The Secretary to the Federal Ministry of Commerce, Tasneem Noorani, addressing a meeting with the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Friday (August 6) reportedly disclosed that a formula was under preparation to invite the private sector to participate in the financing of mega infrastructure projects which are included in the Public Sector Development Programme (PSDP).
According to him, the proposed formula would envisage the share of federal government in the financing of these projects to the extent of 50 percent, the remaining cost to be shared by the provincial government up to 25 percent and local bodies/city governments to the extent of 10 percent while the private sector would be asked to contribute 15 percent.
He said the projects to be financed under this formula would include effluent treatment plants, construction of industrial estates, re-development of industrial estates and similar other schemes. Involving sizeable amounts of funds, these projects could not be managed through the existing Export Development Fund (EDF).
The Commerce Secretary also unfolded the government's plan to assign the implementation of mega projects to professional organisations in the private sector instead of the present practice of supervision by the departments concerned.
The new policy proposal would be discussed at a meeting convened by his ministry shortly to which representatives of the FPCCI and other trade bodies have been invited besides the officials of the federal and provincial governments and the representatives of the local governments.
The proposed shift in the policy framework relating to financing of public sector projects appears to be a feasible approach. Since this will be the initial stage of the new policy, the private sector would be given a relatively small share of 15 percent in the overall funding of a mega project.
The extent of response from the private sector may in future determine an increase in the share of the industrialists in financing mega projects. For the present the ratio of financing to be borne by the public sector, namely, the federal and provincial governments, and city/local government would be as high as 85 percent to be drawn from the tax revenue of these governments.
In view of the majority stake of the federal, provincial and city governments, the management control will stay almost totally with them. Seen in this context a private investor would hardly be able to wield any influence in the overall cost structure and engineering design of a project.
It would be therefore in the fitness of things that the private partner in the financing of the project is also included in any framework to supervise the project's implementation. It has been suggested, though, that a professional organisation of the private sector would be engaged to closely supervise the implementation process at every stage.
This would imply that consultation fee to be given to the professional organisation may add to the overall cost of a project.
The shift in the financing and supervision of mega projects in the public sector is suspected to have been suggested by the foreign financing agencies and donors who would very much like to promote the participation of private consulting firms including foreign contractors.
Another open question will be what type of modalities would be evolved to ensure a private investor's share in the future earnings from a project. As an assurance to the private investor that his investment will be fully protected and that he would regularly receive his share of earnings from a project, he would have to be included as a member of the board of directors of a specific project.
For instance, the private investor should be given a place in the board of directors of an industrial estate like Korangi Industrial Area in Karachi. Thus the new initiative may prove to be a practicable framework to effectively promote private-public partnership in the implementation of development projects.