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November 10, 2019

A good partnership - Part - II

Opinion

 
November 10, 2019

By Dr Murad Ali

In Pakistan, a number of projects have been completed under the PPP mode. For example, the number of IPPs in thermal power generation grew from 16 to 34 during 1996-2016, raising their capacity to 9,129 MW, comprising about 36 percent of the total power generation installed capacity in the country.

During this period, four IPPs with installed capacity of 213 MW and six IPPs with installed capacity of 306 MW were also established in hydro-power generation and wind power generation respectively. As a result, by 2016, 44 power projects were contributing over 9000 MW to the national grid through the participation and active role of the private sector entities.

In addition to the energy sector, numerous projects have been implemented in transport and communication infrastructure across the country, mostly in Punjab. In this regard, the recently-completed 81 km long and 80 meter wide Swat Expressway in Khyber Pakhtunkhwa is another tangible illustration of how a PPP can play an effective role in leveraging each other’s strength. (Also, while the project is considered a PPP venture, the implementing partner is actually a public-sector entity and not a private organization. It can be termed a public-public partnership).

Despite the buoyant claim on the potential role of the PPPs, serious efforts have been lacking. Previous studies carried out to measure the effectiveness of energy projects under PPPs were limited especially in Pakistan. These shortfalls may make the research results vulnerable to criticism for lack of precision and reliability. Even empirical literature has been very limited for measuring impact of private participation in the public-sector projects and programmes in the energy sector.

As a result, it is acknowledged that there are also myriad challenges and risks in bringing together public and private financing for sustainable development. The Addis Ababa Action Agenda (AAAA), the outcome of the 2015 Third International Conference on Financing for Development held in Addis Ababa, Ethiopia has recognized that “both public and private investment have key roles to play in infrastructure financing, including through […] public private partnerships”. However, the AAAA where 174 UN states had sent delegations, has also highlighted the need to “build capacity to enter into PPPs, including as regards planning, contract negotiation, management, accounting and budgeting for contingent liabilities”. It further stresses the need to “share risks and reward fairly, include clear accountability mechanisms and meet social and environmental standards”. It is because in numerous developing countries, most of the social and environmental costs of development projects are borne by disadvantaged and vulnerable segments of the population. There must be appropriate legal and regulatory safeguards to protect the interests of those who are at the bottom of the pyramid.

Due to this, the benefits of using PPPs for financing depend on the context, and the intent and expertise of both the private and the public sector as there are sometimes numerous complex issues. As the PPPs combine the efforts of the public and private sectors to contribute to sustainable development, there are inherent flaws as both the public and private sector entities have different aims, objectives and values. According to Hall, “private sector corporations must maximize profits if they are to survive”. According to the same author, this approach of expecting the private sector to play a developmental role is “fundamentally incompatible with protecting the environment and ensuring universal access to quality public services”. As private businesses are rarely altruistic, hence the very idea could be at times in conflict with the rationale behind the existence of the public sector which is primarily responsible for efficient public service delivery and welfare of the citizens.

It is also argued that “assessing the development effectiveness of projects funded through blending can be problematic as public-private contracts often contain confidentiality clauses, limiting transparency”. This statement is quite relevant to many contexts, particularly to developing countries such as Pakistan.

To overcome such challenges, public-sector entities must ensure complete transparency concerning the terms and conditions on which to engage the private sector so that partners are held accountable in case the intended outcomes are not achieved within due time and within the stipulated budget. Sundaram, Chowdhury, Sharma, and Platz have noted that “the prime objective of a PPP is that it should result in an improvement in the quality and efficiency of a given service to the citizen”. However, these authors have noted that “the performance and viability of PPPs varies greatly across activities and sectors”. According to these authors, to ensure that PPPs are an effective mode of financing to improve service delivery in infrastructure “it is critical that countries have an institutional capacity to create, manage and evaluate PPPs, especially in relation to other possible sources of funding”.

From a public policy perspective, the prime objective of a PPP is that it should result in an improvement in the quality and efficiency of a given service to the citizen. At the same time, it would have the benefit of attracting private resources into public services, thereby allowing public money to be diverted into other critical areas and alleviating long-term pressures on public finances. To ensure PPPs are an effective instrument of delivery of important services, such as infrastructure, it is critical that “countries have in place the institutional capacity to create, manage, evaluate and monitor PPPs”. Without adequate institutional capacities and comprehensive legal, regulatory and monitoring policy frameworks with robust and reliable accounting and reporting mechanisms, true potential of PPPs cannot be harvested.

In the context of Pakistan, the Public Private Partnership Authority must play a proactive role to come up with a list of feasible projects in different areas and how private sector entities could join hands with the government for its own benefits and for the larger interest of the citizens. If properly utilised, there is enormous potential to have a win-win scenario for all the stakeholders.

Concluded

The writer holds a PhD from Massey University, New Zealand. He teaches at the University of Malakand.

Email: [email protected]

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