LAHORE: Given the current macroeconomic challenges and the consequent stress on public finances, the provincial government has decided to explore public-private partnership (PPP) as a preferred financing tool for infrastructure and social sectors’ development in Punjab.
Budget documents highlight that the government has aimed to increase the size of PPP financing to 10% of the Annual Development Programme (ADP) by 2023. The allocation under innovative financing of PPPs for the upcoming fiscal year (FY 2019-20) has been set at Rs42 billion.
To tap the full potential of PPP financing, the Punjab government has already revisited and reformed the PPP framework of the province. A new PPP legislation titled ‘Punjab Public-Private Partnership Act, 2019’ is already in the process of enactment, which proposes the formulation of a PPP Policy Board headed by the chief minister and the establishment of Punjab Public-Private Partnership Authority (PPPPA) to identify and execute multi-sectoral PPP projects.
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Budget documents indicated that PPP projects have been made an integral part of the ADP and Other Development Programme (ODP). The government has already earmarked Rs300 billion for projects in industries, transport, urban development, housing, governance, local government and road sectors for consideration in PPP mode.
Budget documents underscored that projects deemed appropriate for PPP mode to be discouraged for execution through public finance unless advised otherwise by the PPP Policy Board. This new financing tool will create additional fiscal space for social sector schemes by funding infrastructure and service sectors via PPP mode.
The government hopes that with the establishment of the PPP authority and the redistribution of responsibilities, a healthy pipeline of bankable projects will become available for processing. The advent of PPPs in infrastructure and services sectors shall also create additional fiscal space for undertaking social sector schemes, which otherwise often remain neglected due to a paucity of development funds. Moreover, in the social services sector, Viability Gap Funding (VGF) can be used as a subsidy to bridge the viability gap and make non-viable projects, viable, in turn providing a better quality of service. Additionally, it is also expected to build the capacity of the private sector and financial institutions, resultantly generating employment and investment opportunities for local and international investors.
Budget documents also highlighted that a concerted effort was being made to make Punjab’s PPP framework more enabling and attractive by plugging the holes that have so far marred the successful implementation of PPPs. In a significant departure from the past, documents revealed that both the identification as well as execution of multi-sectoral PPP projects were planned to be entrusted to the PPP Authority itself, thus addressing arguably the two strongest limiting factors ie the lack of capacity and risk-aversion in the departmental modes.
The role of the Risk Management Unit, housed in the Finance Department, has been retained to function independently and implement strong risk management policies to identify as well as mitigate potential project and fiscal related risks emanating from PPP supported projects. It is expected that in further contrast with the previous legislation, the proposed law will not be over-inclined (or heavily leaning) towards infrastructure sector and will provide explicit enabling provisions to encourage and facilitate PPPs in social services sector as well (in form of service and management contracts particularly), thereby providing better quality and generating value for money.
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Documents further revealed that a comprehensive capacity and institution-building response from the development partners were also required to address the current needs of PPP development in Punjab.
In its endeavour for the establishment of a dynamic PPP regime, the government of Punjab is being assisted by the Asian Development Bank through a $200 million loan programme titled “Enhancing Public-Private Partnership in Punjab”, which comprises matching counterpart funding by ADB and government of Punjab.
Spanning a range of technical and financial assistance initiatives, it includes the Project Development Facility (PDF) and VGF. As part of the pre-conditions for its disbursement, comprehensive draft VGF guidelines have already been prepared jointly by the Finance Department and the PPP Cell, while the strengthening of RMU is in process. A grant of $23.6 million by DFID is also a part of this programme which includes PDF, VGF and technical assistance components.
Published in The Express Tribune, June 17th, 2019.
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