EVEN though there is a dire overall infrastructure deficit in Pakistan, the focus of private investment or government policies in encouraging investment in infrastructure has been mainly on the power generation sector.

The history of public-private partnerships (PPPs) started with the advent of the Independent Power Producers (IPPs) that installed thermal plants under the 1994 power policy. Later, we had the power policy 1998 and followed by the power policy of 2002; both of which were targeted at the private sector to invest in power generation.

At the federal level, the Infrastructure Project Development Facility was established in 2006 to facilitate and structure PPP projects but it has lacked the backing of a PPP Act to provide complete spectrum of institutional and regulatory support. While at provincial level, both Punjab and Sindh, under the technical guidance of Asian Development Bank, passed laws to undertake PPPs in 2010 and have also developed PPP wings to facilitate the process of undertaking PPP projects.

Globally, many projects have been developed where nearby land’s appreciating value has been utilised to make good the costs of the project in the long-run

PPPs have attracted investment in highways, education, health, jails, transmission, power generation, transportation amongst other sectors.

The government faces fiscal deficit and capacity constraints that make it doubly tough to undertake large infrastructure projects.

Firstly, they require complex project structuring and the other hurdle is the high upfront investment. PPPs have become the way forward for many countries including India, South Africa, Australia, UK, Canada, Korea because they allow an alternative avenue to raise funds and to delve into detailed project planning as it makes the project execution phase efficient and successful.

In Pakistan, there have been some recent examples of the government authorities and the provincial governments indulging in the road sector PPPs. Examples of such projects are Lahore-Sheikhupura-Faisalabad Dual Carriageway, Revamp of Lahore-Islamabad Motorway, Hyderabad-Mirpurkhas Dual Carriageway, Karachi-Thatta Dual Carriageway and the under construction Jhirk Mulla Katiar bridge project.

These ventures had different structures ranging from Built Operate Transfer (BOT) to Minimum Revenue Guarantee (MRG) to Annuity structure. This shows that each project requires different project structure based on its specific risk matrix. For instance, on a brown field road project a private party would be more willing to take traffic risk than on a green field project as the traffic projections on a green field project are derived through probability based traffic models; which might turn out to be quite different from the actual traffic numbers.

One aspect that many policymakers fail to recognise about PPPs is that they involve project life cycle costing spread over several years or even decades as compared to a traditional project where only the construction costs are catered for. Under the PPP mode, the operation and maintenance costs are also catered for in the project’s projections.

PPPs generate revenue through tolls, land based financing, gasoline taxation and others, which form a pivotal part of the project’s financial structure. Due to low per capita income and lack of tariff collection culture, Pakistan has a low level of willingness and ability to pay for these revenues. Globally, many projects have been developed where nearby land’s appreciating value has been utilised to make good the costs of the project in the long run.

A case in point is Egypt’s waste water project, where the private party was awarded extra land as a commercial asset to recoup its profits. Capetown, Singapore, Tokyo and Hong Kong have all funded mass-transit projects with private investment based on the expected increases in property values.

Pakistan can also utilise similar innovative ideas to develop a structure that is fair to all the stakeholders.

Another way of structuring commercial viability is the division of a major project into packages. The Karachi Lahore highway is unbundled into smaller doable projects, where commercially viable sections would be bundled with less commercially viable sections to improve the overall viability of the baskets of projects.

If a project would have been viable in itself without requiring any concessions or guarantees then the private entrepreneurial spirit would entice a powerful business conglomerate or tycoon to negotiate a contract with the government for the said deal as the private sector seeks low risk profit making opportunities. Therefore, it is imperative that the government completely understands its role and risks.For example delayed payment to IPPs (circular debt) has reduced the banking sector’s credit appetite for the infrastructure sector.

Lastly, PPPs are not a panacea to all government ills and even in countries that have excelled at PPPs — the PPP portfolio comprises less than 25pc of the total infrastructure mix. Thus, it is the key for the government to focus on good governance and encouraging investment in the overall economy so that it can lead our country to a sustainable socio-economic future.

Writer is a consultant with the World Bank

Published in Dawn, Business & Finance weekly, January 11th, 2016