Public Private Partnerships in BD

Table of Contents 1. Executive Summary ................................................................................................................................... 2 2. Introduction .............................................................................................................................................. 2 2.1 Present state of socio-economic development of Bangladesh .......................................................... 3 2.2 The development challenges Bangladesh is facing............................................................................. 3 2.3 The 7th Five Year Plan and Vision 2021 ............................................................................................... 4 3. Current status of Public-Private Partnerships in Bangladesh ................................................................... 5 3.1 Definition of ‘public-private partnership’ ........................................................................................... 6 3.2 Comparative analysis of advantages and disadvantages of PPP in Bangladesh ................................. 6 3.3 Current regulatory and administrative framework for PPP in Bangladesh ........................................ 7 4. Public-Private Partnerships: The way forward.......................................................................................... 8 4.1 Existing PPP projects/programs in Bangladesh................................................................................... 8 4.2 Potentials of PPPs for infrastructure development in Bangladesh ..................................................... 8 4.3

Role of PPPs in the social development sector in future .............................................................. 8

5. Conclusion and Recommendations........................................................................................................... 9 5.1 Recomandations ................................................................................................................................. 9 5.2 Conclusion ........................................................................................................................................... 9 6. Reference and Bibliography .................................................................................................................... 10

1. Executive Summary This report is devised to find out the Challenges, Plans, current status and framework of the Public Private Partnership (PPP) projects in Bangladesh. It is a widely accepted avenue of delivering public goods and services. Besides, it can act as a catalyst in developing infrastructure if we can fit it into the reality of our country. Efforts have been made to highlight some existing PPP projects of Bangladesh and explore the prospective areas which can best-suit such projects in the country. One of the key findings of this study is the lack of institutional and legal framework for PPP in Bangladesh which is hindering the successful implementation of such projects in the country. At the end, some recommendations have been developed for smooth, sound, and sustainable run of PPP in Bangladesh. Public- Private Partnership (PPP) describes a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies. The term public refers to government including both central and local level state institutions. This review has grouped both the profit private sector, and non-profit NGOs under the term private sector. It also highlights PPP potentials, infrastructures, roles of PPPs as well as advantages and disadvantages of PPP in Bangladesh.

2. Introduction PPP involves a contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial, technical and operational risk in the project. In some types of PPP, the cost of using the services is borne exclusively by the users of the services and not by the taxpayer. In other types (notably the private finance initiative), capital investment is by the private sector on the strength of a contract with government to provide agreed services and the cost of providing the service is borne wholly or in part by the government. Bangladesh has been facing many development challenges since gaining independence in 1971. To overcome some of these challenges, the country requires significant investment in energy, transport, and water supply infrastructure and several other sectors. In mid-2009, a policy encouraging public-private collaboration was included by the Government of Bangladesh in the national budget legislation, but it lacked clear guidelines on how to put the government's intentions into practice. Due to the absence of clear guidelines, most of the budget allocated for partnerships by the government was not utilized and the intended public private engagement did not take place. The PPP policy is currently administered under the Prime Minister's Office (PMO), indicating high level support for its effective implementation. The PPP policy and strategy was published in August 2010. The government has also allocated a significant amount of money in the FY 2011 budget to take PPPs forward.

2.1 Present state of socio-economic development of Bangladesh Bangladesh is an E9 country and a ‘least developed country’ with deep-ridden and inherited extreme poverty and hunger, growing social and economic disparities, frequent cases of political and civil unrest and the daunting challenge of natural hazards, likely to be further compounded by climate change in the years to come. According to the Human Development Report (HDI) 2010, Bangladesh is one of the countries that made the greatest progress in recent decades, as measured by the Human Development Index (HDI). Bangladesh’s HDI has increased by 81 per cent in the past 30 years. Even with such impressive relative gains, Bangladesh remains a country in need of continued and coherent development assistance. The Monitoring of Employment Survey of Bangladesh 2009 estimated that 53.7 million from the working-age population (15 years and above) are in the workforce. 40.2 million workers are male and 13.5 million are female. The female labor force increased by nearly 12 per cent between 2006 and 2009, while the male labor force increased by nearly 8 per cent. This indicates increased presence of women in the job market, bolstered by the readymade garments sector and opportunities created by microcredit operations in both rural and urban areas for various incomegenerating activities. The Labor Force Survey (LFS) 2010 estimates that about 89 per cent of jobs in the labor market fall within the category of informal employment. This is more prevalent in rural areas than in urban areas and women are more likely to employed under informal arrangements.

2.2 The development challenges Bangladesh is facing Economic development without socio-economic challenges is inconceivable. The journey to development has never been easy for any nation and it is always a long hard battle to turn promises into achievements. Bangladesh is a developing economy growing with an annual growth rate of around 6 per cent, striving to become a member of the middle income group. The per capita income and GDP size of Bangladesh are also growing with time. The country’s economy is changing from traditionally agro-based to industry-based entity. The country is making progress which is more or less visible. At the same time, it is also visibly clear that the growth is not inclusive. Economists have defined economic growth as the increase in the market value of the goods and services produced by an economy over time. It is conventionally measured as the percentage rate of increase in real gross domestic product, or real GDP. In our case, not all the people are getting better off, rather it is a group or few groups of

people who are getting richer every day and amassing wealth beyond measure. An average of the income of the common people and that of rising wealthy community may rise from time to time, but that does not indicate a real income growth. Parameters of growth stretch far beyond and involve series of socio-politico-economic challenges, some of which are mentioned below: 1. Absence of inclusive growth: 2. Absence of family/ social bonding: 3. Ensuring institutional capacity building and good governance: 4. Providing equal opportunities for local and foreign investors: 5. Maintaining a balance between local versus imported products: 6. Maintaining political stability: 7. Managing rise in unemployment: 8. Ensuring demand driven and profession oriented education:

2.3 The 7th Five Year Plan and Vision 2021 Bangladesh is a nation endowed with enormous potential that is yet to be realized. The year 2021 marks the 50th anniversary of independence. In recognition of the long -term development challenges, the Government adopted the Vision 2021. The Vision 2021 and the associated Perspective Plan 2010-2021 have set solid development targets for Bangladesh by the end of 2021. Vision 2021 calls for Bangladeshi socio-economic environment to be transformed from a low income economy to the first stages of a middle-income nation by the year 2021, when poverty would have all but disappeared, where society would be full of caring and educated people living healthy and happy lives. In line with constitutional obligations and international commitments to human rights, Bangladesh in 2021 shall be a country in which (i) every citizen has equal opportunities to achieve his/her fullest potential; (ii) all citizens enjoy a quality of life where basic health care and adequate nutrition are assured; (iii) all citizens have access to a modern, technical, and vocational education tailored to meet the human resource needs of a technologically advancing nation; (iv) sustainability of development is ensured through better protection from climate change and natural disasters; (v) there is respect for the principles of democracy, rule of law, and human rights; (vi) gender equality is assured; so are the rights of ethnic populations and of all other disadvantaged groups including persons with disability; and (vii) the diversity and creativity of all people are valued and nurtured. Finally, the public and private sectors will collaborate effectively and efficiently through public private partnership

(PPP) projects and other innovative models to deliver infrastructure, utility and other services in an environment-friendly manner. Vision 2021 Goals: 1. 2. 3. 4. 5. 6. 7. 8.

To become a participatory democracy, To have an efficient, accountable, transparent and decentralized system of governance, To become a poverty-free middle-income country, To have a nation of healthy citizens, To have a skilled and creative human resource, To become a globally integrated regional economic and commercial hub, To be environmentally sustainable and To be a more inclusive and equitable society.

A Perspective Plan (2010-2021) and two five year plans, 6th (2011-2015) and 7 th (2016- 2020), were to implement Vision 2021. Plan Goals and Targets 7th FYP  Income and poverty  Sector Development  Macroeconomic Development  Urban Development  Human Resource Development (Education, Health and Population)  Water and Sanitation  Energy and Infrastructure  Gender equality, income inequality and social protection  Environmental Sustainability  ICT Development

3. Current status of Public-Private Partnerships in Bangladesh In August 2010, the Government of Bangladesh issued the Policy and Strategy for Public Private Partnership (PPP) to facilitate the development of core sector public infrastructure and services vital for the people of Bangladesh. The PPP program is part of the Government's Vision 2021 goal to ensure a more rapid, inclusive growth trajectory, and to better meet the need for enhanced, high quality public services in a fiscally sustainable manner. Under this new national policy, the PPP Office was established as a separate, autonomous office under the Prime Minister's Office to support sector line ministries to facilitate identification, development and tendering of PPP projects to international standards. A PPP Unit under the Ministry of Finance was established to foster an environment of fiscal responsibility and sustainability in PPP projects.

3.1 Definition of ‘public-private partnership’ A public private partnership can be described as a co-operation between the public and the private sector, in which the government and the private sector carry out a project together on the basis of an agreed division of tasks and risks, each party retaining its own identity and responsibilities. There is no broad international consensus on what constitutes a public-private partnership (PPP). Broadly, PPP refers to arrangements, typically medium to long term, between the public and private sectors whereby some of the services that fall under the responsibilities of the public sector are provided by the private sector, with clear agreement on shared objectives for delivery of public infrastructure and/ or public services

3.2 Comparative analysis of advantages and disadvantages of PPP in Bangladesh Advantages of public private partnerships: The advantages of public private partnerships can be defined as follows: A. Value for Money The most important advantage of a public private partnership is the creation of value for money. There are six primary values for money drivers:  Risk Transfer  Output based specification  Long-term nature of contracts (including whole life costing)  Performance measurement and incentives Other value for money drivers have shown to be: 

Innovation.



Alignment of interest of authority and contractor.

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Public sector project development skills.

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Quality of advice to public sector and bidders.

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Transparency of process.

 

Public sector implementation. Release of hidden asset value.

B. C. D. E.

cost efficiencies Time-to-delivery savings Improved response to market forces Broad support

Disadvantages of public private partnerships: The disadvantages of public private partnerships can be defined as follows: A. Poor Value for Money The most important advantage of a public private partnership is the creation of value for money. However, value for money also consists of some disadvantages: 1. Higher transaction cost 2. Higher capital cost 3. Advantages which can turn into disadvantages B. C. D. E. F. G.

Insecurity Inefficiencies Culture gap Short term rigidities Hold-up problem Public sector staff concern

3.3 Current regulatory and administrative framework for PPP in Bangladesh For accelerating identification, formulation, appraisal, approval, monitoring, and financing of PPP projects, a simplified and dedicated institutional framework is required. This institutional framework is designed to streamline the approval process, to ensure a smooth and linear process of approval. Each of the following institutions is involved in the strategy development, identification, formulation, appraisal, approval, monitoring, and evaluation of PPP projects. Details on their roles are available in the Policy and Strategy for PPP, 2010. i. ii. iii. iv. v. vi.

Public-Private Partnership Advisory Council (PPPAC); Cabinet Committee on Economic Affairs (CCEA); Office for Public-Private Partnership; Line Ministry/implementing agency; Finance Division; Planning Commission

4. Public-Private Partnerships: The way forward 4.1 Existing PPP projects/programs in Bangladesh           

Dhaka-Elevated Expressway Hemodialysis Centre at Chittagong Medical College Hospital IT Village at Mohakhali Development of Integrated Tourism & Entertainment Village at Cox’s Bazar Upgrading of Dhaka Bypass to 4 Lane Flyover from Santinagar to Mawa Road Dhaka-Chittagong Access Controlled Highway Economic Zone 5: Anowara, Chittagong Improvement of Hatirjheel New Modern Medical College & Hospital of 250 beds on the unused land in Khulna 2nd Padma Multipurpose Bridge at Paturia-Goalundo

4.2 Potentials of PPPs for infrastructure development in Bangladesh Potential benefits: a) Benefits for the private sector: generate a profitable revenue stream or expand market access. b) Benefits for the consumer: delivery of a service that people want and would not have access to at the same price, in a business as usual situation. c) Benefits for the government: fulfillment of a political need, social obligation, development imperative.

4.3

Role of PPPs in the social development sector in future

PPP can promote local economic growth and employment opportunities. The third world must not depend only on the donors for infrastructure investments. Private-public combined efforts will have the greatest effect in this sector. The previously predominant areas like energy, transport, water and sanitation, education and health provide a good offer for the private organizations and the public bodies to apply the financial acumen and managerial skill while sharing the risks associated. The prospective sectors under PPP could be the following: · · · ·

Power and Energy Solar System Transport Infrastructure (roads, rail, sea-ports, airport and water transport) Tourism and Air Transport

· · · · · · ·

Information Technology Pure Drinking Water Industry Health and Family Welfare Education (particularly secondary and technical) and Research Housing Climate management

5. Conclusion and Recommendations 5.1 Recomandations 1. Arrange required consultations between the Government and private sector to start direct dialogue on PPP, and to work out the specific issues and recommendations, and operational implications for those. 2. Legal and regulatory issues in relation to PPP should be sorted out. PPP should be kept out of all political and bureaucratic influences. 3. Conduct policy research and analysis on PPP issues and make recommendations for reform, and craft a PPP roadmap to be adopted by the Government and the private sector. 4. There should be greater representation of the private sector in the PPP committees including the Advisory Committee.

5.2 Conclusion PPPs have become more globally prominent in recent decades as contractual partnerships where responsibilities and risks are shared between the public and private sectors. Research findings on the effectiveness of these partnerships are mixed: while there is some evidence of production cost efficiencies arising from PPPs, much of this may be cancelled out by higher transaction costs. On balance, evidence suggests PPP performance is probably no worse than traditional public sector operations done under contract with private sector, and better than older forms of public works department projects. PPPs also appear to deliver infrastructure more quickly than through traditional methods. There is not much to cheer about PPP in Bangladesh. Every year, PPP allocation had to be reverted due to lack of implementation. Unlike Bangladesh, many countries have succeeded in implementing PPP projects. It is a matter of optimism for Bangladesh that many ASEAN and SAARC countries are among the list of the stand-out performers. In the process, countries have managed to increase productivity without putting any stress on government revenue.

6. Reference and Bibliography 1. Public Private Partnership Authority 2. http://ppp.worldbank.org/public-private-partnership/overview 3. asiafoundation.org 4. http://web.worldbank.org/ 5. http://www.mof.gov.bd/ 6. http://www.bdnews24.com/budget/ 7. http://www.nbr-bd.org/ 8. http://bangladeshbudgetwatch.wordpress.com/ 9. Vision 20121-wikipedia 10. http://www.plancomm.gov.bd/ 11. http://bangladesh.gov.bd/ 12. en.wikipedia.org/wiki/E9_(countries) 13. http://interactions.eldis.org/