Innovative financing

Infrascope, an index issued by Economic Intelligence Unit – which evaluates the environment for Public-Private Partnership (PPP) in the world – ranks Sindh sixth out of 19 Asian governments assessed for an enabling environment for public-private partnership in infrastructure.

The first five positions are held by national governments. In this way, Sindh is the first sub-national government. Certainly, the index position is pleasantly surprising and deserves sincere appreciation. It evinces that the provincial government is exercising reasonable financial and administrative prudence.

Public-Private Partnership (PPP) is an innovative financing tool for cash-starved economies needing to develop infrastructure, provide jobs and gear up growth. What is PPP? Why is it attractive for government? How can it be used? What are the available investment models? How is the world benefiting from the opportunity? There is much to learn about this new domain of public economics.

Public Private Partnership provides an off-budget mechanism for much-needed infrastructure development. Governments invite the private sector to participate in the provision of public goods. In lieu thereof, private entities expect attractive returns. Sometimes, the public and private sectors pool up resources and work together and many a time the public sector acts as a beholder, merely counting the agreed-upon targets. It is a collaborative effort. If carefully pursued, it equally benefits governments, private concerns and the general public. Public-Private Partnership (PPP) helps governments do things with the efficiency and expertise of private sector.

As PPP reduces the immediate cash spending requirement, it is increasingly becoming trendy among governments around the globe. Scarcity always runs ahead of human endeavours. Budget balancing and deficits are headaches everywhere. If the crucial infrastructure requirements of the burgeoning population are not met on time, socio-economic and political vulnerabilities deepen. This is why governments are falling in love with Public-Private Partnership. Collaborative efforts between the government and the private sector relieve the former from the burden of costs of design and construction.

Besides fiscal tightening, some other dynamics also thwart development initiatives. For instance, in Pakistan, institutional imbalance has been accused of suffocating enterprise expansion – more specifically during the past couple of years. The incentive for inaction seems to be far more voluminous than taking the lead for action. Politicians merely prefer to thunder through the clouds of rhetoric, and the bureaucracy is calibrating to save its skin. Risk is ubiquitous. In these circumstances, Public-Private Partnership remains the safest passage that has the capacity to insulate politicians and civil servants against risks.

Governments in developing countries are not only cash-starved but also lack vital expertise. The Bus Rapid Transit (BRT) Peshawar best exposes the rudimentary capacity of the public sector. How flagrantly has the project ruined the goodwill of the leadership? Had it been up to teamwork between the private and public sectors, the on-paper perception would have been translated into practice by now and would have also saved billions of rupees.

Decisions regarding better project design, choice of technology, construction, operation, and service delivery demand a high set of expert skills and commitment. Complete reliance on low-paid generalists driven by self-interest is a recipe for disaster. This calls for support from qualified private concerns ready to invest in their stakes.

During the preceding year, PPP investment commitments in energy, transport, ICT backbone and water infrastructure in low-and middle-income countries totalled $90 billion across 335 projects in 41 countries. Almost 81 percent of these projects were greenfield projects, and most of the greenfield projects (58 percent) were in the energy sector.

There was a significant increase in the number of brownfield transport projects, driven largely by India, where 82 percent of projects in the transport sector were brownfield. China, India, Turkey, Indonesia, and Brazil shared 67 percent of total global investment in public-private ventures. Except for China, all of the four top PPP destinations are simultaneously facing moderate to severe economic crisis. Despite this, their steady march in this newfound realm of opportunity is underway.

Keeping in view the risks, obligations, durations, and quantum of investment, PPP models present a wide array of choices ranging from private ownership, concession agreements, leases, turnkey projects to supply and management contracts. But all this comes with equally diverse challenges.

An inexperienced and unprepared public sector may compromise significant public interest while negotiating with shrewd and well-versed veterans of the private sector. Experience comes from practice and preparation from knowledge and training.

In light of the above, the public sector in Pakistan must position itself to realize opportunities in this sphere; it also needs to learn and equip itself with the required skills to create, manage and sustain the environment for public-private partnership. The success story of Sindh offers this prospect.

The writer is a public policy scholar at the Lee Kuan Yew School of Public

Policy, Singapore.