Well-defined legal framework needed for regulation and transparency of PPP enterprises

Tithe Farhana

Macroeconomic dislocation and persistent failure of public financing during the 1970s and 1980s paved the foundation of private investment in the mainstream development sectors. In 1992, the Conservative government of John Major in the UK introduced the private finance initiative, the first systematic programme, which was the origin of public private partnership (PPP). Later, Labour government of Tony Blair continued this programme that spurred industrial and infrastructural advancement. During the financial crisis of 1997 the private investors were playing a noteworthy responsibility in meeting the growing infrastructure demands in Asia's developed countries. Nearly $ 150 billion decanted into countries like China, Malaysia, the Republic of Korea, the Philippines and Indonesia. But the Asian financial crisis broke up the capital flow and exposed a number of flaws in PPP arrangements, which led to renegotiation of tariffs or cancellation of contracts.

It is indispensable to have a well-defined legal framework for the regulation and transparency of PPP enterprises. The PPP budget requires a proactive regulatory framework, with suitable checks and balances to prevent corruption. Countries such as UK, Canada, India and Singapore instituted rigorous regulatory frameworks and responsible public bureaucracies before initiating their PPP budgets. Bangladesh, in contrast, has a reactive legal structure, which fails to prevent corruption and aims to penalise the dishonest after a felony is committed.

In our budget 2009-2010, the finance minister announced similar investment incentives like tax waivers or a payment of minimum tax under PPP initiative, duty-free facilities and tax holidays or a minimum tax on profits only for a specific period. These are the first and foremost attempts apart from establishing a comprehensive policy and regulatory framework for PPP. The Prime Minister's Office (PMO) has tied up a draft Public-Private Partnership (PPP) policy keeping provision for promoting local investors in implementing infrastructure projects each costing up to $10 million.

The draft policy, styled 'Bangladesh Public-Private Partnership Policy and Guidelines' will replace the existing Bangladesh Private Sector Infrastructure Guidelines (BPSIG). The PPP policy has redefined infrastructure projects into three categories -- large project (above $10 million), small project (above $1 million to $10 million) and very small project(up to $1 million).

Finance Minister AMA Muhith could not hide his frustration over the failure to launch any project under the much discussed Public-Private Partnership (PPP) initiative during the current financial year (2009-10). The finance minister, who himself was one of the top bureaucrats of the country, pointed his finger at the bureaucracy. "Bureaucracy is always opposed to change", he said recently.

Cost, price and financial factors are very crucial for implementation of PPP project. It needs a balance between asset and liabilities with cash flow. Private sector invests on only those projects from which they can gain profit. On the other hand, commercial banks of Bangladesh are very conservative. Countries like Bangladesh mostly rely on foreign debt and equity due to weak local capital market and restrictive domestic banking loans. One thing that needs to be considered is that country risk highly influences financing of PPP projects.

The draft policy proposed establishment of Public-Private Infrastructure Committee PPICOM Secretariat Fund. But, the draft did not talk about anything the use of such fund.

The draft Public-Private Partnership (PPP) policy has a number of inconsistencies that might hinder execution of projects under the PPP. Some provisions of the draft policy might even give scope for bribery and other financial wrongdoings. According to the draft policy, a Public-Private Infrastructure Committee (PPICOM) will be formed under the Prime Minister's Office, despite the fact that the secretariat of the proposed committee, named 'PPP Cell' will be established in the Board of Investment (BOI). Consequently, activities might falter due to dual administration.

The writer can be reached at E-mail : tanes_of_mono@yahoo.com the financial express