What is PPP?

Any collaboration between public bodies, such as local authorities or central

government, and private companies tends to be referred to a public-private partnership.

Public-private partnership (PPP) describes a government service or private

business venture, which is funded and operated through a partnership of government and
one or more private sector companies.

In some types of PPP, the government uses tax revenue to provide capital for
investment, with operations run jointly capital investment is made by the private sector
on the strength of a contract with government to provide agreed services. Government
contributions to a PPP may also be in kind (notably the transfer of existing assets). In
projects that are aimed at creating public goods like in the infrastructure sector, the
government may provide a capital subsidy in the form of a one-time grant, so as to make
it more attractive to the private investors. In some other cases, the government may
support the project by providing revenue subsidies, including tax breaks or by providing
guaranteed annual revenues for a fixed period.

Typically, a private sector consortium forms a special company called a "special

purpose vehicle" (SPV) to develop, build, maintain and operate the asset for the
contracted period. In cases where the government has invested in the project, it is
typically (but not always) allotted an equity share in the SPV. The consortium is usually
made up of a building contractor, a maintenance company and bank lender(s). It is the
SPV that signs the contract with the government and with subcontractors to build the
facility and then maintain it. In the infrastructure sector, complex arrangements and
contracts that guarantee and secure the cash flows make PPP projects prime candidates
for Project financing. A typical PPP example would be a hospital building financed and
constructed by a private developer and then leased to the hospital authority. The private
developer then acts as landlord, providing housekeeping and other non-medical services
while the hospital itself provides medical services.
The definition embraced by The Canadian Council for Public-Private Partnerships is as
follows:
A cooperative venture between the public and private sectors, built on the expertise
of each partner, that best meets clearly defined public needs through the
appropriate allocation of resources, risks and rewards.

Some examples of PPP

United Kingdom
 Private finance initiative
 The maintenance of London Underground: Metronet before it went into administration
(2003-2008) and Tube Lines (since 2003)
 Williamwood High School
 Douglas Academy, Milngavie, Glasgow
 ome National Health Service (NHS) hospitals and other agencies

Australia
 Southbank Education and Training Precinct, Brisbane
 Adelaide-Darwin Railway (a BOOT arrangement)
 Airport Link, Sydney
 Cross City Tunnel, Sydney
 Eastern Distributor, Sydney
 Lane Cove Tunnel, Sydney etc.
Canada
 The 407 ETR toll road north of Toronto, Ontario
 The Royal Ottawa Mental Health Centre in Ottawa, Ontario
 The William Osler Health Centre in Brampton, Ontario

United States
 California Fuel Cell Partnership (CaFCP)
 State Route 125, San Diego, California
 Central Park, New York City
 Chicago Skyway Bridge, Chicago, Illinois
  Dulles Greenway, suburban Washington, Dc

Off-budget financing of development programs is not a new phenomenon. Over

the past few decades, many governments encouraged off-budget financing by private
sectors to meet the growing public debt. In 1992, the Conservative government of John
Major first introduced a systematic PPP program in the UK, which was later continued by
the subsequent Labour governments. High-income countries, such as Australia and
Canada, have also established public institutions that support PPP development. Such
units have recently begun to proliferate in the developing world as well. Beginning in the
late 1980s, in some countries PPP functions were simply added to the responsibilities of
centralized privatization units. Countries like Zambia and Cota d’Ivoire were leaders in
creating privatization agencies with necessary power, independence, resources and
reputation.

The PPP initiatives may include a variety of joint ventures, including part-
ownership of state-owned enterprises by the private sector, private financing in
government projects, and contracting out of particular services (including construction
and maintenance of infrastructures). For instance, the government may hire a consortium
of private entrepreneurs to establish a power plant and in return offer the consortium a
percentage of its revenue earnings. This way, the efficiency of private capital can create a
synergy with the credibility of public service.

However, balancing the public sector’s goal to provide quality services and the
private sector’s interest to withdraw return on investment is very difficult. As the new
government is approaching its first national budget, it is important to highlight some of
the prerequisites of a PPP budget.

Proactive regulatory framework

It is essential to have a well-defined legal framework for the regulation and

transparency of PPP enterprises. The PPP budget will require a proactive regulatory
framework, with appropriate checks and balances, to prevent corruption.
 Countries such as UK, Canada, India and Singapore instituted rigorous regulatory
frameworks and responsible public bureaucracies before initiating their PPP budgets.

Bangladesh, in contrast, has a reactive legal structure, which fails to prevent

corruption and aims to penalise the dishonest after a felony is committed. Since the
government aims to initiate PPP projects in the next fiscal year, prompt action will be
required to establish a comprehensive policy and regulatory framework for competitive
and transparent bidding, sharing risks and rewards, and dispute settlements.

Synergy, not deregulation

Bangladesh’s experience with deregulation and foreign investment has not always
been very encouraging — having witnessed privatisation scandals of the 1980s or treaties
like GATCO. Therefore, ensuring transparency and accountability of the PPP contracts
will be vital. The objective of public private partnership is to produce an outcome greater
than the sum of its individual parts. Hence, the focus should be on synergy, not
deregulation.

Sharing risks and rewards

It is essential to identify the risks associated with a PPP project, and to use an
appropriate legal framework to distribute the risks, resources and rewards (3Rs) among
the public and private partners. According to a 2008 OECD report, legal and political
risks are most efficiently borne by the government while the demand and supply related
risks are well handled by private partners. However, if the risks are not legally allocated
at the commencement, a private entrepreneur (anticipating a loss) may quit a PPP project
leaving the entire burden on the government.

Procedural delay

In a 2004 Report, the US Department of Transportation noted that the government faces
“an initial sharp increase in workload” in adapting and preparing the procedures for PPP
projects. Since the government aims to initiate PPP projects in priority areas such as in
power and health, with a goal to speed up the outcomes, the procedural delays of PPP
may jeopardise the government’s goal.

Therefore, establishing a comprehensive and transparent legal framework in the quickest

possible time will be the major challenge for the PPP budget.

Value for money, not deficit and profit

During the early 1990s, when the prime focus of PPP was to reduce budget
deficit, many PPP projects resulted in poor but expensive services for the citizen. Later,
focus of PPP budgets shifted to efficiency in the delivery of public services. Termed as
“value for money” (VfM), this new focus aims to offer the most efficient and effective
public service by combining the respective expertise of private and public sectors.

Regulatory vigilance will be required to prohibit PPP initiatives from becoming

the public sector’s cost cutting and the private sector’s profit maximising ventures.

Social responsibility

Education and health are two critical areas where the government’s responsibility
to provide quality services must take precedence over the profitability of the services. If
rural areas fail to attract private investment, the government may consider offering capital
grants to make PPP projects commercially viable in these areas. Bangladesh can take
lessons from other countries where health and education related projects are implemented
under public/social/private partnership (PSPP).

Public Private Partnership is a generic model, which can yield both positive and
negative outcomes based on its usage. If the public sector’s corruption and the private
sector’s greed create an evil twin (witnessed during some episodes of privatisation), then
development will be imperilled. But if the respective expertises of public and private
sectors create a synergy, it will hasten development.

First public-private partnership budget in Bangladesh

 For the first time the Bangladesh government has introduced three new areas of
budget expenditure to implement infrastructure projects under the newly- conceived
private-public partnerships (PPP). Finance Minister AMA Muhith in his parliamentary
budget speech. Proposed to allocate a total start-up fund of Tk 2,500 crore (US$25
billion) for the three heads under the new scheme. Of the fund, Tk 2,100 crore for is
earmarked for building infrastructure under PPPs, Tk 100 crore for PPP technical
assistance and Tk 300 crore for PPP viability Gap Funding.

The budget-proposed Viability Gap Funding as subsidy or seed money is designed

to attract private initiatives for the construction of power plants, hospitals, schools, roads
and high ways which are non-profitable but essential for public services. The proposed
allocation of Tk 2,100 crore in the PPP budget is designed to accelerate the process of
investment through PPPs. This allocation will be used to set up an Infrastructure
Investment Fund. PPP Technical Assistance will cover expenditure related to pre-
feasibility studies and other preparatory work before asking the private sector to submit
their bids for PPP projects. Relevant agencies would be able to receive the necessary
funds quickly from under these heads to prepare PPP project documents and to appoint
PPP consultants. Depending on the type of projects, the government would provide
equity or a loan to the private investors to ensure the government's participation.
Different financial incentives would be extended from this Fund to encourage investment.

Placing utmost importance on introducing PPPs to Bangladesh, the finance

minister said in addition to the existing public and private investment programmes, an
investment of US$28 billion would be required by fiscal year 2013-14 to achieve the
projected growth as per the preliminary estimates. Muhith told the House the Bangladesh
government alone could not provide such huge resources. It would be difficult to
maintain macroeconomic stability if the government had to finance such huge investment
by borrowing from domestic sources, and it was be possible to obtain such funds as
concessionary loans from development partners.
He said past experience suggested that it had been difficult to ensure economic
use of public resources and the quality of service delivery when the government was not
determined through a competitive market process. At the same time, direct involvement
of the government in executing those projects took the focus away its basic obligation to
provide social and other important services.
"Since the implementation and funding of any infrastructure- development
projects is a long-drawn process, the investment risk is much higher and, at the same
time, the investment is not, in many cases, commercially viable. It is, therefore, difficult
to attract private investment in all projects in this sector," Muhith said.
In this context, the government was going to take special initiatives to involve the private
sector under Public-Private Partnerships (PPP) to meet the probable investment gap in
infrastructure development and maintenance, alongside the government's investment.
"The investment of the private entrepreneurs in the infrastructure development,” the
finance minister said to a gathering of newsmen after a meeting he chaired with senior
government officials on IPP at the secretariat, “will be much higher than that of the
government under the PPP. And the investment ratio of the private and public sectors
would be 70:30."

The finance ministry identified some 30 projects, which might be brought under
the PPP budget. The identified projects include construction of Dhaka-Chittagong
expressway, construction of an elevated expressway in the capital, and a number of
projects for solving the crisis of debilitating traffic jams in Dhaka city.
Under the previously proposed public-private partnership (PPP) fund the
government has decided to execute very urgent projects, all (with the exclusion of the
construction of a deep-sea port in Chittagong) of which cost an estimated $11.05 billion.
The finance ministry has informed that apart from the urgent projects, a list is also
includes smaller projects.
Local business groups are expressing interest in the proposed projects, which
includes, according to a finance ministry working paper, a Dhaka-Chittagong Access
Control Highway at an estimated cost of $3.023 billion, construction of a sky rail around
Dhaka city at $2.8 billion, construction of a Dhaka city underground railway at $3.1
billion, Dhaka city elevated expressway at $1.23 billion, two coal-based 900 megawatt
power stations in the coastal areas at $0.9 billion, and the construction of Chittagong
Deep-sea Port.
Depending on the amount of projects under the PPP, the Government participation
in the initiative however will be limited, and most investments will be in the private
sector.
To counter this, a new fund will be established with the title 'Bangladesh
Infrastructure Investment Fund (BIIF)'; it will rearrange the investment deficit through
projects under the PPP initiative. The funds will be raised from public and private sectors.
The working paper further suggests increasing BIIF by releasing long-term bonds
and shares on the capital market; it also recommends collecting funds by turning loans
into transferable debt securities through securitisation, and by selling the securities. A
special technical assistance fund might also be reserved in the next budget with the intent
studying PPP projects.
Investors in BIIF might be granted tax waivers or be allowed to pay minimum tax.
Import of capital machinery under PPP initiatives might get duty-free facilities and tax
holidays; at most, a minimum tax might be allowed on profits for a specific period.

Private Sector Infrastructure Committee (PICOM) works under the Board of

Investment (BoI). PICOM already approved a number of projects in the private sector
over the last few years. PICOM will work under the finance division.

Finance minister Muhith told journalists, “There will be an authority for

implementing the budget, but government officials will not be in charge of the authority.
It will not be run by the government rules for ADP either. In addition to infrastructure
building projects, the PPP budget will fund projects in education, health and social
sectors.” Some projects under the PPP scheme might even be completely funded by
private sources, the minister added.

The PPP initiative will depend largely on how transparently and efficiently the
government sets the legal mechanism.
Budget
 Budget is a planning device. Budget makes the integration between the economic
system and political system. Budget is deciding in advance what is to be done. Budget is
also a controlling device. Actual performance can be compare with the budgeted one. If
there is any deviation then preventive measure can easily be taken.

In a simple sense, budget means the money that is available to a person or an

organization and a plan of how it will be spent over a period of time. In broad sense
budget means an official statement by the government of a country’s income from taxes
etc, and how it will be spent.

Finally a budget shows financial accounts of the previous year, the budget and
revised estimates of the current year, and the budget estimates for forth coming year. In
addition, the estimates for forthcoming years are split up into two parts-those based upon
assumption that existing taxes and their rates would continue, and those based upon
proposed changes therein. A budget in this sense, both a description of the fiscal policies
of the government and the financial plans corresponding to them.

Special features of this year’s budget

 Public-private partnership
 District wise Budgets
 Public representative
 Board to oversee police
 Gender responsive budget
 Fund to face Climate change
 Budget at a glance

2009-10 2008-09 2007-08

Description

Revenue and Foreign Grants 79461 69180 69382

Revenues (Statement I)
63955 55526 56789
Tax Revenue
61000 53000 54500
NBR Tax Revenue
2955 2526 2289
Non-NBR Tax Revenue
15506 13654 12593
Non-Tax Revenue
5130 4929 6346
Foreign Grants/1 (Statement V)
Total: 84591 74109 75728

Expenditure
Non-Development Expenditure 77243 67125 66756
Non-Development Revenue Expenditure (Statement III) 69504 62676 60745
of which 14471 12003 11274
Domestic Interest 1337 1311 1291
Foreign Interest 7739 4449 6010
Non-Development Capital Expenditure/2 (Statement IV) 326 4 700
Net Outlay for Food Account Operation (Statement VIII) 1631 559 1972
Loans & Advances (Net)/3 (Statement VIA) 332 750 1000
Structural Adjustment Expenditure (Statement VIA) 33059 24712 28531
Development Expenditure 1420 478 1152
Development Programmes Financed from Revenue Budget/4 1228 990 1005
Non-ADP Project (Statement VA) 30500 23000 25600
Annual Development Programme (Statement IX) 1139 1234 1778
Non-ADP FFW and Transfer/5 (Statement X)
113819 94140 99962
Total – Expenditure
-29228 -20031 -24234
Overall Deficit (Including Grants)
-4.2 -3.2 -3.9
(In percent of GDP)
-34358 -24960 -30580
Overall Deficit (Excluding Grants)

(In percent of GDP) - 5.0 -4.0 -5.0

Financing 8673 5833 7236

Foreign Borrowing-Net
13215 10215 11457
Foreign Borrowing (Statement V)
-4542 4382 4221
Amortization (Statement IX)

Domestic Borrowing (Statement VIB) 20555 14198 16998

Borrowing from Banking System (Net) 16755 10698 13498
Long-Term Debt (Net) 12577 9899 -1800
Short-Term Debt (Net) 4178 799 15298
Non-Bank Borrowing (Net) 3800 3500 3500
National Savings Schemes (Net) 3277 2786 2786
Others/6 (Statement VII) 523 714 714

Memorandum Item 686730 614943 613111

GDP
 FISCAL STRUCTURE OF BUDGETS
Items FY2008-09B FY2009-10P

GDP at current price 613111.0 677733

Revenue Earnings 69338 78,200

as % of GDP 11.3 11.5

Revenue Expenditure 61468.9 79500

as % of GDP 10.0 11.7

ADP 25600 30500

as % of GDP 4.2 4.5

Total Budget 99962 110000

as % of GDP 16.3 16.2

Deficit 30580.0 31,800

as % of GDP 5.0 4.7

domestic financing as % of GDP 2.8 -

foreign financing as % of GDP 2.2 -

domestic financing as % of deficit 55.6 -

foreign financing as % of deficit 44.4 -