FHM Humayan Kabir
Bangladesh is the latest country that has entred into the new investment paradigm - the Public Private Partnership (PPP) over last four years. On one hand, the government has shortage of funds and on the other the country's infrastructure is required to be developed a lot. So, the government has taken initiatives to go for attracting private investments from home and abroad. Has the PPP investment initiative been able to attract investors? It is a big question now.
The new investment paradigm seems failing to become popular among the private investors due to several reasons. If we go in-depth and analyse the PPP management of the government, we can assess the reasons behind its failure to investors.
The US$1.20 billion Dhaka Elevated Expressway, one of the Bangladesh's biggest ongoing schemes under the PPP, has been struggling for long. The contractor has not been able to start implementation works. Fund crisis has crippled the Thailand-based firm - the Ital-Thai Development Company, to start work on the project.
The Bangladesh Bridge Authority (BBA), project execution agency of the much-awaited 26-kilometre elevated expressway project, has awarded the contract to the Italian-Thai Development Company in January 2011. However, the contractor-cum-investor is yet to start construction due to its failure in mobilising the concessionary loan from international financial institutions.
Construction work of Bangladesh's first biggest PPP project, the Dhaka Elevated, Expressway construction works was inaugurated by the Prime Minister Sheikh Hasina in April 2011. the project is scheduled to be completed within three and a half years. More than one and a half years has already elapsed. But the construction work is yet to start.
Miss-handling of the bigger projects like the Padma Bridge by the government may affect the PPP projects also. Since the Pamda Bridge project has given rise to graft issues, the private sector and international financial institutions may not trust the government.
What will be the fate of other PPP schemes in the pipeline could now be an interesting subject for research.
Which are PPP projects?
The government claimed the private sector investment in Independent Power Producers (IPPs) in the power sectors were the better examples of the PPP schemes in Bangladesh. But development experts have had reservation about it. They said these are not the real example since those did not follow all the rules and policies of the PPP.
The government has also cited that the under-construction Tk 20.53 billion Gulistan-Jatrabari flyover as an example of PPP. On June 22, 2010, the Prime Minister inaugurated the construction work of the 10-km flyover. It is yet to be completed.
Local development analysts said the government gives supports to the contractor. All of those are not included in the spending of the total construction cost. So, the flyover is not a standard example of PPP scheme in the country.
Online Encyclopedia-the Wikipedia-describes PPP as a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies.
PPP involves a contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project, the Wikipedia added.
Govt. investments in PPP
In the last three years since 2009-10, the government has allocated total Tk 85 billion funds for implementing different schemes. But not a single penny was spent.
In the FY 2009-10, when the PPP was included in the development budget for the first time, no money out of Tk 25 billion allocation was spent. In the following fiscal (FY 2010-11), the government allocated Tk 30 billion, but failed to utilise for its planned 15 projects. It has also failed to spend funds from the Tk 30 billion outlay in FY2011-12 budget despite inclusion of 16 PPP projects in the development budget. In the current FY 2012-13, the government has again allocated Tk 25 billion for implementing 13 PPP projects.
Meanwhile, the government in last four years has undertaken separate PPP projects in the annual development programmes (ADP). Unless a couple of schemes, most of those are ultimately not implemented.
The government is in a dilemma over selection and execution of the projects under the PPP which puts one of its priority initiatives in limbo. Officials said the government frequently changes its mind about selecting PPP projects every year and replaces old ones with the new ones.
Development experts have criticised the government for its failure to implement the PPP projects despite budgetary allocations every year.
Govt. initiatives to attract PPP
Recently, the government has approved three separate guidelines for all types of development projects to be implemented under the PPP initiative. The approved guidelines are on the Viability Gap Financing, the PPP Technical Assistance Financing Scheme and the PPP Technical Assistance Financing.
A separate PPP office has been established under the Prime Minister's Office (PMO). A chief executive officer has also been appointed to the PPP office. Earlier, the government issued the Policy and Strategy for PPP, 2010.
Obstacles: A research work
A research, conducted by former Power Division secretary and professor of North South University Mr Fouzul Kabir Khan, has identified alleged corruption in bidding process and absence of penalty for reneging on firm commitments as major hurdles to implementation of projects under the PPP in Bangladesh.
Improper selection of projects and incompetence of concessionaries that cause delay and poor quality in delivering outputs are also undermining the PPP, one of the thrust initiatives of the government, the research said.
It also said inaccurate specification from the government side due to corruption or lack of capacity is furthermore impeding the PPP projects.
Quoting case studies, Mr Khan said one project out of four major ones taken under the PPP initiative, came out successful.
"Only Meghnaghat 450mw power project was successful, while Patenga seaport project was cancelled, Jatrabari-Gulistan flyover was distressed, and Sonamasjid landport was unsuccessful."
He said lack of long-term financing instruments in the PPP projects has emerged as a key challenge. Foreign currency risk and lack of hedging instruments are also responsible for failure of many projects.
Besides, the development analysts said since the present government has created a miss-trust in implementing the big projects in terms of governance issue amid the alleged Padma Bridge graft, the private investors as well as the international financial institutions are very much shaky.
Local development analyst Mr Zaid Bakht has identified three major reasons behind the failure in PPP project implementation in Bangladesh.
First one is the failure in identifying priority projects and the second is the lack of proper framework including institutional, legal and administrative. The third factor relates to the fear of public fund misappropriation by the private party for the PPP schemes.
Untill selecting the potential sectors and priority projects for implementation, the PPP is unlikely to be successful. Mr Bakht, the development researcher at the Bangladesh Institute of Development Studies (BIDS), said.
Former finance and planning advisor Mirza Azizul Islam said since the government carries out no feasibility study before undertaking a PPP project, it excludes the same from the development budget in the following year after failing to execute the same.
Inefficiency of the government is the major reason behind the failure in PPP project execution, he said.
Mirza Aziz said: "The government undertakes new projects without any pre-feasibility or detailed concept paper of those. So, on what basis the private sector will come forward to invest in those projects?"
It is necessary to explain clearly the types of investment facilities, financing gap, cost recovery and investment security facilities in the case of every specific project to attract investors, he added.
Lessoning and way forward
All these factors have revealed that the PPP in Bangladesh is still not successful due to weakness of the project management authorities. The newly formed PPP office has so far also failed to perform its proactive role.
Successful implementation of one the key PPP projects - the Dhaka Elevated Expressway-- can encourage private investment in Dhaka. Since the government's project executing agency has failed to start implementation of the country's largest PPP scheme, the Dhaka Elevated Expressway, the potential investors are not showing interest to work with the public sector.
The government's current initiatives and tools are not enough to attract investment from the private sector. It should have long-term financing instruments which can attract the private sector to the PPP projects. Besides, it has to ensure the good governance and transparency in the project management system.
The writer is special correspondent of the FE