Potentials and challenges of public-private partnership

Many least developed and developing countries cannot finance the development of their infrastructures like rail, highways, ports etc. because they involve gigantic amounts of investment. Sometimes, governments cannot by themselves support high interest borrowing from foreign sources, either foreign direct investment (FDI) or official development assistance (ODA). To deal with this funding constraint, public-private partnership (PPP) is widely regarded as a solution for large projects. Although there are significant challenges in PPP financing for development activities in Bangladesh, it is possible to find an investment solution through this instrument to placate the country's increasing need for development funds. It is widely held that PPP fosters economic growth by developing new commercial opportunities and increasing competition in the provision of public services, thus encouraging crowding-in of private investment.

PPP is a win-win relationship between the government and various private sector players for the purpose of delivering a service by sharing the risks and rewards of the venture under a contractual obligation. A project under PPP may include all stages of life cycle starting from ideation, design, construction of infrastructure where necessary, and up to delivery of services and maintenance. In the PPP projects, the private sector is the active party that undertakes activities, depending on the model, starting from the stage of conception and up to the stage of operation and maintenance. In most of the cases, PPP allows private sector into areas of business, where the government holds control over infrastructure or service before such partnership. The public sector retains a significant role in the partnership, either as the sole purchaser of the services provided or as the main enabler of the project. The private party commonly provides the detailed design, construction, operation and financing for the PPP project, and is paid according to the performance.

According to Ministry of Planning, Bangladesh (2015), in order to achieve the Vision 2021 goal of Bangladesh becoming a middle income country by 2021, she will need to ensure a more rapid, inclusive growth trajectory. To this end, the government of Bangladesh needs to raise the GDP growth rate to 8 percent. To achieve this GDP growth rate, the share of investment to GDP needs also to be raised to 35-40 percent from its present average investment GDP ratio of 24-25 percent. To reduce the investment deficit, participation of the private sector through PPP is an important route. There has been some success in attracting private investment through PPP route in the power, gas and telecom sectors. The Government seeks more investment in these and other sectors such as ports, roads, railway, water supply, waste management, tourism, e-service delivery etc.

There are the many reasons that the government, official aid provider or private sector would want to participate in such investment project like PPP. It is well-known that the government wants to participate in the PPP financing to achieve the Sustainable Development Goals (SDGs), after satisfactory achievement of  the Millennium Development Goals (MDGs), adopted by the United Nations (UN) achievement of which will depend on scaling up public-private partnerships. Besides, the private sector knows the art of making markets work, managing risks, and fostering competitiveness and innovation. Bangladesh's goal to be a middle-income country by 2021 calls for its investment in infrastructure to be increased from 2 percent to 6 percent of gross domestic product, and for that the government wants to rely on public-private partnerships funding.

Another reason that governments should turn to PPP is that the overseas development assistance or aid flow from developed countries to developing world is waning. Developed countries had earlier committed to provide 0.7 percent of their gross national income as ODA to help developing nations finance their development needs. However, many of the countries are yet to meet their full commitments. For instance, net overseas development assistance from OECD's (Organisation for Economic Co-operation and Development) Development Assistance Committee members stood at $135.2 billion in 2014, which was just 0.29 percent of the GNIs of the countries that year. In 2014, only 5 of the OECD DAC members had met their targets. For the private sector, it can engage in sectors where conventionally public sector invests. Under PPP the private sector not only supplies materials, they are also engaged in multitude of activities such as financing, construction, ownership, maintenance, and management.

The obstacles currently standing in the way in harnessing the benefit from the PPP initiative are manifold. One of them is the unfamiliarity with the concept of PPP. It is also argued that PPP concept takes time to penetrate. For example, in the UK 10-12 years passed before the concept truly took off. In neighbouring India, the movement started in the mid-90s but it was not until the mid-2000s that the momentum came. Although no country has delivered PPPs overnight, a systematic approach for the PPP initiative has yet to be seen in Bangladesh. Over the last few years, the PPP Office, which reports directly to the prime minister, has been working to get an environment in place that gives investors the confidence that it has really thought through on how to get the projects done in a structured manner.

Balancing the public sector's goal to provide quality services and the private sector's interest to withdraw return on investment is very difficult. Therefore it is essential to have a well-defined legal framework for the regulation and transparency of PPP enterprises. Thus, the PPP budget will require a proactive regulatory framework, with appropriate checks and balances, to prevent corruption. For instance, 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. Besides, ensuring transparency and accountability of the PPP contracts is vital.

Apart from the above, it is essential to identify the risks associated with a PPP project, and to use an appropriate legal framework to distribute the risks, resources and rewards (3Rs) among the public and private partners. To check procedural delay is another challenge in implementing the PPP initiative. If the government aims to initiate PPP projects in priority areas such as in power and health, with a goal to speed up the outcomes, the procedural delays of PPP may jeopardise the government's goal. If rural areas fail to attract private investment, the government may consider offering capital grants to make PPP projects commercially viable in these areas. In addition, public‐private partnership might involve such risks as loss of ownership of public properties, approval of inflated costs, overlooked public interest when pricing the services, dysfunctional infrastructure once ownership is handed over to the government etc.

There are reasons to be hopeful. Bangladesh Parliament has passed Public Private Partnership Bill 2015 in September lst year in a bid to draw foreign and private investments in service-oriented sectors. Although currently a total of 42 projects are being implemented under the PPP, this bill will help build private investors' confidence as far as the legal certainty and security of their long-term investment are concerned. The government will now set up a Public Private Partnership body after the passage of the law.

Moreover, the present Public Private Partnership (PPP) budget of the government of Bangladesh will have lasting impact on the country's unfolding development needs. For instance, the government may hire a consortium of private entrepreneurs to establish a power plant and, in return, the consortium may have a percentage of its revenue earnings. Again, the Asian Development Bank (ADB) has highlighted that Bangladesh and the Philippines are the two models for emerging markets to follow when it comes to developing PPP programmes.

The government of Bangladesh is very optimistic that it will be successful in its PPP funding efforts. For example, a detailed design of the Dhaka-Chittagong six-lane expressway is a first major step toward attracting private sector investment under Public-Private Partnership (PPP) initiative. A cabinet committee decided in principle to implement the project under PPP. Besides, a group of women from low-income families of Sirajganj have voluntarily raised funds among themselves to build homes under a government programme called Community Housing Development Fund. So financing through the PPP initiative in Bangladesh is growing day by day.

Like a fledgling bird, the PPP concept and its application in real sense is unfolding in Bangladesh. Although it can yield both positive and negative outcomes based on its usage, the combined expertise of public and private sectors creates a synergy for development. If the public sector's corruption and the private sector's greed create an evil twin, then development will be imperilled, no doubt.