Presentation on PPP Seminar -Dr. Mustafa K. Mujeri

8/8/2019 Presentation on PPP Seminar -Dr. Mustafa K. Mujeri

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Concept and rationale

Service or a business venture funded, managed,and operated through a partnership between

government and one or more private sector

entities

Rationale: Model with enhanced role of private

sector in government initiative relaxes

governments resource constraint, ensures

greater efficiency and better management

resulting in improved service delivery while

maintaining public accountability of service

provision 2


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PPP variants

Simple form: Government provides capital for

investment, while operations run jointly with

private sector or under contract. It could be other

way round as well. Contract: private party assumes financial,

technical, and operational responsibilities and risk

in venture. Infrastructure: Pay contracted price for services

that is financed, built, managed, and maintained

by private sector enterprise3


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PPP variants (contd.)

Social enterprises: unite public sectors

commitment to social goods with private sectors

expertise in product development and marketing

Different approaches to PPP based on activity and

country characteristics

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Alternative modes of operation

Cost of using service borne by users (e.g. toll

roads)

Capital investment by private partners, cost ofproviding service borne (wholly or partly) by

government Public contribution in kind (transfer of existing

assets)

Government provides subsidy (one time grant)

for creating public good (infrastructure)

Government provides revenue subsidies (taxbreaks or guaranteed annual revenue for a fixed

period) 5


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Implementation options

One option: form a consortium, called SpecialPurpose Vehicle (SPV) to plan, construct,

maintain, and operate. Government holds an

equity share in SPV. SPV signs contract with

government and with subcontractors to build

and maintain facility

For infrastructure, complex arrangements and

contracts needed to guarantee and secure cash

flows

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Issues and problems Infrastructure projects: PPPs entail higher costs

than under standard models (mainly due to

higher rate of return demanded by private

investors although income risk is borne by public

sector) Low quality ofPPP schemes relative to standard

model of public procurement

One reason: central assessment focus on valuefor money

The issue is whether guidelines designed are

appropriate and correctly applied 7


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Regional experience

India: PPPmode of infrastructure deliverylaunched a decade ago; accepted as an efficientand effective methodology

Indonesia: Emphasis on financial and technicalaspects; Malaysia: political and social motivations;Singapore: value for money; Thailand:

infrastructure in many sectors notably in power,electricity, telecom, and transport services

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Regional experience (contd.)

Developed countries: set up specialized PPP unitsto facilitate and manage large infrastructureprojects. Establish public institutions to supportPPP development

Lessons: no unique formula for developing a soundPPP framework. Needs clear policy and legalframeworks for PPP that ensure right balance

between public and private interests

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PPP in Bangladesh

Experience of IDCOL established in 1997 under

ERD: few small private investments in

infrastructure projects

No integrated policy for execution ofPPP

projects; needs a new phase ofPPP

implementation

Revisit past operations and other experiences toidentify what works and what does not

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PPP in Bangladesh (contd.)

Infrastructure Investment Facilitation Center(IIFC) to assist in preparing proposal andscreening; Bangladesh Private Sector

Infrastructure Guidelines (PSIG)2004 formsbasis of current PPP; Five year InvestmentPromotion and Financing Facility (IPFF) in BB in2007 to finance approved PPP infrastructure

projects; policy for private participation inpower sector in 2008: indecisive about size,institutional framework, organizationalstructure, and implementation modalities

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Way forward: general prerequisites

Fast growing economy with dynamic and healthyfinancial system

Stable policy environment, robust legal andbusiness support systems, institutionsguaranteeing rule of law

Large and growing domestic market

Sound economic fundamentals

Steady economic reform regime

Regulatory framework rewarding entrepreneurshipand risk taking

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Way forward: specific issues

Create the institutional framework

New window: legal basis for project implementation and

contract execution, devise ways for independent

operation and management outside the purview of public

procurement, install mechanism for accountability, design

and planning

Formulate policy framework, incentive packages,

mechanism for implementation

Ensure competitive bidding to meet transparency,accountability, and creditworthiness of projects

Bring clarity on fiscal incentives, life-cycle, financing

requirements and modalities, project management and

operation 13


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Way forward: specific issues (contd.)

Involve negotiators with technical knowledge andexperience in project design, financing, andmanagement in PPP operations

Create bridge between public and private sectorinterests using incentives and financial instruments

Adopt flexible models and approaches of privateparticipation along with collaborative innovativepartnership based processes

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Implementing FY10 budget initiative

Tk. 25 billion for PPP projects: governmentpartnership in equity and loan assistance to

different projects

Identify projects that are sound, viable, andsomewhat easy to implement

Adopt some guidelines: for power and energy

infrastructure, private partner may invest up to70-75 percent of entire investment; for health,

education and social sectors, government may

contribute major part of total investment15


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FY10 budget initiative (contd.)

PSIG 2004 guidelines not backed by law; To start,

PPR 2008 (Rule 129) and PPA 2006 (Section 66)

may provide legal basis for PPP initiative

Adopt project implementation within a flexible

framework covering BOO, BOT and BOOT as

necessary

Initially, negotiate PPPs as one-off deals with aim

to install a systematic program in phases Finalize detailed action plan on how to proceed in

a time bound manner; streamline processes,

regulations, requirements, legal/policy hurdles16


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Enact new act to develop comprehensive legal andinstitutional framework for administration,

monitoring, professionalism and accountability

Create legal framework for pooling of funds fromvarious sources (banks, insurance companies,

pension funds, etc) as government can only

provide equity or loans to infrastructure related

funds at present through IDCOL

Establish a PPP cell to move forward

Prepare guidelines for TA and viability gap funds17


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Remove weaknesses and limitations ofPrivateInfrastructure Committee (PICOM) under PSIG 2004 interms of its size, scope, and other institutional andorganizational framework and structure

Set up a dedicated unit forPPP

budget formulationand implementation

Adopt measures to build trust and confidence ofinvestors; simplify legal and regulatory frameworks;streamline decision making process; remove

implementation constraints; ensure procedures ofaccountability

Create broader political consensus on needs andimperatives especially for large PPP projects with

longer implementation periods18


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Risk factors

Remove perception that public money

diverted through PPP to meet private ends

Three factors important to highlight in PPPoperations: transparency, consultation with

stakeholders, sound regulatory framework

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Conclusions

There can be initial hiccups in PPP as with any new

initiative, but prompt action would deliver desired

outputs

For successful implementation ofPPP projects,

political support is critical

There is no unique model or mechanism of

implementing PPP: explore collaborativemodalities and partnership based approaches best

suited to specific contexts

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Thank you

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Presentation on PPP Seminar -Dr. Mustafa K. Mujeri

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Transcript of Presentation on PPP Seminar -Dr. Mustafa K. Mujeri