The cash-stra­pped Usman Buzdar government in Punjab recently approved several infrastructure projects worth Rs75 billion it wants to implement in the province in collaboration with private investors under the Public-Private Partnership (PPP or P3) framework.

According to a report, the Public-Private Partnership Policy and Monitoring Board has approved seven projects in P3 mode. The idea is to make up for the scarcity of funds for development in the province with private capital.

Ever since coming into power, the Buzdar administration is struggling to raise funding for projects under its annual development programme. The drastic reduction in development spending in the last three years is now showing up in the widening infrastructure gap across the province.

In the 2019-20 budget, the Punjab government targeted private investments of Rs40bn under PPP arrangements but nothing materialised — this year, the budget estimated investments of Rs25bn that have again not materialised

Public-private partnerships typically involve collaboration between a government and a private-sector company or companies that can be used to finance, build and operate projects. Financing a project through a public-private partnership makes a mega public sector scheme such as roads, bridges, hospitals — to name a few — a possibility in the first place or allows it to be completed sooner with private money. PPP is usually of a long-term nature, spanning over 20-30 years. The private companies normally agree to finance, construct and manage a project in return for a promised stream of payments directly from the government or indirectly from users over the projected life of the scheme or some other specified period of time.

Despite concerns that P3 means contracting out government services short of total privatisation and criticism that public return on investment is lower than returns for the private funder, public-private partnerships have been popular and implemented in multiple countries. The P3 arrangement is used in the developed and underdeveloped countries for different reasons. While the primary purpose of encouraging P3 in the developed economies is to reduce government size and ensure efficiencies in the construction of projects and provision of public services, the developing nations mostly prefer this funding tool to bridge resource shortages for closing the infrastructure and services gap.

Punjab had experimented with the idea as early as 2002 when it set up the Punjab Education Fund. Since that time the province has also executed some road projects like Lahore Ring Road in P3 mode. But it has not been able to use this tool so far.

In 2019, the Usman Buzdar government, which has been facing resource scarcity since it came into power, decided to enact a new public-private partnership law to foster an enabling environment for private sector participation and investment in development in the province through PPP to bridge the gap in demand and supply of public infrastructure and services for accelerating economic growth. The idea was to replace the previous Punjab Public-Private Act of 2014 with a new one to make P3 collaborations more attractive for the private companies. The P3 projects are to be implemented through a special purpose company established by the private party for execution and operation of projects to assume all the rights and obligations of the private party under the P3 agreement.

The Act also provides for a Viability Gap Fund (VGF) that will make available funds or other assets of the government to the private party for supporting the project, including funds for covering revenue shortfalls through grants, subsidies, guarantees, or any other mode approved by the authorities. The VGF will help the government attract the private sector in projects with low commercial viability to gain from its efficiencies. Thus, the fund will bring in private capital where it does not make business sense for a company to invest.

None the less, it has so far not been able to meet its P3 related budgeted targets.

In its budget for 2019-20, the provincial government had targeted private investment of Rs40bn under the P3 arrangement. Nothing materialised. This year, the budget estimated P3 investments of Rs25bn. Again, it has not materialised although officials expect some progress before the end of this fiscal year. The two Ring Road projects in Lahore and Rawalpindi awarded under the P3 framework have already run into snags and delayed.

“The next financial year will be critical in the context of P3 investments,” Dr Farrukh Naveed, a member of public-private partnership at the provincial planning & development board, told this correspondent. “The government is rolling out several projects in the P3 mode in next fiscal year.”

He said the government had done the basic work in the shape of finalisation of the framework through the enactment of a new, more efficient law. “We also have prepared a three-year long-term, P3 rolling business plan for different sectors and identified schemes worth Rs400bn in the road, health, energy, industrial and other sectors for execution,” he added.

Dr Naveed claimed that some projects had already been contracted out and several are in the process of bidding. These relate to the installation of water meters, treatment plants at industrial estates, roads, hospitals, etc.

Published in Dawn, The Business and Finance Weekly, May 10th, 2021

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