sectors and areas in which private sector wouldn’t care to invest because these do not offer any return on their investments,” says an economist.

Such an arrangement should help the government save resources by involving investors in the infrastructure development, and divert its own money to sectors which do not attract the private sector. “But the government must try to act only as provider of funds for the projects that do not attract private money. The projects should be allowed to run by the private sector,” the economist argues.

Though public-private partnership for infrastructure development is not an easy option, the cash starved government has no option but to encourage private participation in the development of infrastructure and provision of quality and efficient public services to the people for poverty alleviation and employment generation.

“It’s a rather difficult and expensive choice. The users will be forced to pay a higher price for the services they avail. But you don’t have any alternative for this: it’s a trade-off between having a relatively expensive facility today and not having it at all,” a former official of the provincial planning and development department who has remained involved in the drafting of the law argues.

It is generally believed that the partnerships between public and private sectors always bring efficiency, leverage additional financial resources, ensure timely completion of projects and reduce the costs of projects.

But the former official warns, the projects undertaken in the public-private partnership mode cannot and should not displace public financing of infrastructure. “It has to be treated as an additional mode of financing the infrastructure initiatives. Private investors would be interested only in profit-oriented projects. The rest of the initiatives will have to be financed by the government. In addition, the government would have to continue to play its role and hold down the price of using the projects built under PPP for users,” he insists.

The provincial government had been working on the ordinance to encourage public-private partnership for several years. But the promulgation of the ordinance drafted in 2006 was stalled for different reasons, including the political and security conditions obtaining in the country in general and in the province in particular. The officials are upbeat about prospects of increased private investments in the social and economic infrastructure development for improving public service delivery after the promulgation of the ordinance.

“The government recognises the need to utilise fully the potential of public-private partnership and ensure that the projects undertaken in partnership with private sector in this mode are successful and beneficial for all the stakeholders and deliver high quality service to the people,” the PRMP official insists.

Officials claim that the provincial government is already undertaking five small hydro power generation projects in the province in the PPP mode in addition to construction of a road in Rawalpindi with the help of private sector.

Private sector too is hopeful of forging partnership with the government in the near future as investors say they will be glad to work with the government on infrastructure projects if the procedures involved are simplified and official discretion is done away with or minimised.

“Why not? I would love to invest in public private partnership initiatives if there is any,” says a leading developer Akber Sheikh, who is not aware of the promulgation of the ordinance.

“If the government is interested in building partnership with private investors for the development of the province it should start communicating with them. That would help both the parties to get a sense of each other’s priorities, which is crucial to move forward towards forging a durable partnership,” he advises the government. 

DAWN | LAHORE | Mon, Nov 16, 2009 |