PESHAWAR: The Government of Khyber Pakhtunkhwa has established a Risk Management Unit (RMU) in the Finance Department to mitigate and manage risks effectively vis-à-vis the Public-Private Partnership (PPP) projects in the province, official sources said on Sunday.
The step is taken to expedite infrastructure development and improve service delivery system in the province. To this end, the provincial government intends to create a congenial environment for doing business and engage the private sector in the development.
In order to streamline the engagement of private sector, the government enacted a KP Public Private Partnership (PPP) Act, 2014. However, taking cognizance of limitations of the KP PPP Act 2014, the government repealed the same and enacted KP PPP Act 2020 with a robust institutional arrangement and the flexibility to procure the services of the private parties. In order to make the PPP framework functional, the legal documents as well as the institutional framework are being put in place.
A Risk Management Unit has provisioned in the PPP Act 2020. Section 9 of the Khyber Pakhtunkhwa Public Private Partnership Act, 2020 provides that the “Government shall, by notification in the official Gazette, to establish a RMU and establishment of Viability Gap Fund (VGP) under Section 22 of the Act in the Finance Department”. The RMU has also been tasked with establishing a managing the VGF-a facility to fund such projects that are deemed to be economically feasible but financially infeasible. As a result, the RMU has been established in the Finance Department and the role of Debt Management Unit (DMU) has been assimilated into the large mandate of RMU, The DMU is functional since September 2018.
The Risk Management Unit will manage the Viability Gap Fund; develop risk assessment and management guidelines for approval by the PPP Committee constituted under Section 3 of the Act. It will also provide support and advice to the Committee and PPP Unit, constituted under Section 5 of the Act, which regards to affordability, fiscal risk assessment and management at all key stages in the new and existing projects and services sectors in PPP.
The RMU will also examine requests for support of government and proposed risk sharing; and perform such other functions as may be prescribed in the rules or the Committee may assign to it under the Act. The Viability Gap Fund (VGF) has emerged as one of the alternatives financing source to leverage public funds in order to mobilize private infrastructure investments in developing countries.
Therefore, the government of Khyber Pakhtunkhwa continues to accelerate the development of infrastructure either in terms of financing, incentives or especially through Public Private Partnership (PPP) projects. One of the breakthroughs made by the government in the PPP scheme is by providing support in the form of cash funds for the construction cost of project also called Viability Gap Fund (VGP), in order to make a project that was previously financially unviable to become financially viable. The RMU will also maintain a designated account in a Scheduled Bank wherein the monies injected in the VGF shall be kept and disbursed upon withdrawal request made in the manner specified by RMU. The VGF rules regarding its operation has been prepared by RMU and vetted from the law department. For the FY 2022-23 allocation in VGF account needs to be made for the upcoming PPP projects. One such project is Swat Motorway Phase 2, for which Rs.5000 million were already allocated in the budget FY 2021-22, which will meet the upfront VGF requirements of the project, however for operational VGF, an amount of Rs.7100 million needs to be allocated. Apart from that, an amount of Rs.2000 million as soft loan is requested by the C&W Department for the contractor due to the unprecedented increase in prices of construction material. Hence for Swat Motorway Phase 2, an amount of around Rs.9100 million is allocated in budget for FY 2022-23.
Copyright Business Recorder, 2022