PRIVATE SECTOR PARTICIPATION IN INFRASTRUCTURE DEVELOPMENT

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					Punjab Development Forum
  Lahore 18-19th April 2005



      PRIVATE SECTOR PARTICIPATION IN
     INFRASTRUCTURE DEVELOPMENT -
        PROPOSED DRAFT LEGISLATION




                                        By


                               INAAMUL HAQUE
                                     Chairman
      Economic and Social Policy Planning Cell /Advisor WTO,
                    Planning & Development Department
                              Government of the Punjab
                                                               1
 SEQUENCE OF PRESENTATION
    Punjab Vision 2020
Part-I   CONCEPTUAL AND OPERATIONAL PARAMETERS
 A. Definition of PPP
 B. Rationale of PPP
 C. A caveat
 D. Nature of option
 E. Requisites of success
 F. Financial contribution of Government
 G. Inclusion of local government
Part-II PROPOSED MODEL(Draft Legal Framework)
 A. Schematic presentation of proposed model
 B. Legal framework for PPP
 C. Proposed institutional mechanism
 D. Project delivery process
 E. Where we stand? – State of Action
                                                 2
 “ Developing   a framework in which
the private sector can provide the
infrastructure at a reasonable price
and quality would be one of the main
areas of future development.”
                Chief Minister’s Punjab Vision 2020




                                                      3
          Part-I

CONCEPTUAL AND OPERATIONAL
       PARAMETERS




                             4
            A. DEFINITION OF PPP
WHAT IS PUBLIC PRIVATE PARTNERSHIP?
  PPP is a contractual arrangement under which a
  private party agrees to finance , construct and
  operate a facility for an agreed period of time and
  (usually ) transfers the facility to a government or
  other concerned public agency on expiry of the
  stipulated period.


  Contractual arrangements such as BOT ( Build,
  Operate and Transfer ) , BOO ( Build, Operate and
  Own) and ROT (Rehabilitate, Operate and Transfer)
  are some of the forms of PPP.
                                                         5
        B. RATIONALE OF PPP
WHY PPP?
Bridging Resource Gap
    Gap between increasing needs of infrastructure
    and available financial means

    Punjab Vision: 7% rate of annual growth in GDP
    Requisite investment on infrastructure per annum in
    developing countries ( 7% to 9% of GDP )

                  (Really no alternative, but PPP)

Expediting Construction / Improvement of
   Infrastructure
    Which would otherwise not have come on stream
    A trade off
                                                          6
Some other advantages of PPP Approach

  Timely development of projects

  Possible reduction in project costs / efficiency gains

  Better allocation of risks

  Rigorous examination of feasibility

  Technology transfer

  Setting up benchmark


                                                           7
              C. A CAVEAT

PPP can not displace public financing of

infrastructure
       Traditional Financing Preferred Option

 “   But if the same projects can be implemented

as a turnkey construction contract financed by

sovereign borrowings , the time saved and the

greater certainty of the project going forward may

warrant the more traditional approach.” (World Bank)

                                                       8
          D. NATURE OF OPTION
IS PPP AN EASY OPTION?
No! Because there are disadvantages and
problem areas such as:

   Complexity – legal and financial
   Relatively expensive??
   Resistance by vested interests
   Entailing outlay and contingent liabilities on the
   part of host governments

       BUT IT IS A WORTHWHILE OPTION

                                                        9
    E. PRE REQUISITES OF SUCCESS

WHAT DOES IT TAKE TO HAVE SUCH A
REGIME?
Prerequisites for success include:

  Clear commitment and a proactive approach of the
  government.
  Proper structuring of projects.
  Supportive legal environment (especially
  enforceability of contracts).
  Stable & investment friendly economic environment.
  Presence of good secondary market.
  Expertise in fields of project financing and
  international contracts.
                                                       10
F. FINANCIAL CONTRIBUTION OF GOVERNMENT

PPP SIGNIFIES PRIVATE FINANCING. IS
STILL THE GOVERNMENT FINANCIALLY
INVOLVED?
 There has not yet been a purely private PPP
 infrastructure project of any significant size in a
 developing country, where the substantial government
 support has not been extended.


 Extensive host government’s support, including a
 substantial financial commitment at one or more
 stages of the process.

                                                        11
G. INCLUSUION OF LOCAL GOVERNMENT
WHETHER LOCAL GOVERNMENTS
SHOULD BE INCLUDED WITHIN THE
PURVIEW OF PPP REGIME?

YES. Because:

  Critical infrastructure facilities need to be constructed /
  improved at local level.
  It shall be possible to undertake small projects, which
  can cater to local requirements.
  PPP regulatory institution and law will ensure
  transparent procedures and practices at the level of
  the local governments.

                                                                12
       Part-II

 PROPOSED MODEL

(Draft Legal Framework)




                          13
A. Schematic Presentation of Proposed Model

                             Statutory Framework



                                Institutional Mechanism      Project Delivery Mechanism
     Regulatory Authority


  Punjab Infrastructure                                     P&D Board, Govt. Agency,
                              P&D Board ← Structure
                                                          Local Government Institutions
Regulatory Authority(PIRA)
                                                                   Structure

       Structure
                                     Functions                       Process
      Functions




                                 Concession Agreement
                                                                                          14
B. LEGAL FRAMEWORK FOR PPP INITIATIVES
  Two Approaches to PPP Legal Framework:
        Concession Agreement
        Specific Legislation (This does not dispense with concession
        agreements but lays down the parameters within which such
        agreements can be entered into.)
  Specific Legislative Approach preferred because it
  is more:
        Comprehensive
        Transparent
        Predictable
        Effectively regulates exercise of discretion
        Reassuring to investors
        Helpful to civil servants – providing detailed framework and
        rules of games.
  Enactment of the Punjab Private Participation in Infrastructure
Development Act is proposed. All concession agreements will
have to conform to its provisions.
                                                                       15
C. PROPOSED INSTITUTIONAL MECHANISM
I. Planning & Development Board: Focal Point

      No separate legal entity proposed.

      Utilizing existing framework (but with enhanced capacity)

      Ownership of departments – core principle

           Major Functions of Board
 Identify and conceptualize projects;
 Prioritize and categorize projects;
 Prepare a portfolio of projects in consultation with departments;
 Recommending proposals for approval of the Government.
 Decide upon financial support and approve allocation of contingent
 liabilities;
 Approve bid documents, risk sharing principles and bid processes
 for projects; and
 Approve sectoral polices and model contract principles.
                                                                      16
C. PROPOSED INSTITUTIONAL MECHANISM
II. RATIONALE FOR A REGULATORY AUTHORITY
      To protect all stake holders especially concessionaries;
      To protect users;
      To promote efficiency in operation, capital investment and infrastructure
    facilities;
      To observe quality performance;
      To protect civil servants from unfair criticism;
      To capture eventualities over 25 years including problems out of renegotiation of
    tariff
      etc. (human factor); and
      To handle monopoly situation.
                         Major Functions of PIRA
 Monitor competitive bidding process;
 Aid and advise in the formulation of appropriate user levies’ policy /
  guidelines;
 Decide issues and disputes relating to users levies;
 Prescribe and enforce performance standards;
 Prescribe and enforce quality standards;
 Promote competition and efficiency; and
 Protect the interests of all the stakeholders                                           17
C. PROPOSED INSTITUTIONAL MECHANISM
III. STRUCTURE
  Chairperson: A retired Judge of the High Court or a serving
  or retired officer of the status of Secretary to the
  Government of Pakistan or an outstanding individual from
  the private sector with minimum qualification recommended
  in case of members

  Other two Members well qualified professionals of known
  integrity and competence with a minimum of twenty years
  experience in the fields of finance , law , engineering or
  management of infrastructure sectors’ projects in the
  public or private sector. One of the members will be Member
  Finance.

                                                                18
D.      PROJECT DELIVERY PROCESS

     Private participation in projects

     Project identification

     Sanctioning process

     Process of procurement

      Selection of private sector participants

     Selection of private sector participant by

     competitive public bidding

                                                     19
                                                  Cont’d
WHERE WE STAND? – STATE OF ACTION




                                20
THANK YOU




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