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PPP, alternate source of financing

Graduation from the least Developed Countries (LDC) status would mean loss of concessional loans and grants, but capital expenditure of the country has been growing over the years.

The capital expenditure is expected to increase by 5 percent in the 12th Plan on an average compared with that of the 11th Plan. Because most of the capital expenditure will be used for infrastructure development, financing would remain a challenge.

To bridge this budget gap, Public-Private Partnership (PPP) is seen as an alternative strategy to attract additional financial resources.

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 country has proposed to the UN to consider graduation after the 12th Plan as the Plan has some of the strategies to ensure smooth transition and maintain sustainable growth. PPP is one of the strategies in the 12th Plan to pursue reduced financial burden on the state and encourage private sector participation.

Finance Minister Namgay Dorji said that the draft outlay for the capital expenditure in the 12th plan is Nu 135B, half of which will be utilised by the central agencies and half will be diverted to the local government.

At the central level, he said Nu 19B is earmarked for flagship programme under which the economic diversification is one of the agenda. “PPP has huge scope in this area,” he said.

He added that PPP is important for infrastructure development, which is one of the driving forces for economic development.

According to guideline for formulation of the 12th Plan, commercially viable projects with minimal social obligations and strategic interest for the government requiring high upfront cost could be considered for PPP.

After the formulation of PPP policy in 2016 and PPP rules and regulations in 2017, a separate PPP Unit was created under the umbrella of ministry of finance to facilitate the effective implementation of PPP projects.

However, PPP is relatively a new concept in Bhutan. Thus, the technical capacity of the stakeholders, including the government agencies remains a question.

Further, there is also a question on financial capacity of the private sector.

PPP projects

While policy and regulations both came later, PPP projects are being implemented in the country.

The 126MW Dagachhu was the first hydropower project to be implemented in PPP model. Thimphu TechPark is the first PPP in infrastructure development where investors from Assetz Property Group, Singapore invested.

One of the suggestions that came out during the business summit held last was to bring in FDI if the private sector within doesn’t have the financial capacity.

Thimphu Thromde has done that to build two multilevel-parking in the city. The thromde is the authority overseeing the entire stages of PPP process.

City has vacant land but no budget. “If we wait for budget it would take another five years and by then congestion in Thimphu would have grown,” said thrompon Kinlay Dorji. “By that time, we would be operating the multi-level parking”

With the help of International Finance Corporation, the concept of PPP was contemplated and pre-feasibility study conducted. In 2014, a joint venture company was formed between CE Construction Company Pvt. Ltd. from Nepal and two local companies.

The company will design, execute and mobilise all needed resources to finance the capital on manpower, materials and operation and management over the entire concession period of 20 years after which it will handover everything to the government. Thromde today earns about Nu 13M from the existing parking space from the company. Revenue will proportionately increase after commissioning of multi-level parking.

He said that the PPP has helped thromde built much need infrastructure without any investment from their side.

However, when the project was being implemented, there wasn’t any policy or regulations. He said it was difficult to convince the concerned agencies and that he had to fulfill lot of formalities and documentations. “This has consumed a lot of time,” he added.

Hydropower sector

Dagachhu was taken up as a pilot PPP in hydropower.

The managing director of Druk Green Power Corporation, Dasho Chhewang Rinzin, said that PPP is an option that could be explored in case there is an issue of mobilising funds for a hydropower project.

“However, there is no need to do so and we do not have any plans,” he said adding that the Government of India is providing the funds in what is called a preferred mode of implementation – the inter-governmental (IG) model. “Therefore, there is no need for Bhutan to resort to PPPs in the hydropower sector.”

Should the country decide to take up PPP in hydropower sector, he said possibly the new PPP rules and regulations would apply.

 

Enabling environment

Considering the magnitude of investment, the PPP policy has provisions to provide grants, subsidies and other support to make the project viable for the investor and bankable for the financiers.

This would be an explicit subsidy that is performance driven (based on private party achieving measurable outputs) and, if possible, targeted towards socio-economically disadvantaged users or groups of users.

The rules and regulations set the criteria for eligibility to receive funding and the procedure for applying, approving, disbursing and monitoring the use of funding.

A PPP project and its sponsors, lenders and contractors are entitled to the concessions, incentives and other favourable treatment laid down in various policies of the government including those under the foreign direct investment policy, the economic development policy, the fiscal incentives and any related rules or regulations. These factors the government considers as an enabling environment to promote PPP.

Tshering Dorji 

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