s Pakistan confronts its ever-growing infrastructure and public service delivery gaps, policy makers and development practitioners are turning to an under-emphasised yet extremely promising instrument: the small-scale public private partnership (SSPPP). Unlike the CPEC mega-projects or motorways cutting across provinces that garner media attention, the SSPPPs seek impact at the community level. A typical SSPPP could be a village water filtration facility, a rooftop solar grid in a peri-urban community, a rural health facility or a waste management system in a small town.

The SSPPPs have enormous potential. They also face many challenges. The recent World Association of Public Private Partnership Guidelines for SSPPPs indicate that even though the SSPPPs represent a pragmatic way to deliver local development objectives, their successful implementation is not always a smooth affair.

Cost for impact

One of the main challenges to the success of an SSPPP is linked to its base strength; its small scale. In Pakistan, where bureaucracy is dense and capacity thin, preparing a small-scale PPP requires extensive studies on technical, financial, legal, environmental and social aspects of the development projects. Given their small scale, the relative cost burden is far higher.

A rural water supply scheme worth Rs 50 million may be subject to the same kind of legal scrutiny, feasibility studies and environmental approvals as a Rs 5 billion motorway. For smaller sponsors with limited human resources and financial capabilities, this is a great disincentive. Scarce expertise mostly gets channeled into larger projects perceived to have more political mileage and higher fiscal returns.

Legal and institutional weaknesses

The current legal framework has been devised primarily to enable large projects. The Punjab and Sindh have somewhat advanced PPP units, but their mandates and SOPs seldom take into consideration the specific nature of SSPPPs. Capacity is even more constrained at local government level, where SSPPPs are most applicable.

A small-town municipal corporation may lack PPP expertise as well as basic in-house legal or financial advisory to craft contracts to safeguard community interest while attracting private investor. Unavailability of simple templates, sample contracts or standard guidelines specific to small projects cause all projects to begin from the scratch. In many cases, they stall before taking off.

Limited private sector interest

The private sector in Pakistan is dominated by family conglomerates and contractors looking for high-value public projects. Both tend to find small PPPs unappealing. Why should a mid-size company bid for Rs 100 million city bus terminal when the same amount of effort could get it a Rs10 billion toll road concession?

Small and medium enterprises (SMEs) may appear to be the natural allies for the SSPPPs. However, they too face challenges of limited access to affordable project finance, lack of expertise to navigate complex procurement regulation and absence of special incentives. Without bundling opportunities like grouping similar small projects in one package, individual SSPPPs may fail to attract bidders.

Financial constraints

Space for development finance is notoriously constrained. Sub-national governments in general have very limited capacity to take on the fiscal risks involved in PPPs. For SSPPPs, this is particularly difficult since their small scale implies that they are not always able to raise enough user fees to be financially self-sustaining.

Small and medium enterprises may be the natural allies for the small-scale public-private partnerships. However, they too face challenges like limited access to affordable project finance, lack of expertise to navigate complex procurement regulation and absence of special incentives. 

Consider a small-scale garbage collection PPP in a tehsil, where user fees can finance only a portion of the operating expenses. The local government needs to bridge the gap. If the financial base of the local authority is slender - like most municipal authorities - payment defaults and delays are unavoidable.

This ruins investors’ trust and raises the financial costs. Pakistani banks, too, are hesitant to lend for extended periods, particularly for such infrastructure projects.

Community perception

For SSPPPs to succeed, stakeholder acceptance at local level is essential. However, in much of Pakistan, “privatisation” is often associated with higher prices, loss of jobs and elite capture. Small-scale PPP projects like water supply or waste management which involve the community may be rejected unless explained properly.

Fearing electoral repercussions, local government may be reluctant to approve or implement cost-recovery policies. Thus, without effective community outreach and communication, such projects can get stalled due to local conflicts or misinformation.

Capacity gap

Local government may not be able to plan, tender and implement SSPPP because of non-existence of well-established PP cells. Municipalities often lack technical expertise to prepare bankable contracts, negotiate risk allocation, solve disputes and monitor performance.

WAPPP guidelines highlight the importance of institutional capacity and training for local government officials that are largely absent in Pakistan. As a result, many SSPPP are likely to end up faltering.

Overcoming the barriers

In spite of these challenges, the potential of SSPPPs cannot be overlooked. The policy makers need to think about how to make these local partnerships a success. The following could help break the deadlock.

Adapt the Legal Framework: Provision to design small-scale PPP must be carved in national and provincial PPP legislation in which local authorities may be acting as contracting authorities with proper fiscal control.

Standardise and simplify: Procedures for SSPPPs need to be standardised and simplified by creating create model contracts, procurement templates and toolkits for sectors like water supply, waste management, street lighting etc to reduce transition costs and legal uncertainties.

Capacity building: Specialized PPP units should be set up in municipal organizations to train officials. Incentives should be provided for coordination with provincial PPP units for advice and expertise.

Project bundles: Rather than announcing stand-alone micro-projects, local authorities should bundle similar small projects regionally e.g., several small solar installations in villages to get larger players and reduce bidding costs.

De-risking finance: Governments should create credit guarantee schemes, viability gap funds and blended finance instruments to enable local government and SMEs to access low-cost finance for SSPPPs.

Community engagement: The authorities should ensure community consultation and create simple, transparent user-pay models where it is easy to see how benefits are distributed fairly, to establish trust and minimise opposition and resistance.

The road ahead

Pakistan requires thousands of local-level projects to empower the marginalised communities and fulfill its SDG ambitions. The SSPPPs have the potential to deliver this promise but only if distinct challenges are met head on. With focused reforms, capacity development and a renewed emphasis on local development, these partnerships can be the key to changing Pakistan’s future.

The writer, an independent consultant, has a PhD degree in sustainable public-private partnerships. He can be reached via waseemalitipu@gmail.com