Public-private partnerships: challenges and pathways to progress

LAHORE: Public-private partnerships (PPPs) can serve as a viable solution for infrastructure development when designed and implemented effectively. To attract private investment, the state must ensure project bankability, establish clear regulations and implement credible risk-sharing mechanisms.

In resource-constrained countries like Pakistan, PPPs are increasingly seen as an effective alternative for upgrading infrastructure, especially when the state lacks the financial or technical capacity to address these needs alone. Private investors bring essential funds to finance large-scale projects while introducing efficiency and innovation, driven by profit incentives.

The shared responsibility for risks, such as cost overruns and operational inefficiencies, fosters collaboration between the public and private sectors. Moreover, PPPs can enhance the quality of infrastructure and services by holding private entities accountable for performance and maintenance. However, success requires robust governance, transparent contracts and clearly defined roles.

Despite Pakistan’s pressing infrastructure needs, the adoption of PPPs remains limited due to structural, economic and governance-related challenges. While the country has PPP frameworks at both federal and provincial levels, the lack of uniformity in these frameworks often confuses investors. The judicial system’s delays and unpredictability further discourage long-term private investment.

Ambiguities in defining responsibilities and risks between public and private entities create hesitation among potential investors. Frequent changes in policies and political regimes undermine confidence, as agreements made under one government are often renegotiated or cancelled by subsequent administrations. Given the long-term nature of infrastructure projects, political instability frequently results in incomplete initiatives or stalled commitments.

Another significant barrier is the government’s struggle to provide essential support mechanisms such as viability gap funding (VGF) or revenue guarantees, which are critical for attracting private investors. Macroeconomic instability erodes confidence further, as unpredictable returns in local currency make long-term projects less appealing. Political sensitivity over increasing tolls, utility charges or tariffs renders many projects financially unviable for private investors. High interest rates and limited access to affordable, long-term financing make PPPs unattractive for local investors.

Government institutions often lack the technical expertise needed to structure, negotiate and monitor complex PPP projects. Lengthy bureaucratic processes for approvals, feasibility studies and environmental clearances deter private sector participation. Poorly conducted feasibility studies lead to unrealistic revenue projections and suboptimal project designs.

Private investors are also wary of potential delays, cost overruns, political interference and regulatory uncertainty. Infrastructure projects, particularly in transportation and utilities, depend heavily on accurate demand forecasts, which are often overly optimistic. Land acquisition disputes and delays create further bottlenecks.

Past failures or stalled PPP projects, such as power plants and toll roads, have fostered scepticism about the government’s ability to honour commitments. Many private investors in Pakistan seek quick returns and are hesitant to engage in long-term infrastructure projects. Furthermore, the absence of successful PPP examples in the country compounds the private sector’s reluctance.

Financial viability is another challenge. Many proposed projects require substantial government subsidies to attract private financing. Poor planning, inadequate feasibility studies, and weak revenue streams increase uncertainty for investors. Concerns about favouritism in awarding contracts, corruption, and non-transparent procurement processes deter credible private investors and reduce competition.

To address these challenges and encourage private sector participation, Pakistan must adopt several measures: strengthen and enforce clear, transparent PPP laws at all levels of government; commit to long-term policies, ensure political stability and honour contracts; provide revenue guarantees, viability gap funding and insurance against unforeseen risks; train government officials to structure, negotiate and monitor PPP projects effectively; conduct rigorous feasibility studies and develop realistic revenue models; implement open bidding processes and monitoring mechanisms to reduce corruption and build investor trust; and leverage international support by collaborating with multilateral institutions such as the World Bank and Asian Development Bank (ADB) to enhance confidence and offer guarantees.

India has made significant strides in implementing PPPs due to its robust legal framework, institutional capacity, and extensive experience with large-scale projects. Notable successes include the Delhi International Airport (DIAL) and the Hyderabad Metro Rail. In contrast, Pakistan and Bangladesh continue to lag, primarily due to governance and structural limitations.