THE Punjab government has drafted a law which lays down statutory framework and procedures for formalizing the participation of the private sector in building infrastructure in the province. The law —- the Punjab Private Participation in Infrastructure Development Act —- is the result of the year long effort of the Task Force constituted by the provincial planning and development department, and has been proposed as the “governing legal framework for encouraging public- private partnership (PPP) in the province.

The law will come into force after approval by the provincial cabinet and assembly. It is yet not clear as to when will the cabinet approve it and send it to the assembly for passage.

Public private partnership, as explained by Task Force chairman Inamul Haque, is “the contractual arrangement under which the private investors agree (with the government or a public agency concerned) to finance, construct and operate a facility for an agreed period of time, and transfer it to the government or the public agency concerned on expiry of the stipulated period”.

The contractual agreements may be entered into on the basis of BOT (build, operate and transfer), BOO (build, operate and own) or ROT (rehabilitate, operate and transfer), etc.

The law proposes an institutional mechanism for the identification and categorization and prioritization of projects for development of infrastructure under PPP as well as the setting up of a regulatory authority, the Punjab Infrastructure Regulatory Authority (PIRA).

Under the draft law, the planning and development department and PIRA will have key roles to play right from the bidding of a project to its execution to the protection of the interests of all the stakeholders — consumers, investors, provincial government, departments and agencies concerned, etc. It also provides for a mechanism for dispute resolution and arbitration.

Why is the government so eager to promote the PPP initiatives? Mr Haque insists that the government has “no other option” but to encourage private participation in the building of infrastructure in the province.

Rampant poverty and increasing unemployment are the two basic concerns of the provincial administration. Unemployment and poverty are not new issues. What is worrying the policy makers for the last couple of years or so is the very fact that the two problems may become unmanageable in the coming years if not handled right away.

The Punjab Economic Report — a joint study of the World Bank, the Asian Development Bank, the UK’s Department for International Development (DFID) and the provincial government — says some 34.1 per cent population of the province lived below the so-called poverty line in 2001-02 compared to 28.2 per cent in 1993-94. Since no household survey data after 2001-02 is available, it is not possible to ascertain the exact impact of overall national economic growth in the recent years on poverty in the Punjab. However, independent economists and officials agree the situation, even if it hasn’t worsened, has not improved either.

Similarly, according to the report, the annual unemployment rate in the Punjab is 8.5 per cent, which is one per cent higher than the national average of 7.5 per cent. It is also more than double the unemployment rate in the province in 1984-85 and reflects an almost four-fold increase in the number of people unemployed from around 600,000 in 1983-84 to about 2.3 million in 2001-02. The number of the unemployed is estimated to be over eight million from a total civilian labour force of around 27 million.

As poverty and unemployment are intrinsically inter-connected, the government holds that it will have to achieve full employment and create one million sustainable jobs each year for the next 10 years to actually alleviate poverty. For attaining this goal, say the policy makers, the Punjab’s GDP has to grow at seven per cent per annum in real terms.

“When you want to grow at such a rate, you need to have first-class infrastructure in place to facilitate industrialisation. Do we have this kind of infrastructure to support industrialisation? Obviously not. Does the Punjab government have resources to build such infrastructure by itself in the near future to sufficiently bolster economic growth? Of course not. There is a huge gap between the province’s increasing needs for infrastructure and the financial resources available to bridge it. The gap between needs and resources can be bridged at the required pace only by involving the private sector in the building of infrastructure,” Mr Haque says.

Mr Haque says the PPP option was not an easy one. “It’s a rather difficult and expensive choice. But you don’t have any other alternative for this; it’s a trade-off between having a relatively expensive facility today or not having it at all or delaying it for many years.”

The concept of PPP for the creation of infrastructure is not new to the Punjab. It has set aside Rs9.50 billion in the budget for the current fiscal for this purpose hoping to leverage additional resources of more than Rs18 billion. In fact, it has already set up two “private companies” for bridging the gap between resources and infrastructure needs.

But the problem is that these companies are “totally” financed by the government itself. No private investor has so far deemed it fit to put his equity in them. Some officials say it was due to the absence of a legal framework governing private participation in the infrastructure projects that “no private investor had invested his money in them so far”. “Once the law is put in place, several investors would be queue up to put their money in the PPP initiatives as it will ensure certainty, predictability and continuity of the policy and protect their investments and interests,” they contend.

Mr Haque, who firmly believes that PPP would bring efficiency, leverage additional financial resources, ensure timely completion and bring down the cost of projects, reckons it to be an “additional mode of financing” the infrastructure initiatives.

“PPP can’t and should not displace public financing of infrastructure. Investors would be interested only in profit-oriented projects. The rest of the roads or any other initiative will have to be financed by the government. In addition, the government would have to continue to play its role and hold down the price of using the projects built under PPP for the users,” he says.

While independent economists and experts agree with the Punjab government’s strategy to involve private investors to build the much-needed infrastructure, they’ve reservations about its priorities.

“There is no denying the fact that the Punjab has little money to spare for infrastructure construction. No one need mind if the private investors are involved in this effort. It will allow the government some room to divert the resources available with it to such sectors and areas as education and health in which the private sector wouldn’t care to invest because these do not offer lucrative return on their investments,” says an economist.

But, he says, the government isn’t clear in its choices. “Most infrastructure projects that can and do attract private investors are the ones offering handsome returns on their investments. But, at the same time, such projects are the ones which the government can also sell to the people and draw political mileage. Hence the government is more interested in undertaking and completing these projects from its own resources than involving the private investors,” he says. He pointed out that a private investor was interested in building the Lahore-Sheikhupura road, but the government wasn’t much inclined to giving the project to the private sector.

Another economist says the government should save resources by involving investors in the infrastructure development, and divert its own money to the provision of education, sanitation, health and such other sectors in the poorer urban and rural areas. But, he says, “even such initiatives must be carried out through the private sector under its PPP programme and the government should act only as a provider of funds for them and keep monitoring their progress”.

“The so-called PPP initiatives should not be restricted to the involvement of private investors in just mega and profit-oriented infrastructure projects for the sake of leveraging additional funds. But its scope needs also to be extended to the pro-poor projects in social sectors which are 100 per cent government-funded and are carried out through the private sector for greater efficiency and better results.