Public Private Partnership and it’s prospect for economic development in Bangladesh.
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Author: Tithe Farhana
Current power and energy crisis, Discussion on Development forum-2010 along with views and reviews of experts, economists and financial analysts have been necessitated the procedures of Public Private Partnership which would get to the bottom of the infrastructure and socio-economic development and strengthening economic background and sustainable structure on industrial and agricultural advancement. Public Private Partnership is broadband financing programme that expands the development and economic emancipation, it explains a govt. service or private business venture which is funded and operated through a joint venture of govt. and one or more private sector companies.
PPP incorporates a contract between a public sector authority and private sector party in which the private party shores up a public service or project and assumes substantial financial, technical and operational risk in the project. In some type of PPP, the cost of using the service is borne exclusively by the users of the service and not by the tax payers. In other types which considered as public finance initiative, capital investment is made by the private sector on the strength of a contract with govt to provide agreed services and the cost of providing the service is borne wholly or in part by govt.
Macroeconomic dislocation and continuing failure of public financing during the 1970s and 1980s paved the foundation of private investment in the mainstream development sectors. In 1992 the Conservative govt. of John Major in the UK introduced the private finance initiative, the first systematic programme which was origin of PPP. Later Labour govt. of Tony Blair continued this programme that drastically incorporated industrial and infrastructural advancement. During the financial crisis of 1997 the private investors were playing a noteworthy responsibility in meeting the growing infrastructure demands in Asia’s develop countries. Nearly $ 150 billion decanted into countries like China, Malaysia, the Republic Korea, the Philippines and Indonesia. The Asian Financial crisis broke up the capital flow and exposed a number of flaws in PPP arrangements, which led to renegotiation of tariffs or cancellation of contracts.
Proactive framework
It is indispensable to have a well-defined legal framework for the regulation and transparency of PPP enterprises. The PPP budget requires a proactive regulatory framework, with suitable checks and balances to prevent corruption. Countries such as UK, Canada, India and Singapore instituted rigorous regulatory frameworks and responsible public bureaucracies before initiating their PPP budgets. Bangladesh, in contrast, has a reactive legal structure, which fails to prevent corruption and aims to penalise the dishonest after a felony is committed. Finance Minister AMA Muhith could not hide his frustration over the failure to launch any project under the much discussed Public-Private Partnership (PPP) initiative during the current financial year (2009-10). The finance minister, who himself was one of the top bureaucrats of the country, pointed his accusing finger at the bureaucracy. “Bureaucracy is always opposed to change”, he told recently.
Dr. Mohammed Farashuddin ex-governor of Bangladesh Bank commented “there is no denying that the quality of civil servants at the moment is poor compared to their predecessors. They are responsible, in many cases, for the delay in the decision-making process of the government”. Successive governments since independence of the country have formed a number of commissions and committees to reform the civil administration. But most of the reports of these temporary entities have been pushed under the blanket. However, the bureaucracy, at times, is made a scapegoat for faults committed by the others. The PPP is a case in point.
Renowned Economist and President of Bangladesh Economic Association Dr.Khalequzzaman do the focus on implementation of PPP in advantage of economic and infrastructural development. “PPP is new method of infrastructure financing which has been emphasized by both govt. and donors; nevertheless this is not practiced so vastly which might be possible. Consequently, it is very urgent to formulate policy and schemes for significant out come of PPP in energy, power and other sectors that would have reinforced awareness about it’s concepts and role among different government departments , corporate sectors , non-government organizations and above all public”, he adds.
In our budget 2009-2010, the Finance Minister announced similar investment attractions like tax waivers or a payment of minimum tax under PPP initiative, duty-free facilities and tax holidays or a minimum tax on profits only for a specific period. These are the first and foremost attempts apart from establishing a comprehensive policy and regulatory framework for PPP. The Prime Minister’s Office (PMO) has tied up a draft Public-Private Partnership (PPP) policy keeping provision for promoting local investors in implementing infrastructure projects each costing up to $10 million.
The Asian Development Bank (ADB) has offered its services to the government in the task of devising private-public partnership (PPP) policy and selecting large projects under the initiative, official sources said. The PPP policy has redefined infrastructure projects into three categories-large project (above $10 million), small project (above $1 million to $10 million) and very small project(up to $1 million). Abu Naser Chowdhury PhD candidate at Nanyang Technology University, Singapore wrote down on his article PPP guideline should be liked Public-Private Partnerships Handbook by Ministry of Finance Singapore, Guideline for successful Public- Private Partnerships by the European Commission, Promoting PPP in Bangkok Mass Rapid Transit (BMRT) and other infrastructure and so on.
Financial Factor
Cost, price and financial factors are very crucial for implementation of PPP project. It need balance between asset and liabilities with cash flows. Asif Mahfuz expressed on the nature on investment which is prime condition of successful PPP project. “Private sector invests only those projects from which they can gain profit financial gains, there are projects where economic benefits are more considerable than financial outcomes. Commercial Banks of Bangladesh are very conservative; they usually carry out short term liabilities where infrastructure loans are deserved 10-12 years” he comments. Countries like Bangladesh mostly rely on foreign debt and equity due to weak of local capital market and domestic banking loans. In this circumstance, Multilateral Development Bank and Bi-literal Bank such as Asian Development Bank, World Bank can provide wealthy support due to their repayment tenure is relatively longer with less interest rate. Abu Naser Chowdhury identifies participation of these organization not only provide encourage other investors foreign and domestic banks but also enables to get govt. guarantees against Confiscation, Expropriation, Nationalization and Deprivation (CEND).
One thing that needs to be considered is that country risk highly influences financing of PPP projects. This can be better perceived by Sovereign Credit Rating (SCR) that helps to recognize investors on risk exposures and uncertainty, default records and access to international bond markets for a specific country. Bangladesh has got it’s first sovereign credit rating that has given it much needed access to foreign financial markets and made it a lucrative destination for foreign investors. Global financial agency Standard & Poors after analyzing the macro and micro economic conditions of the country has issued it the rating BB for long term and B for short term. Dr. Khalequzzaman considers that the private sectors will now get advantage in getting foreign loans and it will reduce import and export costs. According to Standard & Poors Bangladesh’s economy is largely free from macroeconomic imbalance inspite of it’s low income level.
Local private sectors can play a dominate role on smooth PPP implementation. Md. Mosharraf Hossain, Former Chairman of Petrobangla & Ex-acting Chairman of Bangladesh Energy Regulatory Commission (BERC) commented in his article about privatization through local investors in energy and power sectors. While asking about the importance about the local private sectors to invest in PPP, Dr. Mohammed Farashuddin welcomes new PPP policy on encouraging “local investors”, he comments “by emphasizing local investors who employing a strengthen role on RMG and other industrial sectors , economy of Bangladesh will be reinforced ”. He has further stressed on utilization of Remittance income that would have forced as investment in PPP, accordingly he is concerned in relation to initiating equity in Remittance.
Controversy in policy
The draft Public-Private Partnership (PPP) policy has a number of inconsistencies that might fashion qualms in execution of projects under the PPP initiatives, some provisions of the draft policy might even give confidence bribery and other financial wrongdoings, experts think. According to the draft policy, a Public-Private Infrastructure Committee (PPICOM) will be recognized in the Prime Minister’s Office, despite the fact that the Secretariat of the proposed committee, named ‘PPP Cell’ will be established in the Board of Investment (BOI), consequently activities might be in vibration due to dual administration on a single purpose. Even if, it is formless on the authority of the BOI.
Additionally, the PPP policy has proposed compulsory selection of every PPP project by the law ministry Asif Mahfuz considers it might deject prospective private investors and would have originated to be burdensome. Mohammad Zamir thinks “we need to seriously work out how we can reduce chances of ineffectiveness because of unnecessary time delay”.
The draft policy proposed establishment of Public-Private Infrastructure Committee PPICOM Secretariat Fund. But, the draft did not talk about anything the use of such fund. Mohammad Zamir, Former Secretary and Ambassador comments in this regard “the aspect pertaining to the Fund is still not very clear. Hopefully it will stream lined sooner than later”. “Well before govt. finalizes the draft they should explicitly say where to spend the fund” comments Asif Mahfuz.
Above and beyond, PPP policy has been schemed the indemnity provisions for any wrongdoing by persons involved in the process of awarding contracts or deeds considering that he or she has acted in good faith. Dr. Mohammed Farashuddin expressed the concerned that provision of indemnity included in the draft of PPP policy would prop up corruption and irregularities. “This aspect of indemnity also has to be treated with a fair degree of caution so that it is not misused” comments Mohammad Zamir. Similarly Asif Mahfuz expresses “why govt needs indemnity? It will show the way to unwanted situations and widespread corruption”.
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