Understanding the Concept of Public Private Partnership
Chapter Outline
• Concept of PPP
• History of PPP
• Applicability and Non-applicability of PPP
• Sector Coverage
• Key successful PPP project in Bangladesh
What is Public-Private Partnership (PPP)?
A Public-Private Partnership (PPP) is a cooperative arrangement between public sector entities (government) and private sector companies to finance, build, and operate projects such as infrastructure, public services, or utilities. The goal is to combine the strengths of both sectors to deliver public services more efficiently.
Public Partners:
These are usually government or state-owned entities, such as:
• Government ministries or departments
• Local or municipal authorities
• Public sector corporations
• Regulatory agencies
Private Partners:
These are private companies or investors, such as:
• Construction firms
• Investment banks or financial institutions
• Service providers (e.g., healthcare, waste management)
• Technology or telecom companies
Motivation beyond PPP
1. To attract private capital investment.
2. To increase efficiency and use available resources more effectively.
3. To reform sectors through a reallocation of roles, incentives, and accountability.
More Information about PPP
• PPP normally cover public good provisions.
• PPP is a win‐win relationship between the government and private
sector players sharing the risks and rewards under a contractual
obligation;
• The public sector retains a significant role in the partnership, either as
the sole purchaser of the services provided or as the main enabler of the
project.
History of PPP (global context)
đš Ancient Period
• Roman Empire (c. 2000 years ago): Built roads, postal networks, and public infrastructure using PPP-like models.
• 6th Century, Kerala (India): Muslim traders financed public works (health & education centers) through partnerships with Buddhist missionaries.
• These efforts were community-based and served the public good.
đš Medieval Period
• 12th–13th Century, France: Construction of 45 towns and villages through public-private cooperation.
• 16th–17th Century, France: Expansion of canals, roads, and public services using PPP-style initiatives.
• Africa, Asia, Latin America: Indigenous communities managed natural resources and public services collectively—similar in spirit to PPP.
đš Modern Era
• 1992, United Kingdom: Launch of the Private Finance Initiative (PFI) to promote PPP.
• Partnerships UK (PUK): Helped make PPPs standard in UK infrastructure projects; inspired similar units in other countries.
• World Bank’s PPIAF: Supports PPPs in developing countries to overcome challenges like weak laws and lack of stable funding.
History of PPP in Bangladesh
The history of Public-Private Partnership (PPP) in Bangladesh can be understood in three broad phases or generations, showing how PPP has gradually evolved from project-based private investments to a formalized, institutionally supported national strategy.
1. First Generation (1996–2004): Project-Based Initiatives in the Power Sector
The origin of PPP in Bangladesh dates back to 1996, when the government allowed private investment in the energy sector under the Independent Power Producer (IPP) policy. This was driven by a severe power crisis and a need to attract foreign investment.
-The key policy driver was the Private Sector Power Generation Policy (1996).
-Several power plants, such as the Haripur and Meghnaghat power stations, were developed during this time.
-These projects were standalone, focusing only on individual agreements without an integrated national framework.
Limitation:
These early PPPs lacked a formal legal framework and were highly dependent on ad-hoc negotiations with limited institutional coordination.
2. Second Generation (2004–2009): Sectoral Expansion and Private Sector Infrastructure Guidelines
By 2004, the government broadened the scope of PPPs beyond power to include transport, water supply, urban development, and telecommunication.
-The Private Sector Infrastructure Guidelines (2004) were introduced.
-These guidelines aimed to create basic procedures for private participation in infrastructure across various sectors.
-This phase marked the shift from project-based to sector-based PPP approaches.
Challenges:
Despite policy improvements, projects suffered from slow implementation, lack of coordination, and no central agency to oversee or regulate PPP projects.
3. Third Generation (2009–Present): Institutional and Legal Reforms
In response to growing infrastructure needs and the shortcomings of previous phases, Bangladesh launched a comprehensive PPP reform agenda in 2009, initiating the third generation of PPP.
Key Milestones:
1. PPP Policy and Strategy 2010:
This policy provided a national framework for PPPs, covering project identification, selection, financing, and risk-sharing. It emphasized transparency, value-for-money, and accountability.
2. Establishment of PPP Office (2010):
A dedicated PPP Office under the Prime Minister’s Office was created to coordinate PPP projects, provide technical support, and facilitate private investment.
3. Public-Private Partnership Act, 2015:
This Act gave legal authority to the PPP framework and defined institutional roles, approval processes, and procurement rules.
4. Model Concession Agreements & Sectoral Guidelines:
The PPP Authority developed manuals and guidelines for sectors like ports, railways, industrial parks, and urban transport (e.g., MRT projects).
Financial Instruments Introduced:
-Viability Gap Fund (VGF)
-Project Development Fund (PDF)
-Infrastructure Financing from local and international sources
-Partnerships with IFC, ADB, World Bank
Sector Coverage of PPP
According to the International Standard Industrial Classification
(ISIC) of all Economic Activities, any project fulfilling one or more
of the above-mentioned applicability criteria in any economic
sector, Revision 4, specified by the United Nations, is eligible for
PPP. However, the priority sectors are:
i. Exploration, production, transmission, and distribution of
oil, gas, coal, and other mineral resources (ISIC 05-09);
ii. Oil refinery, and production of LPG (ISIC 19);
iii. Production of fertilizer (ISIC 20);
iv. Power generation, transmission, distribution and services
(ISIC 35);
v. Airports, terminals, and related aviation facilities (ISIC 42
and 51);
vi. Water supply and distribution, sewerage and drainage,
effluent treatment plans (ISIC 36-39);
vii. Land reclamation, dredging of rivers, canals, wetlands, lakes,
and other related facilities (ISIC 42);
viii. Highways and expressways including mass-transit, bridges,
tunnels, flyovers, interchanges, city roads, bus terminals,
commercial car parking
ix. Port development (sea, river, and land) including inland
container terminals, inland container depot and other
services (ISIC 52);
x. Deep seaport development (ISIC 52);
xi.Telecommunication systems, networks, and services
including information and communication technology (ICT)
(ISIC 60-63);
xii. Environmental, industrial, and solid waste management
projects; (ISIC 38-39) railway systems, rolling stock,
equipment and facilities (ISIC 49)
Applicability and Non-applicability of PPP
Applicability of PPP
Any project that generates public goods and services may be
considered under the Public-Private Partnership model provided
it meets at least one of the following criteria:
i. The execution of the project is complicated, given the
financial resources or skills of the government alone;
ii.Private investment would raise the quality or level of service
or shorten the implementation time compared to what the
government could do on its own;
iii. Competition opportunities exist, when feasible, among
potential private investors, which may lower the cost of public service provision;
iii. Private-public service investment offers innovationo pportunities and
iv. There are no regulatory or legislative constraints for publicservice private investment.
Non-applicability of PPP
The following action/activities will not fall under the PPP
i. Outsourcing of a simple function of public service;
ii. Creating a government-owned enterprise (State Owned
Company); and
iii. Borrowing by the government from the private sector.
Key Challanges of PPP
Public-Private Partnership (PPP) projects in Bangladesh face numerous implementation challenges. The major problems, based on the given text, are discussed below:
1. Complexity of Contracts:
PPP projects require complex, long-term contractual agreements unlike traditional public sector projects. Improper or unattractive contract clauses can discourage private sector participation, thereby hampering project initiation.
2. Lack of Contextualized Consultancy Expertise:
Consultants often fail to understand the local socio-economic context. Foreign consultants tend to design projects on a larger scale (overdesign risk), and local consultants lack sufficient expertise. This results in inappropriate project planning and unsustainable design.
3. Funding Structure Challenges:
PPP projects involve two separate components—Technical Assistance (TA) fund (public) and investment fund (private). Due to the separation, fund sizes are often small and the release process is slow, which delays project implementation.
4. Lack of Uniform Project Development Guidelines (Earlier):
Previously, there were no standardized manuals for feasibility studies and transactions, leading to inconsistencies across PPP agreements. Though steps have now been taken to standardize these processes, the earlier lack of uniformity affected many projects.
5. Delays in Linked Projects and DPP Approvals:
Public sector-linked projects like approach roads or utilities, essential for PPP success, often face delays in approval (DPP) and implementation. This hampers the main PPP project’s timely execution.
6. Limited Domestic Financing Capacity:
Local commercial banks in Bangladesh face constraints like Single Borrower Exposure Limits and limited loan tenure (5–7 years). These factors restrict their ability to finance large-scale infrastructure projects under PPP.
7. Absence of Development Partner Involvement in Early Stages:
Unlike traditional public projects, PPP initiatives generally lack early-stage involvement from development partners. As a result, many projects fail to meet international compliance standards in areas such as environmental and social safeguards, which hinders later-stage financing.
8. Non-Standard Compliance Frameworks:
Due to the absence of a unified national compliance framework and varied donor requirements, government agencies often follow inconsistent and ad-hoc PPP development practices. This creates uncertainty and discourages potential investors and development partners.
9. Rejection of Projects by Development Partners:
As development partners assess compliance before financing, many PPP projects are later found ineligible. Examples include IPFF’s rejection of Summit Power and ADB’s constraints in supporting the Elevated Expressway.
10. Coordination and Institutional Capacity Gaps:
Although a PPP Office has been established under the Prime Minister's Office, effective coordination and institutional capacity remain ongoing challenges for streamlined project execution.
Copyright : Md Fozla Rabby
Pdf version Download