Public-Private Partnership, unlike privatisation, involving takingover of the state-owned enterprises, is a kind of joint venture between the two sectors sharing both losses and benefits.
Such a strategy of development has been evolved and incorporated in the Medium Term Development Framework (MTDF) 2005-10 with mainly twin objectives in view: first, the financial burden of investing in the infrastructure will be shared by the private sector and secondly, the benefit of the skill, efficiency and caliber of managing the projects by the private sector could be derived.
Thus the time, energy and resources, saved, could be utilised for the development of retarded areas and for the uplift of poor and downtrodden people. The state can also concentrate more effectively on providing good governance to the people and on the efficient maintenance of public-owned corporation like Wapda.
One of the contributory factors to the spectacular growth of the Asean plus three countries (Japan, China and Korea) is their pre-dominant reliance on private entrepreneurship as the driving force of socio-economic development. Korea and Pakistan had identical per capita income of $100 in 1960.
Korea has now become a member of OECD and reached a per capita income of around $10,000. Pakistan has been able to cross the limit of $900 only. In Asean + 3 economies, the private sector was allowed a free hand in the production, distribution and trade of goods and services.
The role of the government in these countries has been to facilitate, guide and help the private sector in fostering economic growth and development. Pakistan scene after the 1970's has been riddled with inefficient and highly bureaucratic enterprises and state controls.
It is, however, reassuring that during the last few years, the speed of privatisation has picked up and the private sector has been assigned its due expanding share. The public-private partnership for the development of infrastructure is another move and would further strengthen the role of private enterprise.
The partnership of private sector is mainly intended for the development of infrastructure in transport sector, airports, shipping and ports, urban water supplies and waste management.
A beginning, fully or partially, has already been made in areas such as tolls and octroi, roads, utility bills, waste collection etc. In tourism sector, this strategy has also already been adopted. It is noteworthy that at present some important PPP projects, including Lahore-Faisalabad Motorway, Karachi waste water project, Gujrat Water Composting are being prepared on BOT (build, operate and transfer) basis.
Recently National Industrial Parks and Management Company (NIP) which is a subsidiary of Pakistan Industrial Development Corporation, has been set up under the public-private partnership arrangement. The basic objective of NIP is to promote focused industrial growth in Pakistan by developing industrial parks of international standard.
The following projects have been currently proposed to be developed on PPP basis. Karachi Mass Transit project, all future motorways, Rawalpindi bypass, Lakh pass Tunnel, Karachi-Hyderabad Superhighway, Lodhran Khanewal section of H-5 and others.
An efficient and affordable infrastructure (Transport and Communication) is an integral part of any conducive investment strategy and is a critical element of the investment climate. The availability of a strong, efficient and affordable infrastructure is, therefore, essential to sustain the growth momentum.
Road, railway, shipping and air are four major components of transport. While Pakistan has made a satisfactory progress in communication sector, specially in telecommunication, it is lagging behind in the transport sector mainly because of underinvestment in the face of growing pressure on the existing infrastructure due to high economic growth.
Inadequate and inefficient infrastructure is, therefore, considered to be one of the major constraints in the promotion of both domestic and foreign investment. Studies made reveal that the economic return on the investment in infrastructure is quite substantial, but still the government, due to huge amount involved which is possible only through loan, having its own complications, could not make adequate investment, commensurate with the requirement. It is noteworthy that the transport and communication in Pakistan account for 11 percent of GDP and 16 percent of fixed investment.
Under the PPP arrangement, a project can be completely built and operated by the private sector or made from the private fund on a BOT (Built, operate and transfer) basis, while the government part of the partnership will be confined to regulation and ensuring equity for the benefit of the common man.
Thus, in the PPP arrangement, private capital is needed to design, finance, construct, operate and maintain a project for public use for a specific term, during which private sector consortium is expected to collect revenue from the users of facility plus profit to meet the cost of investment.
When the term of ownership expires, the project is transferred to the government at no cost. The PPP pilot transactions have currently run into snags because of taking too much time to prepare and complete the project.
The private investors who have proposed PPP in Punjab and Sindh provinces, have noticed that they are unable to pay project preparation cost, where it takes more than three years in certain cases. This inordinate delay could mainly be attributed to the lack of updated legal and regulatory framework for the preparation and implementation of PPP in the country in pursuance to the dictates and requirements of the current era.
In this context, Draft of Punjab Privatisation in Infrastructure Development Act 2004, A draft of the similar Act for Sindh Province and the Sindh Infrastructure Authority Act can be quoted. These drafts have to be updated, approved and implemented.
The PPP strategy for development as well as for public sector delivery is relatively new in Pakistan. Its success will, therefore, largely be determined by a strong institutional framework, envisaging complete cooperation and coordination among the federal, provincial and local governments, combined with the availability of financial, legal, technical and management skill.
Such arrangement must be acceptable to the people at large because private sector is often accused of charging more for the service than the public sector and for working with the reduced workforce.
The objective of PPP must be in line with the overall objective of the public sector. Secondly, the contract/agreement must clearly delineate the rights and responsibilities of each party. Likewise, the mechanism of sharing risks be spelled out.
It is all the more essential to avoid litigation. The government must, therefore, prepare a comprehensive policy of PPP in consultation with the prospective partners, stakeholders. It must address all relevant issues, including the role of provinces and local governments, formation of institutional framework, legal and regulatory mechanism, identification of projects meant for PPP and get it approved, prior to its announcement, through the parliament.
In the ultimate analysis, it is the mutual trust and understanding between the two sectors which would prove to be the touch-stone for the success of PPP. Unlike Asean + 3 countries, a creditability-gap in Pakistan between the two sectors still exists, despite creating a business-friendly atmosphere in recent years.
In Japanese model of management, the over-all objective of an organisation should be consistent with the broader national goal, both in the ambit of production as well as distribution.
The working relationship between government and the businessmen is essential. The concerned officials under the aegis of Ministry of International Trade and Industry, (MIT) meets regularly with the representatives of trade and industry and helps resolve their problems for the smooth functioning of trade and industry.
Meanwhile, the incidence of tax-evasion is very low. In Pakistan also the process of consulting the private enterprise in framing business and economic policies, including budget, trade policy etc have recently been strengthened, but the implementation mechanism has yet to be improved.
Similarly unlike the Asean + 3 countries, the business functions, including seminars, conferences, exhibitions, delegations, organised by trade and industry also do not receive the much-needed cooperation and participation by the public sector. Bureaucratic approach and protocol continues to be the guiding force.
It must be concluded that whatever economic progress Pakistan has achieved during the last five years or so by following the consistent policies and reforms will be doubled by promoting a very close and cordial relationship between government and the private enterprise, on the lines being practised in Asean + 3 countries. It is high time that the public and private sectors emerge as real partners of progress and let the national interest be the binding force.
(The writer is former Secretary and Economist, KCCI.)