Public Private Partnership (PPP) Model of Development in Nepal

1. Background

¨  Development of essential public infrastructure and services (including roads, bridges, airports, modern means of communication, drinking water, irrigation, electricity, railways, cable car, ropeways) is imperative for achieving sustainable economic growth of the country. 

¨  The means and resources allocated from national treasury fall short of what is required for the construction and operation of infrastructure services.

¨  It is desirable to make assets of public utility and operation of public services less costly, effective and reliable.

¨  For this the means, resources, skills and technology available with the private sector must be attracted towards development works of the nation based on the concept of Public Private Partnership (PPP).

¨  It is believed that the contribution of infrastructure services built on this model is crucial and effective for providing momentum to economic development and

¨   Strengthening national economy and making public services effective by ensuring optimal use of managerial skills, innovative technology, appropriate human resources and capital available with the private sector for producing/creating goods and services of public utility and construction and operation of infrastructure and services.

¨  It is necessary to create acceptable conducive policy environment addressing the involvement of private sector appropriately in the construction and operation of services by executing government’s role more effectively and using appropriate methods for risk minimization associated with the construction and operation of public infrastructure and proper management and operation thereof

¨  A PPP is a contract between an Institution and a private party whereby the private party renovates, constructs, operates, maintains, and/or manages an asset to provide a service in whole or in part, in accordance with specified output specifications.

¨  The private party assumes the associated risks for a significant period of time and in return, receives benefits and financial remuneration according to agreed terms. PPPs constitute a cooperative venture built on the synergy of expertise of each partner that best meets clearly defined public needs through the most appropriate allocation of resources, risks and rewards

¨  The essential aspects of a PPP arrangement that distinguish it from the direct delivery of a public service by a public sector Institution are:

o   A focus on project outputs to be provided, not necessarily the inputs to be employed.

o    The private party accepts the risks and responsibilities for all activities within the control of the private party associated with the provision of project outputs.

 

2. Current status

¨  Nepal desires to graduate from the least developed country to a developing country status by 2022 AD.  For this, standards and thresholds set are: gross national income per capita at US Dollar 1,242; Human Asset Index at 66 and economic vulnerability index at 32. 

¨  Based on the United Nations’ evaluation of 2015, Nepal’s current status shows US Dollar 659, human asset index as 68.7 and economic vulnerability index as 26.8, and physical infrastructure services not adequate and reliable.

¨  Presently in Nepal, “Policy related to Construction, Operation and Handover of Public Infrastructure 2000” and “Private Sector Investment in the Construction and Operation of Infrastructure Act 2006” and regulations 2007 under the act are in force.

¨  However, at central level no major achievement has been made so far, though some minor works related to urban infrastructure have been carried out at local levels through public private partnership model.

¨  Despite proposals invited several times for the construction of Kathmandu-Terai fast track, successful bidders have not been selected so far. 

¨  Achievements as expected could not be made despite unsolicited proposal for the construction of Kathmandu Hetauda Tunnel Highway was endorsed and agreement was signed long ago.

¨  Likewise, successful bidders from among those who have submitted their proposals for cable car operation projects to be implemented at various locations are yet to be selected.

 

3. Challenges and Problems

¨  It has been a major challenge to enhance investment and management of public-private partnership in the development of infrastructure sector for Nepal to achieve its target to graduate from LDC to developing country by 2022 AD.

¨  Investment and responsibilities to be borne by private sector in the operation of public private partnership projects need to be accomplished within the specific time from the risk point of view.

¨   To discharge the responsibilities, such as structuring of projects, land acquisition, coordination and approval, payments to private sectors and approval for environment impact, within the time limit as specified in the agreement, by public sector in cooperation with private sector has been perceived as a challenge.

¨  Procedural challenges in identification, construction, operation, and handing over of a project in PPP form are there, and challenges in retaining expertise in legal and regulatory matters and preparing human resources in maintaining  public good governance also remain.

¨  There are problems like limited resources and weak professional competence in the implementation of PPP models for the development and expansion of infrastructure services in Nepal.

¨  Lack of policy arrangement on  proper sharing of risks while executing large infrastructure and development projects of national importance developed jointly on  PPP concept, lack of proper arrangement to address Viability Gap Funding (VGF), inability to make the projects selection process transparent, failure to conduct feasibility study in appropriate manner, dearth of practices in carrying out independent  appraisal of appropriateness of the conducted studies, lack of investment friendly environment and persistent security and land acquisition problems are still visible

 

 

4. Need for a new policy

¨  To deliver quality services by attracting economic means and resources,    professional expertise, entrepreneurship, ability, competence and innovative technology available with the private sector towards economic development in the construction, up gradation, modernization and operation of country’s public infrastructure and services.

¨  To attract and utilize private sector’s investment for public benefits as only national treasury and government’s sole investment are not enough to achieve extensive growth to provide adequate and quality services with just the current investments of 3 to 4 percent of GDP being made towards infrastructure sector,

¨  To achieve an annual economic growth of 6 to 7 percent since the current status as mentioned in point 3.1 above, indicates that Nepal requires an investment of approximately Rs. 10,000 billion by 2022 AD in order to attain extensive growth in the current infrastructure development sector.

In the given backdrop, the government of Nepal has formulated “PPP Policy 2015” citing the necessity of significant changes in current policy, Acts and rules subsequent to the study, analysis and consultation carried out on national and international practices for infrastructure development in Public Private Partnership.

. 5. Conclusion

¨  In spite of the acceptance of the PPP concept within the country, and progress with PPP projects at the local level, national level PPP projects and major PPP infrastructures projects are yet to emerge in Nepal.

¨  Existing legal arrangements for private financing of infrastructures have to date not been successfully used.

¨  The positive overtures from the government, the Nepali business community, and the international community with regard to PPPs are not being translated into tangible PPP projects.

¨  The government acknowledges that both the public and private sectors in Nepal lack experience with structuring, procuring and managing PPP projects.

¨   It is therefore necessary to improve the enabling environment through the review of PPP procurement procedures and other related legislation in Nepal, the introduction of clear, consistent and transparent procedures and development of strong contractual arrangements.

¨   These will help build the PPP market in Nepal and to achieve market conditions and levels of confidence in which significant PPP projects can be implemented involving potential domestic and international operators and investors.