Public Private Partnership in Bangladesh

1. Introduction
PPP involves a contract between a public sector authority and a private party, in which
the private party provides a public service or project and assumes substantial, technical
and operational risk in the project. In some types of PPP, the cost of using the services
is borne exclusively by the users of the services and not by the taxpayer. In other types
(notably the private finance initiative), capital investment is by the private sector on the strength
of a contract with government to provide agreed services and the cost of providing the service is
borne wholly or in part by the government. Bangladesh has been facing many development
challenges since gaining independence in 1971. To overcome some of these challenges, the
country requires significant investment in energy, transport, and water supply infrastructure
and several other sectors. In mid-2009, a policy encouraging public-private collaboration
was included by the Government of Bangladesh in the national budget legislation, but it
lacked clear guidelines on how to put the government's intentions into practice. Due to the
absence of clear guidelines, most of the budget allocated for partnerships by the government
was not utilized and the intended public private engagement did not take place. The PPP
policy is currently administered under the Prime Minister's Office (PMO), indicating high
level support for its effective implementation. The PPP policy and strategy was published in
August 2010. The government has also allocated a significant amount of money in the FY 2011
budget to take PPPs forward.

1.1 Objectives
The main objectives and focuses of the study are:

 To understand the PPP in Bangladesh

 Critical issues which the paper seeks to address.

 Review of past and recent scenario, International Comparison.

 Policies, Strategies and Programs to meet the challenges faced by Bangladesh.

 Specific Case Studies as examples

 To come up with feasible solutions based upon the situation

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1.2 Methodology
As this project was based on theoretical research all the information collected from secondary
sources. The sources are:

 Research articles, Thesis papers

 Survey reports, Relevant websites

 Books and Reference Articles

 Journals, Newspapers

1.3 Limitations
During the preparation of report here were some factors that limit the study. Those are:

 Time limitation

 Finding reliable information

 Outdated journals and articles

 Lack of resources

1.4 Scope of the study

The study was concerned with Government investments and impact of PPP development in
Bangladesh. This report will help to understand the overall economic scenario in Bangladesh and
the PPP projects that Bangladesh Government follow to improve the development sectors i.e.
Infrastructural, Health, Transport, Energy. In short this report is a review of PPP in Bangladesh
that may help to come up with probable solution to solve this problem in future.

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2. History of PPP Projects in Bangladesh

A policy framework for PPPs was introduced in Bangladesh as early as the mid 1990’s
with the Private Sector Power Generation Policy (PSPGP) 1996. This marked the launch
of PPP projects in the power sector, with the 450MW Meghnaghat and 360MW Haripur
Power Projects; two early success stories. The policy for encouraging partnerships with the
private sector continued throughout the 2000’s with the introduction of PSIG 2004 (Private
Sector Infrastructure Guidelines 2004). The Policy and Strategy for Public-Private
Partnership (PPP), 2010(PPP Policy 2010) has now been introduced (replacing the PSIG
2004) to update the policy framework and incorporate best international practice to further
boost the use of the PPPs across multiple sectors and to provide a clear and transparent
regulatory and procedural framework.

2.1 What is PPP?

Public Private Partnership (PPP) is the most important topic among developing countries of
the world. Without infrastructural development it will not be possible for a developing country to
switch from developing to developed country. For rapid infrastructural development Public
Private Partnership is the most. Public Private Partnership is the collaborative work of
Government and Private Companies. A contract has been made between Private Party and
Government where the private party provides a public service or project and assumes substantial
financial, technical and operational risk in the project. Public Private Partnership is being
considered worldwide as a unique window for the development of infrastructure sector for the
countries.

2.2 Sector covered by PPPs

PPP can be used to provide public service projects to a social or economic infrastructure sector.
There are many successful examples of PPP in various sectors, including -

 Power and Energy

 Transport infrastructure (Roads, Rail, Ports, Airport and Water Transport)
 Pure drinking Water and Sewerage
 Information Technology
 Air Transport and Tourism
 Industry
1.3 PPP regulated in Bangladesh
 Education (particularly Secondary and technical) and Research
 Health
 Housing, etc.

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In Bangladesh PPP projects have already been delivered or are being developed in many of the
sectors listed above.

2.3 PPPs regulates in Bangladesh

The government issued the first Public-Private Partnership (PPP) Act on 16 September, 2015 by
the government publishing law through the gazetteer. Prior to establishing PPP policy framework
for everyone on "Public Private Partnership (PPP), 2010 policies and strategic incentives,
approving and approving big projects, medium projects and small projects, on August 2010 and
this is the only relevant policy. The law has been canceled by 2013.

2.4 Benefits of PPPs

PPP projects can deliver a solution that provides services to citizens, enables the
government to meet its responsibility of provision of services while providing the requisite
financial returns to the private sector. Hence well-structured PPP projects are widely
acknowledged to deliver a ‘win-win win solution’ that benefits all stakeholders.

Citizen Public Sector Agencies Private Sector Developers

* Earlier access to new public * Better value for money by * Access to a new areas of
infrastructure service optimized risk sharing investment opportunities

* Accelerated improvement of * Budgeting certainty through * Generation of a stable and

existing public infrastructure whole life costing longer term revenue stream

* Use of well maintained and * Enhanced government asset * Ability to apply innovative
quality services utilization and access to solutions and develop new
2. Critical issues regarding
* Consistent availability and
PPPsadditional investment financial/technical products

access to essential services * Access to private sector * Integration of various private

expertise and innovation sector capabilities

Figure:”Win-Win-Win Benefits of PPPs”

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3 Critical issues regarding PPP

There are some critical issues need to be considered when to analyze the public private
partnership Process in Bangladesh. Some very closely related issues are there like Resource
constrained, Domestic Resource constrained, Foreign aid constrained, private sector involvement
etc.

3.1 Resource constrained

The Election Manifesto of the government envisages that GDP growth rate will accelerate
to 8 percent in 2013 and to 10 percent by 2017 which will then be maintained till 2021. In order
to attain higher GDP growth, investment in infrastructure, especially in power and energy, port,
transport and communication, drinking water supply, waste management, education, and health
has been prioritized. Preliminary assessment of the required investment to boost growth rate has
been prepared till 2014. The estimate assumes that desired investment will be achieved from
2009‐2014 with participation of the private sector and target growth rate has been set in line with
the government’s Election Manifesto. According to the estimate, from FY10 till FY14, there will
be USD 28 billion investment deficit (Table 1). The government is determined to raise GDP
growth to 8 percent by augmenting investment by mobilizing private sector’s resources,
expertise and experience through the PPP initiative.

2009-10 2010-11 2011-12 2012-13 2013-14

GDP Growth (percent) 6.0 6.8 7.5 8.0 8.0
Required Investment (Billion USD) 24.59 30.63 37.18 43.82 49.69
Investment (% of GDP) 24.0 27.02 29.25 30.40 30.40
Required Investment-MTMF* (Billion USD) 23.55 27.10 31.36 35.54 40.29
Investment Deficit (Billion USD) 1.04 3.53 5.82 8.27 9.40
Table 1: Required Investment for Attaining Target Growth Rate and Investment Deficit
(Optimistic Scenario)

*Medium‐Term Macroeconomic Framework

According to the preliminary estimate, there is USD 1.04 billion investment deficit in FY
2009‐10. In order to attract the said amount of investment through the PPP initiative, the

Government has decided to give a big push to provide incentives to the private sector

3.2Domestic resource constrained

Domestic resource can become the driver of economic development only if public spending is
managed efficiently and prudently. Ironically, domestic resource mobilization effort in
Bangladesh is constrained also by low level of public expenditure and investment, among many
other factors. Thus the country is posed with dual challenges of generating domestic resources
and utilizing that resource efficiently for increased productivity and economic development.

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3.3Foreign Resource constrained

This is not only due to the declined flow of foreign aid to low income countries, but also for a
more stable source of resources. As poor countries tend to rely on foreign aid they also have to
face the impact of volatility and uncertainty in aid flows which creates difficulty in their budget
management. Even countries which have graduated themselves from aid dependent to trade
dependent countries may also face such volatility and unpredictability. Bangladesh has
remarkably reduced its dependency on foreign aid since its independence.

3.4Private sector involvement

According to World Bank’s Journal, Bangladesh have resource constraints like domestic
recourse constraints, government resource constraints and foreign resource constraints. That’s
why private sector should be bought in investment. Government will be benefited by private
sector investment. According to Bangladesh Bureau of Statistics the overall scenario of
Investment given below:

30

20 Private
Investment
10 Public
Investment2
0
FY 14 FY 15 FY 16 FY 17

Figure 1: Domestic Investment in Bangladesh

From the above figure it’s seen that private investment in Bangladesh was highest in year 2014
then after 15 it follows stable trend. On the other hand Public investment follows and increasing
trend over last four years.
According to Bangladesh Bank Survey of Bangladesh bank report the overall Foreign Direct
investment in Bangladesh are given below figure:

1500
1000
500 Gross Inflow
0 Disinvestment
Net inflow

Figure2: Foreign Direct Investment in Bangladesh

Generally public sector projects are significantly different from private sector projects. The
concerned stakeholders and interest of these two sectors vary due to the very inherent nature of

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objectives that these two sectors try to achieve. Therefore, when a public sector project is
selected to be done by a private investor, there has to be some sort of incentive factors based on
which these two sectors can come up in the same page. For this reason, government has to
consider the concerns of private sector. Because Private sector possesses better mobility than the
public sector. For example, the privates sector is not only able to save the costs of project
in planning, design, construction and operation, but also avoid the bureaucracy and to relieve the
administrative burden.

 The private sector can provide better service to the public sector and establish a good
partnership so that a balanced risk-return structure can be maintained
 The government lacks the ability of raising massive funds for the large-scale
infrastructure projects, but private participation can mitigate the government’s
financial burden.

Under PPP the private sector not only supplies materials, they are also engaged in multitude of
activities such as financing, construction, ownership, maintenance, and management. As a
result they have to be very innovative.

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4. Review of present and past scenario

According to the Ministry of Planning, Bangladesh (2015), to achieve the vision of 2021 in order
to become Bangladesh's middle income country by 2021, he will have to ensure faster,
coordinated growth path. Meanwhile, the government of Bangladesh has to upgrade the GDP
growth rate to 8 percent. In order to achieve GDP growth rate, the amount of investment for
GDP growth should be increased from the current average GDP ratio of 24 to 25 percent to 35-
40 percent. Private sector participation through PPP is an important route to reduce investment
shortfall. There are some successes in attracting private investment through PPP route in the
electricity, gas and telecom sectors. The government wants more investment in more and more
sectors like ports, roads, railways, water supply, waste management, tourism, e-service delivery
etc.

A Perspective Plan (2010-2021) and two five year plans, 6th (2011-2015) and 7th (2016- 2020),
were to implement Vision 2021. Plan Goals and Targets 7th FYP Income and poverty are given
below:

 Sector Development
 Macroeconomic Development
 Urban Development
 Human Resource Development (Education, Health and Population)
 Water and Sanitation
 Energy and Infrastructure
 Gender equality, income inequality and social protection
 Environmental Sustainability
 ICT Development

4.1 Budgetary allocation:

In terms of budgetary allocation 2017-2018, although the infrastructure sector has seen one of
the highest increases in recent times, the effectiveness of this amount, however, would depend on
how the money is capitalized. If the money is used to build new roads, railways, etc, the
possibility of a greater fiscal multiplier would be created. Moreover, one flaw in the
government’s infrastructure development plan is its reliance the Public Private Partnership (PPP)
initiative, which has already failed to produce real results.

 36 projects were included in the PPP list- no visible progress.

 Tk. 6,500 core has been allocated for funding PPP and export incentives
 Too many projects are listed without allocation
 PPP Act: Enacted and gazette on Sept 16, 2015; has not taken off.

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According to the budget of 2016-2017,

 32 projects were included in the PPP list- no visible progress.

 Tk. 6,500 cr. has been allocated for funding PPP and export incentives.
 Highest number of unapproved projects without allocation in recent times – 1,172.
 Under PUBLIC FINANCE FRAMEWORK Status of (remaining) 12 priority projects
(identified by CPD): Padma Multipurpose Bridge Project, Dhaka-Chittagong 4-Lane,
Third Karnaphuli Bridge, Support to Dhaka Elevated Expressway PPP Project, Dhaka-
Chittagong Railway Development Project, Bhomra Land Port, Siddhirganj 335 MW PP,
Veramara Combined Cycle Plant (360 MW) Development, Providing Electricity
Connection to 18 lakh clients through Rural Electricity extension, Production of
Electricity by Co-generation and Establishment of North Bengall Sugar Mill,
Establishment of Gas Compressor Station in Ashuganj and Elenga, Construction of 950m
long PC Guarder Bridge over Dharla River at Phulbari Upazila of Kurigram District.
 Under Industry 5 projects under PPP initiative: slow progress. Development of tourism
resort and entertainment village at Parjatan holiday complex at Cox’s Bazar and Five-star
hotel in Sylhet are currently in procurement stage.
 Reforms as regards Development Facilitating Policies and Acts: implemented PPP Act,
2015.

4.2 Project status:

The ADP for FY18 contains 1,195 projects (1123 for ADP of FY17). Development assistance is
TK 3346 core in ADP FY 18 of which TK 2600 core is in the power sector. FY project status of
2017 is given below:

60%
50%
40%
30%
20% Project status of
10% FY 2017

0%

Figure 3: FY 2017 Number of Projects 1123

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According to CPD analysis of the national budget for FY 2017-2018, too many projects are listed
during FY 11 to FY 18 without allocations.

Project Status FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Unapproved projects without 800 702 720 662 624 857 1172 1315
Allocation
Projects listed to seek Foreign 292 259 327 346 338 382 349 360
Funds
Total Number of Projects in the ADP 916 1039 1037 1046 1034 999 1141 1195

PPP 23 16 13 44 40 40 32 36

Possible Completion 287 305 330 305 324 324 354 411

Table 2: Number of Projects allocation during year 2011 to 2018

Form the above table it is seen that 36 projects were allocated on PPP for the year 2018 whereas
the number was 32 in 2017.

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4.3 Other countries comparison

As per its XII Five Year Plan (2012–2017), India has an ambitious target of infrastructure
investment (estimated at US$1 trillion). In the face of such an enormous investment requirement,
the Government of India is actively promoting PPPs in many sectors of the economy. According
to the World Bank, about 824 PPP projects have reached financial closure since 1990 in India.

PPP Policies in INDIA:

Finance Ministry of Economic Affairs (DAE) PPP coordinates through PPP cell. In 2011, the
guidelines for the formulation and approval of DAE projects were published. It was an effort to
strengthen the regulatory framework at the national level to expand the PPP system's expansion
and to boost the PPP project, encourage the private sector and encourage them to enter the Indian
PPP. This was the key role of the Public Private Partnership Assessment Committee (PPPAC),
which is responsible for the evaluation of the PPP project at the central level.

The Government also created a Viability Gap Funding Scheme for PPP projects to help promote
the sustainability of the infrastructure projects. This scheme provides financial support (grants)
to infrastructure projects, normally in the form of a capital grant at the stage of project
construction (up to 20 percent of the total project).

The Government has also set up India Infrastructure Finance Company Limited (IIFCL) which
provides long-term debt for financing infrastructure projects. Set up in 2006, IIFCL provides
financial assistance in the following sectors: transportation, energy, water, sanitation,
communication, social and commercial infrastructure.

Finally, the PPP Cell has produced a series of guidance papers and a 'PPP Toolkit' to support
project preparation and decision-making processes. The objective is to help improve decision-
making for infrastructure PPPs in India and to improve the quality of the PPPs that are
developed. The tookit has been designed with a focus on helping decision-making at the Central,
State and Municipal levels.

Risks:
There have been a number of critics associated with Public Private Partnerships in India, in
particular related to the risks that come with such partnerships.

 PPP involve greater costs that traditional government procurement processes (because of
the development, bidding and ongoing costs in PPP projects).
 The private sector does not provide a service that is not specifically outlined in the PPP
contract. It is thus critical that key performance indicators are precisely laid out in the
contract and that the government monitors closely the work of its private partner.

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 Another critic of PPP projects is related to their social and political consequences, which
can be significant. For example, a PPP project may result in the transfer of civil servants
to the private sector, important tariff increases or resettlement issues to name a few.

 Finally, PPPs often end up being renegotiated. This is due to the long-term nature of the
PPP projects (some run for up to 30 years) and their complexity. It is difficult to identify
all possible contingencies during project development and events and issues may arise
that were not anticipated in the documents or by the parties at the time of the contract.

PPP policies and Challenges in Philippine

The PPP Center of the Philippines (PPP Center) is an agency attached to the National Economic
Development Authority (NEDA, the independent planning agency of the Government of the
Philippines) which is responsible for facilitating, co-coordinating and monitoring Government
PPP programmers and projects by acting as an oversight agency in their programming,
implementation, monitoring and evaluation. It also serves as an information repository on PPP
contracts and reports annually regarding the status of the PPP programme.

The PPP Center has been very successful to date in working with the various implementing
agencies to build a pipeline of projects. It has also shown a willingness to listen to the market
and the concerns of market participants, and to adjust its PPP programme accordingly. The PPP
Center has been increasingly active in marketing the pipeline of PPP projects to foreign investors
and finance providers. The strength of the PPP Center has been a key success factor in building
sufficient momentum and interest to drive forward the Government's PPP programme. Again, the
Asian Development Bank (ADB) has highlighted that Bangladesh and the Philippines are the
two models for emerging markets to follow when it comes to developing PPP programmes.

The challenges of Philippine is same as Bangladesh i.e Timeline and resources, Transparency,
change in administration etc

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5. Polices and program to meet challenges faced by Bangladesh:

The power of very few developed and developing countries cannot pay for the development of
infrastructure such as railways, highways, ports, roads and transportation. Because they invest a
lot of money. Sometimes, the government cannot support high interest loans from foreign
sources, even foreign direct investment (FDI) or official development assistance (ODA) by
themselves.

In order to deal with these funding constraints, public-private partnership (PPP) is widely
considered a solution for larger lag behind in terms of trained manpower to meet up the demands
from a modern industry. It is in terms of operators, trouble shooters or engineers etc.
Government has to take the lead to produce sector specific trained manpower to feed the
industries as well as create employment of the young generations.

Land acquisition eats up a bulk cost of our infrastructure projects. It also delays implementation.
Another major challenge to political stability is because some projects may be more politically or
socially challenging to identify and implement than others, in addition to those countries where
the rule of law is not firmly rooted, the government has returned to the agreement signed by the
previous administration. .

Bangladesh needs to raise investment in public-private partnership (PPP) projects to $12.5

billion a year from $3.5 billion now to overcome the challenges in construction of mega
infrastructure, but the government is slow in implementing the projects under the PPP initiative,
but there are some challenges and weaknesses that need to be resolved first. Because there is a
budget fund to provide financial subsidies for the PPP project, which has high socio-economic
value but is not adequately commercially viable for distribution on PPP basis. Subsidy can be
given as part of the capital paid for the conversion of total project cost to 30% or during the
operation, for annual funding.

However government provided policy and other supports for flourishing the PPP funded model
on a large scale, it is failing to deliver expected results mainly due to management inefficiency. It
is worth mentioning here that the government is not getting the optimum benefits from ADB
projects as well for inefficiency and corruption. If the low-level of efficiency continues affecting

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implementation of PPP projects, the target of achieving the higher economic status within the
time-frame, we fear, may remain out of reach.

Long-term operating process can lead to value for money. However, they can also lead to
inefficiencies due to a lack of contestability and competition. The tended r-procedure at the
beginning of the process may have introduced competition; the developer who has signed the
contracts will have the exclusive rights to an infrastructure facility, therefore practically enjoying
a monopoly. During the operation phase inefficiencies may be created due to a lack of
contestability and competition.

6. The Way Forward

From some past project, we got some problems finishing these projects. The causes behind delay
in implementation are three projects: (1) 19 Upazila Health Complex (2) Dairy and Cattle
Breeding Farm, Faridpur and (3) Atomic Energy Research Institute at Savar were selected as a
purposive sample. We have found that there were several problems which delayed project
implementation. These are negligence of contractor, non availability of construction materials,
delay in acquisition of land and site selection, faulty design of projects, delayed release of fund,
over ambitious design, frequent revision of project, lack of skilled manpower in formulating and
implementing project, delays in customs clearance of equipment, lack of skill and technical
knowledge, lack of supervision, lack of use of proper tools and techniques in project
implementation, lack of coordination, lack of proper monitoring system, delay in getting
engineering design of the construction work, delay in decision making, frequent change in
decisions, etc.

From all these Projects, we told why the Projects do not finish on time and have to focus more on
these problems to work and finish it on time. We recommended that at the preparation stage the
critical tasks should be clearly outlined and different activities should be briefly mentioned in a
chronological manner so that Project Implementation Office (PIO) could predict the
consequences of delay.

We can move forward our PPP Projects in a number of ways. Those methods are:

6.1 Existing PPP Projects/Programs in Bangladesh

Dhaka-Elevated Expressway

Hemodialysis Centre at Chittagong Medical College Hospital

IT Village at Mohakhali

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Development of Integrated Tourism & Entertainment Village at Cox’s Bazar

Upgrading of Dhaka Bypass to 4 Lane

Flyover from Santinagar to Mawa Road

Dhaka-Chittagong Access Controlled Highway

Economic Zone 5: Anowara, Chittagong

Improvement of Hatirjheel

New Modern Medical College & Hospital of 250 beds on the unused land in Khulna

2nd Padma Multipurpose Bridge at Paturia-Goalundo

6.2 Potentials of PPPs for infrastructure development in Bangladesh Potential benefits:

 Benefits for the private sector: generate a profitable revenue stream or expand market
access.
 Benefits for the consumer: deliveries of a service that people want and would not have
access to at the same price, in a business as usual situation.
 Benefits for the government: fulfillment of a political need, social obligation,
development imperative.

6.3 Role of PPPs in the social development sector in future

PPP can promote local economic growth and employment opportunities. The third world must
not depend only on the donors for infrastructure investments. Private-public combined efforts
will have the greatest effect in this sector. The previously predominant areas like energy,
transport, water and sanitation, education and health provide a good offer for the private
organizations and the public bodies to apply the financial acumen and managerial skill
while sharing the risks associated.

The prospective sectors under PPP could be the following:

 Power and Energy

 Solar System
 Transport Infrastructure (roads, rail, sea-ports, airport and water transport)
 Tourism and Air Transport
 Information Technology
 Pure Drinking Water
 Industry
 Health and Family Welfare
 Education (particularly secondary and technical) and Research

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 Housing
 Climate management

7. Recommendation
 Arrange required consultations between the Government and private sector to start direct
dialogue on PPP, and to work out the specific issues and recommendations, and
operational implications for those.

 Legal and regulatory issues in relation to PPP should be sorted out. PPP should be kept
out of all political and bureaucratic influences.

 Conduct policy research and analysis on PPP issues and make recommendations
for reform, and craft a PPP roadmap to be adopted by the Government and the private
sector.
 Bangladesh is going for mega infrastructure projects worth billions of dollars, their
management is becoming ever more important for ensuring the maximum benefit for
Bangladesh, because Project managers should be groomed to handle the mega projects
and trained on contractual aspects, negotiation skills and financing.

 We can strictly enforce terms and conditions of the contract documents of construction
projects; we can avoid delayed implementation and cost rapidly increased. Therefore, we
should involve legal experts from the beginning of any infrastructure project.

7. Conclusion
There should be greater representation of the private sector in the PPP committees
including the Advisory Committee

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