Bureaucracy – a hurdle to public-private partnerships

PPP model can be very effective as it provides private capital and expertise

ISLAMABAD: Public-private partnerships (PPP) are known to be very effective in leveraging private capital and expertise for infrastructure programming.

However, Pakistan’s federal government has always underperformed in terms of attracting private investors over the past decades as it gets entangled in bureaucratic hassles when it comes to developing a viable PPP road map. The exercise always starts with the Ministry of Finance establishing a defunct entity (under the Companies Ordinance 1984) with a board that is typically controlled by ex-officio members.

These state-owned companies engineered by the Ministry of Finance, such as the Pakistan Development Fund Limited (PDFL) or former Infrastructure Project Financing Facility (IPFF), have failed to generate any impact despite injection of billions, particularly in the fund, by foreign donors. PDFL aimed to provide complementary project financing to PPP projects but failed to do so owing to the absence of ownership of the initiative by the bureaucracy or the political leadership.

Similarly, the Q-block established the IPDF in 2006 to complement the IPFF and to facilitate PPP activities by offering advisory services. The IPDF, a PPP task force, the Debt Coordination Office and respective line ministries were supposed to form the institutional architecture for the PPP at the federal level but coordination problems rendered them almost ineffective.

In 2017, it was converted into a regulatory authority called the PPP Authority vide an Act of parliament. The authority has the mandate to play the role of gatekeeper at all stages of a project lifecycle besides offering specialist expertise related to contract and risk management.

If it sounds good enough, then here is a catch: the Ministry of Finance can reject any proposal approved by the board on the grounds of fiscal risks, which means that almost all decisions of the PPP Authority could be easily vetoed by the finance ministry.

Moreover, these boards and steering committees are not diverse and run the risk of thinking in too uniform a fashion. It is natural for a number of high-ranking officials to be appointed as directors but given that the bulk of a company’s future capital (in case of PDFL) will comprise contributions from the private sector, a major chunk of appointments should come from the private sector.

The private sector will bring in specialist business, scientific and technological expertise to formulate strategy and its implementation thereof, ensuring that the board’s work will have a commercial orientation.

In line with international best practices and corporate governance models, the board should comprise ex-officio members, executive director(s) and a healthy number of independent directors from the private sector.

According to the UK Corporate Governance Code, at least half of the board should be independent directors – and with diverse backgrounds. There should be a minimum of three board committees including but not limited to a finance and audit committee, HR governance committee and a technical committee comprising relevant experts.

We see a similar pattern in the Punjab’s PPP Act 2014 – not to mention dire capacity problems in pursuing proposals which maximise value for money and reduce fiscal burden on the treasury. Though the PPP cell managed to roll out a few projects but such successes were few and far between.

The city district government’s project to develop a landfill site in Faisalabad for solid waste collection on build, operate and transfer (BOT) basis failed to attract any bids. Such PPP failures could again be traced back to the composition of the board as members fail to determine under which technical conditions, the market is willing to offer its services.

The main reason for the PPP institutions, such as PDFL, not picking up momentum is the failure of boards to appoint members with right skillsets and experience from outside. The corporate governance code exists but it has been cosmetic or ineffective in case of public companies and most boards are rarely fit-for-purpose with the right composition to handle complex infrastructure projects.

Gender diversity in boards of most state-owned entities remains a concern as all-male boards are a norm and not an exception.

The writer is a Cambridge graduate and is working as a strategy consultant

 

 

Published in The Express Tribune, January 21^st, 2019.

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