Private Sector Will Not Come Merely On Verbal Assurances
Purusottam Man Shrestha is the National Project Manager of Public-Private Partnership for Urban Environment (PPPUE). An MBA in Marketing and Small Business Management from University of Delhi, he had earlier worked as Enterprise Development Advisor for Rural Urban Partnership Programme.
How do you rate the success of PPP model of development?
The PPP model in Nepal has not achieved the same level of success that is witnessed in Bihar of India even though they have adopted it only recently. However, this does not mean that works have not been done on our initiatives. Minimum requirements and environment is created for enabling PPP but we donate have projects like in the developed countries that are expected to be under the PPP model. It's only the concept that is seeded while there is very little work to write home about.
What are the reasons for PPP model not being successful in Nepal?
Political stability is PPP's fundamental base for success but due to the current national scenario, large investments are not coming. The private sector is sceptical about making investments though they are convinced about the importance of investing in development projects. We have failed to build the confidence of the private sector and it is extremely challenging to invite private financing from the international market. To make matters worse, the minimum arrangement for FDI is also missing. Investment risks must be minimised where possible and laws must be prepared for funds management based on international rules and regulations. There is a special procedure for private partner procurement which we are still unable to formulate.
We are still forced to follow the traditional method of inviting tenders through existing public procurement act. The current procedure is marred by a long procedural delay and the private sector cannot wait that long. This is one aspect that de-motivates the private sector. Political intervention and local groups are among other challenges for developing large scale projects. Besides, there is a lack of skilled manpower that is vital for formulating and procuring PPP projects.
A core workforce required for PPP needs to be developed in Nepal itself. We have to initiate projects that are attractive to the private sector and market them to the banking fraternity otherwise; the private sector will not come merely on verbal assurances. Even today, people are simply talking about large PPP projects without doing adequate homework and just looking at the success in other countries as examples.
How suitable is the PPP model for the development of physical infrastructure in Nepal?
The PPP model in Nepal caters to basic infrastructure and services whereas it is needed more for large scale infrastructure projects. We must look at roads, tunnels, bridges, transmission lines, large hospitals, airport construction and management that can be done under the PPP model. For example, Apollo Hospital of India, in partnership with the public sector, is expanding its accessibility to a larger area to serve the general public. Similar projects can be developed in Nepal too.
Is it only the issue of investment and political environment behind the private sector's disinterest to invest in the infrastructure sector? How big a role does the issue of profi tability play in this scenario?
It is incorrect to say that the private sector is not interested. As a matter of fact, they have also understood that there is profit in such endeavours. However, they are not convinced about the system that runs these projects, to see a chance of materialising profits. They are suspicious about the future because of the way policies and regulations change in Nepal on a frequent basis. We may have the policies and the projects in place, but we don't have the required financing for big projects available in our domestic market. Even all the commercial banks, put together, can barely finance one or two large projects. It essentially means that foreign private financing must be brought in and for that to happen, we don't have a necessary arrangement in place.
The government has taken a regressive step on the Fast Track project, which was said as being developed in partnership with the private sector. What kind of impact will it leave on the private investors?
The project had reached a certain level, to begin with. Meanwhile, it was realised that the private sector participation would be better. However, at a later stage, there were voices being raised within the government bodies for its rectification. As a result, the project is getting delayed now. This delay certainly does not convey a positive message as a decision once made is being corrected again. Withdrawing the earlier made decision will contribute towards diminishing credibility. A couple of companies had applied in connection with the project but unfortunately, the entire process was cancelled leading to reduced confidence level of the private sector.
By when can we expect large projects getting developed under the PPP model in Nepal?
There are a lot of prospects indeed. For example, a small though important project such as developing a multi-storeyed parking space in the heart of the city like New Road can happen on an immediate basis. That can be a good yet simple PPP project which the government can realise by allowing a private operator to build the parking lot on a public space. This can be profitable and, at the same time, the private sector will happily invest in a project of this nature. We have proposed it along with a feasibility study but it is being delayed for various reasons. And let me tell you that there are a lot of similar projects that are still awaiting approval. Officials frequently get changed in the concerned local bodies and such things cannot create an environment for long term project commitments. There can be sizeable PPP projects which the domestic financial market can support.
What are your expectations from the government for making private participation successful in the development sector?
The government should follow a special practice for PPP procurement. Minimum required laws and regulations must be formed first for private financing, without which money won't come. Even in the domestic financial market, there must be a specific arrangement for PPP financing apart from the existing provision of financing by banks and financial institutions. The government must identify the sectors that need PPP model and plan for at least five to 10 years in advance. The private sector must be invited only after formulating the projects ascertaining the financial scenario and benefits of PPP arrangements. For example, it is largely felt that inadequate study and preparations have gone into the waste management project catering to the Kathmandu valley.
The PPP model remedies the weaknesses of developing projects independently by either the private sector or the government. By definition, the private sector tends to maximise profit so it may neglect the larger mass and benefits for the society. For a drinking water project, for example, private developers may target a higher income group only where it sees a higher rate of return. So, a larger mass and the general public may get neglected.
If the same project is run under the PPP model, the government can intervene and enforce the supply of quality drinking water to the general public as well. To minimise the loss while doing so, the government may guarantee the profit by handing over the management to a private entity. On the other hand, when such projects are done entirely by the public sector, we have seen a lot of problems in management, leakages etc. Hence, the PPP model reduces the deficiencies of the public sector and best uses the efficiencies of the private sector.