Public Private Partnership

By Mian Muhammad Alim

Due to increased fiscal burden and narrow income resources, governments now have limited funds to spend on long term projects which can usually cost a huge slice of their budgets. This shortage of funds creates a gap and business opportunity. Hence attracts private investors and compels governments to sit next to each other. Here is the start of new journey for mutual benefits. A public-private partnership (3P, P3) has many definitions based on perspective, emphasis, and approach. The PPP Knowledge Lab defines it as “A long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance”.

The range of PPP is not curtailed to an arrangement of funds or finances, but it also includes the sharing of specialties for synergies. Partnerships include contractual arrangements, alliances, cooperative agreements, and collaborative activities used for policy development, program support, and delivery of government programs and services (Osborne 2000). A relationship that consists of shared and/or compatible objectives and an acknowledged distribution of specific roles and responsibilities among the participants which can be formal or informal, contractual or voluntary, between two or more parties. The implication is that there is a cooperative investment of resources and therefore joint risk-taking, sharing of authority, and benefits for all partners (Lewis 2002). 

The scope of PPP mainly covers the infrastructure based projects but definitely, new horizons are widening with the passage of time. Examples abound since the turn of the seventeenth and eighteenth century with many infrastructure facilities; water channels, roads, railways in Europe and later in America, China, and Japan privately funded under concession contracts (Desa Working Paper No. 148). In the aviation sector, airports have been success story in Europe and South American countries with other developed nations. In the education sector, dormitories and test laboratories may be initiated.

As an advantage Public-Private Infrastructure Advisory Facility PPIAF believes the cast of these projects is not taken from the pockets of the general pool of taxpayers. If possible, an operational investment return framework is created which only chases the users of services or facility to paying net. Further, Specialization is the key advantage that then yields in many others.

Political instability, security turmoil, transitions, and laws can turn every viable opportunity into a huge loss for the private partner.

Build, Operate and Transfer (BOT) vs Design, Build, Operate and Transfer (DBOT) are designs in which most of PPP projects are carried. All costs and resources are managed by the firm which may be made available through equity or debt. The firms may take debt from local or international financial markets. “Concession” is the sum of exclusive rights, investment protection and benefits like royalty, tax incentives etc which are provided to private firms by government. Concessions are extended for a defined period of type in which the firm will take revenue yields in its account to repatriate its investment and earn for its shareholders.

Few projects have already been constructed and are currently in operations phase. GoP through NHA intends to accelerate infrastructure development and has recently advertised 8 different projects which include Sialkot – Kharian – Rawalpindi and Hyderabad – Sukkur motorway, dualization and rehabilitation of 03 existing carriageways, 02 flyovers and one elevated highway. Under this agreement, the concessionaire will be responsible for to design, finance, construct, operate, main and transfer the project assets to NHA at the end of concession period.

Addis Ababa Action Agenda (AAAA) of 3rd international conference on Financing for development concludes that both public and private investment has key role in infrastructure financing. Stakeholders are discussing this mode of financing to achieve Sustainable Development Goals 2030. Much emphasis has been put to develop institutional capacity and conducive environment to enter into such contracts. As few experts still argue that PPP simply does not work due incongruence of objectives of both partners.

The writer is an officer at State Bank of Pakistan

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s