Dr Salman Shah, Special Advisor to the Prime Minister on Finance, held talks with a three-member World Bank team on developing a policy framework for a public-private partnership to facilitate infrastructure development in Pakistan. This comes as no surprise. The government has openly declared that it has inadequate resources to meet the infrastructure needs of the country and that it will actively seek funding from any source available.
To date the government had focused on concessional funding from multilateral and bilateral sources, and, where appropriate, through the issuance of bonds. However, in spite of substantial commitments by the donor community for Pakistan's infrastructure development, the government has been unable to realise its investment target for this sector. It has, therefore, begun to seek new ways to generate the required funds.
The public-private partnership can be viewed as another avenue that the government has begun exploring in recent months.
In this context it is pertinent to note that the donor community has been promoting a public-private partnership for investment in those areas where the private sector can be attracted. Their rationale is obvious. Such a partnership would ensure that the resulting facility is run efficiently.
This would imply charging a user fee that takes account of the actual costs involved plus a profit margin that would make it attractive for the private sector to enter the arena. Or, in other words, the facility will be sustainable in the long run and the government would refrain from subsidising the service for the simple reason that it would act as a disincentive for private sector involvement, resulting in loss of considerable financing.
Private sector activity in infrastructure, however, has remained limited in other parts of the world due to the high costs involved in such projects and the resulting rate of return spread over a long period of time. So a policy agenda focused on promoting a partnership between the public and private sectors would be aimed to deal with such concerns.
Thus Shah's appeal to the World Bank to develop a policy framework that would encourage such partnerships in Pakistan is a good idea, even if not quite an innovative one. It is expected that the World Bank would bring in a team of experts with international as well as local expertise on the subject and a policy framework would be developed in due course. But Shah must be aware of one other fact: policy frameworks alone do not lead to success and that implementation in letter and spirit of the policy framework would be required for a modicum of success.
Pakistan remains a country where law and order problems as well as political uncertainty undermine the desire of foreign investors to enter the market, even if it does not impact on those already operating for some time.
It is also true that the government continues to interfere in the pricing of utilities even with the establishment of autonomous regulatory boards - a fact that would seriously jeopardise the private sector's desire to partner with the public sector; and it is also true that the rules and regulations governing the industrial sector remain unfair and anomalous in spite of attempts to smooth out these long standing private sector concerns.
Thus there is a lot of work to be done which may go beyond the terms of reference that Shah may have given to the World Bank team. He should be aware that the task is challenging even though it would be extremely rewarding if proved successful. For complete success he would need to liaise with all ministries including the Interior, Commerce, Planning and other agencies dealing with law and order issues, like the Ministry of Law.
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