Infrastructure projects

The Infrastructure Project Development Facility (IPDF) in a summary sent to the prime minister has proposed transfer of around 20 PSDP projects worth Rs 165 billion in various sectors to it, as involving private sector investors would save a huge amount of public money.
The government, which is facing formidable challenges on the economic front, will be greatly relieved, IPDF chief Murtaza Satti has said while chairing a high-level meeting in Islamabad. The projects that are proposed to be transferred to IPDF include, among others, the construction of IT Parks in Islamabad and Karachi, upgradation of PIMS Hospital in Islamabad, the construction of Rawalpindi Bypass, Faisalabad-Khanewal Expressway, the Peshawar-Torkham Highway, and JPMC Karachi Medical Tower.
The government, badly hit by rising inflation and soaring oil prices, has allocated Rs 165 billion for these projects, out of a total of Rs 540 billion PSDP funds earmarked for the financial year 2008-09. According to IPDF chief, the agency is attracting foreign as well as local funding from the private sector for various mega infrastructure projects.
Initiated in Britain, the public-private partnership concept has been adopted by many developed states and has yielded impressive results in the execution of multiple projects, especially in education, transport and health sectors. The proposal is essentially a good move, as infrastructure is the weakest area of the economy, and a major chunk of allocations made under PSDP has invariably been allocated to this sector.
Billions of rupees of public money has been "utilised" on uplift schemes over the years. According to one estimate, Ecnec approved a total of 649 mega projects covering all sectors of the economy, at an aggregate cost of Rs 2.441 trillion, between 1999 and 2007. These included the largest number of projects, ie, 403 worth Rs 1903 billion in infrastructure sector, 207 worth Rs 466 billion in social sector, and 39 projects worth Rs 72 billion in other sectors.
The proposal floated by IPDF chief for transfer of 20 PSDP projects to his department, to be executed under public-private partnership, is apparently a sound idea, provided IPDF can ensure high quality and timely implementation of the schemes. Secondly, a concept that has worked admirably well in the developed countries may not work equally well in our social and lax administrative environment.
Thirdly, local private sector investors may not be able to manage the financial and professional wherewithal to ensure high quality execution of projects that can stand the test of time. It is true that private sector investment in such projects will surely relieve the government of financial burden, but the professional and financial antecedents of private sector parties to be inducted into partnership will have to be thoroughly scrutinised before any such ventures are launched.
Execution of schemes under Public Sector Development Programme has often resulted in huge cost overruns, due largely to lethargic pace of implementation. A factor that has stymied implementation of projects has been the mid-way re-setting of PSDP priorities, which at times seem to be influenced by personal preferences. Further, the mismatch between public sector's restricted delivery capacity and the government's wish to execute mega projects, particularly in the infrastructure sector, has frustrated realisation of the goals.
Our water, power and industrial sectors have especially had to sustain the negative impact of paucity of infrastructure. Starting cost-effective and efficient implementation of public-private partnership projects will undoubtedly be a move in the right direction, if strict monitoring of quality and pace of implementation is ensured. Meanwhile, the existing infrastructure is unable to satisfy the demands of development arising out of economic growth, and is holding back the country's progress.
The public sector has long been the main provider of basic infrastructure, but a large fiscal deficit has restricted the government's capacity to meet the country's growing infrastructure needs, and improve the investment climate. Obviously there is a need for the government to create an enabling environment for augmented private sector involvement.
Many analysts believe that as infrastructure has relied more on private resources, capital market is robust enough to sustain large-scale infrastructure financing. Public sector investment in infrastructure has in fact decreased as a percentage of GDP since the start of the decade, while private investment has failed to fill the resulting vacuum.
A major obstacle to attracting private sector investment in Pakistan has been the lack of institutional and regulatory capacity. Secondly, the existing governmental structures are unable to provide a liberalised environment of broad private sector participation. Other problems include a sluggish pace of reforms, shortage of skills and mechanics for interaction with the private sector, and the risks in the domestic capital market. The government should take immediate steps to address these issues if it wants full private sector involvement.