Public Private Partnership

A Concept

Narayan Prasad Pokhrel1

Background

Public Private Partnership can be defined as a contractual agreement by and between central and
local governments and/or private sector, non-governmental organizations and community based
organizations to secure common interests. Main purpose of PPP is to combine the private sector’s
managerial efficiency, creativity, innovativeness, entrepreneurial spirit, financial and technological
resources with the public sectors and non-governmental organization’s spirit of social service and
social justice; and the community based organization’s spirit of self-help, caring and sharing.
According to the United Nations Development Program (UNDP), the broadest definition of a PPP
includes agreement frameworks, traditional contracting, and joint ventures with shared ownership.

Public and private organizations work together to:

-Determine a commonly-agreed upon goal for social benefit
-Produce consumer research
-Design and implement a promotional/educational campaign
-Evaluate the campaign
Provisions made in the Development Plans and the Budgets
The concept of the Build, Own, Operate and Transfer (BOOT) in the infrastructure development was
incorporated in Nepal's Plan document as early as 1992 though the actual progress was slow due to
various reasons.
The Eighth Development Plan (1992-1997) envisaged that necessary arrangements would be made
for the construction by the private sector viable infrastructure projects, like the proposed Hetauda-
Kathmandu tunnel and other roads that could shorten the distance, on the basis of the BOOT.

The Ninth Development Plan (1997-2002) mentioned that it was not possible to generate supply
and export electricity through the efforts of the public sector only, keeping in view both the growing
demand for electricity at home and the export market potential. Hence, public-private partnership in
the hydro-power development was encouraged, especially with a view to foster confidence of the
private sector in implementing the hydro-power projects and reduces the administrative and
procedural rigidities faced by the private sector.

The Tenth Development Plan (2002—2007) adopted the policy of promoting the private sector
participation in the construction and maintenance of the road network with the necessary policy and
legal reforms as well as improving the facilitative and regulatory role of the government. Measures
would be taken to attract and encourage domestic and foreign private sector investments through
projects based on the Build, Operate and Transfer (BOT) and Build, Own, Operate and Transfer
(BOOT) modalities. While requesting the private sector for such investments, the projects would be
provided various concessions so as to expand economic activities and promote employment at the
local level. The government's procedures in this regard would be mode simple, short and
transparent. Further studies would be carried out to formulate policies and programs to ensure
effective participation of the private sector in the construction and maintenance of the roads. To
manage funds for road maintenance, a separate fund under the Road Fund Board would be
operationalized with a high priority.

The Three-Year Interim Plan (2007/08-2009/10) mentions that, despite the BOOT policy adopted for
promoting private sector investment in the development of the physical infrastructure including the
roads, the private sector investment could not rise as expected, While the Plan has given the
1
Assistant Director, Nepal Rastra Bank
highest priority for the reconstruction and rehabilitation of the physical infrastructure, it also
mentions about fostering the private sector involvement in the development of the physical
infrastructure through the BOOT by making the related Act simpler and practical.

The Plan states that an autonomous national transport board would be established for strengthening
the partnership and cooperation with the private sector in order to bring about effectiveness in the
development and management of the transport sector.
An open, liberal economy in 1990 resulted in very prominent Nepali innovations towards PPP in the
infrastructure sector, as for example, the promulgation of the Hydropower Act 1999; Electricity Act
1999; BOT Policy 1999 etc.

The legislation first came into operation in the form of an Ordinance on 22 August 2003. Though it
was ratified as an Act on 14 December 2006 because of the procedural reasons, it was presumed to
have come into operation since 12 August 2006.
Projects in private ownership could be implemented under any of these modalities:
BT: Build Transfer
BOT: Build Operate Transfer
BOOT: Build Own Operate Transfer
BTO: Build Transfer Operate
LOT: Lease Operate Transfer
And other similar methods

The Government could invite expressions of interest from the concerned parties for the
implementation, under this Act, of any project exceeding Rs. 20 million. For the implementation of
the project, public notice inviting proposals from the parties in the approved list would be made.
The proposal would be selected within 60 days, on the basis of the economic strength, technical
capacity, environmental study, royalty to be paid to the Government, proposed amount that the
consumers would have to pay in the project implementation process, and any other specified
details. Permission for the detailed feasibility study could also be given to an interested party. In
specific cases, the projects could also be implemented through the negotiations.

The Government signs the letter of understanding with the selected party. The party would then
have to submit the details relating to the project implementation within the time specified. The
Government would then enter into an agreement with the party. The terms and conditions including
other implementation details regarding the project would have to be included in the agreement. The
party would have to submit 0.5 percent of the total project cost as the performance bond. After the
agreement, the party will be provided the letter of permission to implement the projects. The
validity of the letter of permission would not exceed 30 years. During the period of the project, the
project and its properties would not be nationalized.

The Act has also provided that the priority projects of the government could be implemented under
the joint investments of the Government and the private sector, with the condition that the
Government's share would not exceed 25 percent of the total project cost. Various facilities in
connection with the successful implementation of the project would be provided to the party.

A project coordination committee under the chairmanship of the Vice-Chairman of the National
Planning Commission would be formed to coordinate and monitor the implementation of the project
besides identifying and determining the priority of the projects.

Examples of PPP

One of the popular PPP projects in Nepal is the Public-Private Partnerships for Urban Environment
(PPPUE), was launched in March 2002 with the initiative of UNDP. Its development objective is to
increase the access of the urban citizens to basic services while stimulating and strengthening
participatory approaches to service delivery. Project activities are focused on the provision of the
most essential urban services, namely, water supply and distribution, sanitation (waste water
collection and removal and solid waste management) and, to a lesser extent, renewable energy,
road and urban transportation management. The second phase of PPPUE started in April 2004 and
will run until the end of 2009.
The forest user’s groups that have preserved and protected the local forests throughout the
country could also be cited as a general example of the PPP.
The independent power producers who sell to the Nepal Electricity Authority (NEA) their electricity,
accounting for one-fourth of the total electricity supplied in Nepal, through agreements with the
IEA could also be cited as another example of the PPP.

Salt Trading Corporation between the private sector and government, founded in 1963, is an early
Nepali example of PPP. This joint venture befits our stated definition and rationale quite well. The
only reason why it was not quite a PPP is that it was a veritable public-private national monopoly
completely devoid of competition and the full rigors of the market mechanism.

Opportunities of PPP
Financial and in-kind resources are contributed
Local & international efforts are combined
Locals guide the development with expert aid
Efforts are focused on a circumscribed problem
Programs are compatible with the population
Education is a durable good
Challenges of PPP
•Selection of partners can be tricky
•Conflicts of interest to ensure profit
•Financial leverage affects decision-making
•Shifting of responsibilities from governments
•Sustainability is questionable
•Ethical considerations
•Bureaucracy

Conclusion
PPP must be conceived as a marriage of choice and not convenience to be sustainable. This can only
be so if there is all round good leadership founded on good governance in public, private and non
governmental sectors.

Success of PPP critically depends on mutual trust and respect between stakeholders. All actors must
get on board on the development platform not as adversaries but partners. Cooperation between
actors with the intent to constantly dialogue in a businesslike manner is a must. The ideology of
pragmatism must prevail and politics must be kept out of the system if PPP is to succeed (e.g. the
collapse of the Gokarna Landfill Site is a good example of what happens when party politics enters
the fray).

The government must take the lead to develop the human capital needed to usher in PPP by
transforming its bureaucracy to a “managerial civil service” capable of formulating PPP Sector
Business Plans; designing and marketing PPP projects locally, nationally and globally and
negotiating contracts.

Another reason why the civil service must be “managerial” is because a bureaucracy, normally,
exhibits risk-aversive behavior. With PPP it needs to calculate and manage risks— political,
economic, financial or social. With PPP it needs to perceive its clients not only as citizens but also as
consumers seeking full satisfaction from the services rendered.

The bureaucracy need to be skilled in maximizing social benefits and minimizing social costs while
providing reasonable Return On Investments to the private sector. They need to be skilled enough
to be able to judiciously compensate the private and non governmental sectors with sufficient
incentives in the form of rebates and holidays over income tax, VAT, customs and excise duties,
interest refinancing and repayment terms etc to make the project socially and privately beneficial by
creating a win-win situation. They need skills to be able to identify and formulate projects as well as
to identify appropriate partners and be able to approach the national and international stock and
bond markets to execute these projects.
The public administration system must be fully geared up for PPP. This would require that each and
every ministry have PPP divisions which are represented, along members drawn from NRB, FNCCI,
CNI, FNSCI, and associations of bankers, finance companies and insurance agencies in the National
PPP Authority to be headed by a National Planning Commission member.