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Effectiveness of PPP in Development financing

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World leaders agreed that .70 percent of accumulated GDP of developed countries will be shared to LDCs for economic development actions for equality among world member countries but this promise was never made. Most of the LDCs are undergoing a robust economic transition led by major structural development and reforms with no exception in Bangladesh.

screenshot-202Many LDCs and developing countries cannot finance the multifaceted and manifold infrastructural development like rail, highway, port, healthcare and industry because of gigantic amount of investment need. Our Government often cannot arrange and support high interest borrowing from foreign sources, neither foreign direct investment (FDI) nor official development assistance (ODA).

The common application of PPP in Europe started in the transport and urban water supply sectors where users were easily identified and revenue streams at least partly supported the investment. Ireland, Japan, Philippine, China also successfully used the PPP model to shred financing burden in large scale infrastructural and economic operations in earlier days. USA began the private funded road highway work in eighteen century and P3 projects in twenty century and progressed well.

In 2010, the GoB made the Policy and Strategy for Public Private Partnership (PPP) to facilitate the development of core sector public infrastructure and services essential for the people of Bangladesh and mainly support and implement the infrastructural projects for vision 2021-economic graduation of Bangladesh under the PM office. In this regard, GoB issued a PPP policy and guidance in 2010 which later turned as PPP Law 2015 in a bid to draw foreign and private investments in diverse sectors. To fasten the PPP projects, the Procurement Guidelines for PPP Projects 2016 has also been effective.

The common modalities of PPP projects are BOOT, BOT, BOO. In addition, Design, Build, Finance, and Own (DBFO), Concession and JDA (Joint Development agreement), Joint Venture, BLT( build lease and transfer) are also practicable modes held subject to nature of projects and mutual interests. Although there are significant challenges in PPP financing for development activities in Bangladesh, PPP is still investment solution to placate increasing need for development funds.

Prospective Projects:screenshot-203

  • Power sector of Bangladesh is critical to the inclusive economic development of Bangladesh. With the aim to let entire population to access to power utility service, the current generation capacity has to grow by additional 13000 MW to 23000MW through $21 Billion additional investment by the Year 2021.
  • To tap this huge demand, PPP can be an ideal financing mode. To progress in this line,  the PPP programme needs to create some remarkable precedent which can motivate other private investors to bring investment in power sector. If it works well, the power sector can look forward to 40000MW generation capacity by 2030 through PPP led bondage.
  • Private sector local and foreign companies can play strong roles partnering Government agencies under strong leadership of PPP office in new avenues of power sector like Coal mining, Transmission and distribution network, LNG, LPG terminal, onshore and offshore exploration and production of energy and hydrocarbon.
  • 7th five-year-plan has got the target of 34 percent Investment share of GDP underpinned by wide-ranging infrastructure and Industry Investment. And, this ambitious target opens up new avenues for PPP Investment.
  • In 7th five year plan, the multimodal (rail, road, waterway) communication infrastructure proposed 2 percent of GDP to invest but this needs to be larger to meet growing need of infrastructural development. Indeed, all form of infrastructure requires 40 percent investment of GDP by 2030 to ease communication network and enable cross-border regional trade, investment, strong and enhanced supply chain network.
  • Cross border gas pipeline, power network, BBIN road connectivity and proposed BCIM road connectivity work also can be initiated and fastened through PPP if this model can take a successful shape.
  • The ADB and WB financing trend were not very satisfactory to meet our incremental need and bilateral financial cooperation offer were not remarkable.
  • India and BD, BD and China have inked some G2G, P2G financing support agreements. China and BD agreed worth of $20 Billion in some large and mega projects which may improve financing situation in future provided this loan proposal can be dealt efficiently.
  • 100 Economic zones development, operation across the country by 2030 requires huge Investment to create utility and communication infrastructure.

PPP can be replicated in service, Industry and agriculture and allied development work as these three sectors are always instrumental to continuing economic growth activities.

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Challenges and recommendations:

Despite we have pro private investment regulations, PPP Act and relevant policies, the PPP is not being able to reshape our incremental and cross-sectoral development investment needs as expected though PPP is apparently the ideal solution to create a sustained investment partnership reducing external dependence on aid and expensive borrowing. If PPP gets established, it will have multiple spillover effects up and down the economy in the long run.

To build better private and public synchronization for greater welfare of the economy, the following challenges are to be addressed:

  1. To encourage private sector financing through bank borrowing, the rate of interest needs to be lower balancing private and public finance. Monetary policy should align PPP investment too.
  2. Banks should create options for financing in PPP projects otherwise off shore financing spree will be encouraged and idle savings will soar in Bangladesh.
  3. All regulatory institutions are to orchestrate to cut policy and process complexities for shared performance in the projects undertaken. One stop service system to get access to all licensing and regulatory agencies in a single window.
  4. Project management, bankable project design, financial closure bidding, implementation skills, capacity building of PPP office to complete all projects in due course are essential.
  5. Competitive project fiscal and non fiscal benefit framework are to be developed to encourage private sectors.
  6. Coordination of Service institutions involved in PPP projects like technical feasibility study, fiscal feasibility, environmental feasibility, social due diligence, Risk supporting insurance companies and project financing companies to ease the project development and implementation process and rising cost of doing business.
  7. To encourage various and multiple private sector engagement in PPP projects, the DBFO, concession mode can be used which are private sector friendly in addition to conventional BOOT, BOO. In DBFO and Concession, private partner do all work except financing. Private sector led these modes can guarantee the timely project completion.
  8. It is very important to make all required reforms to make the PPP fully operational.
  9. PPP and BIDA are required to work together to net critical and mega projects in the decades to come.

In line with the ambitious economic visions in line with year 2030 and year 2041, huge financing needs to be plunged in Bangladesh for creating socio-economic infrastructure as coherent infrastructure is critical for economic development. Conventional external financing adds burden on national budget and Balance of payment. And, PPP backed projects and central bank reserve use in local projects may stimulate local ppp bondage creating self-dependence facilitating positive Balance of Payment and diverse economic dividend to secure long-desired economic transformation.  

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