According to the World Bank, as many as half of the world’s six
billion inhabitants live on the equivalent of less than $2 per day, and about
one-fourth of the world lives on the equivalent of less than $1.25 per day
(Chen & Ravallion, 2008). Meanwhile, people in the 20 richest countries
earn, on average, 39 times more than people living in the poorest 20 states
(Milanovic, 2007).
At the same time, the extent of world poverty has declined
significantly during recent years. For example, the World Bank estimates that
from 1981-2005 the percentage of people living on less than $1 per day was
halved, decreasing from 52 percent to 26 percent during this period (Chen &
Ravallion, 2008).
These contrasting trends highlight both the problems and the
progress associated with the process of “development.” On one hand, development
has resulted in serious inequities between states, whereby large numbers of the
world’s inhabitants are mired in poverty, especially in Africa, while
inhabitants of the world’s richest countries live in both relative and absolute
luxury. And yet, due to development trends, populations in poor countries are
becoming wealthier over time—a process linked to globalization because countries
in the developing world can raise their standards of living by integrating with
highly developed states.
The term “development” in international parlance therefore
encompasses the need and the means by which to provide better lives for people
in poor countries. It includes not only economic growth, although that is
crucial, but also human development—providing for health, nutrition, education,
and a clean environment.
Public and private financing for development:
Public Finance for Development:
Public finance and development is to understand how a state
moves from collecting a low level of public revenue of around 10% of national
income towards collecting around 40%. In the process, tax bases are typically
shifting from trade taxes and excises towards labor income and other broad
bases, such as value added. To study this process is fundamentally a challenge
of appreciating incentives and constraints. Incentives are shaped by political
institutions, existing power structures, and societal demands that the state
perform certain functions. Constraints are imposed by a society’s economic
environment, social cleavages, and political interests. Over time, these
constraints can be shifted and governments play a key role for such shifts.
Governments might invest to improve the working of the economy and the
efficiency of public goods provision. They may also try to create a sense of
national identity and propose reforms to political institutions. Analyzing such
issues requires a dynamic framework and our chapter has sketched one. We
believe that the factors highlighted in this framework provide substance to
Schumpeter’s insights about the centrality of taxation to understanding state
development, namely:
“The fiscal history
of a people is above all an essential part of its general history. An enormous
influence on the fate of nations emanates from the economic bleeding which the
needs of the state necessitates, and from the use to which the results are put.”
(Joseph Schumpeter, The Crisis of the Tax State, 1918)
If developing states
are to be able to support their citizens at a level now taken for granted by
citizens in developed countries, this requires a series of investments, making
the state more effective and responsive. Uncovering the preconditions for such
investments to take place is a central task for research on public finance and
development.
Private finance for development:
Achieving development goals will require the mobilization of
resources from private sources, including FDI, bank loans, capital markets, and
private transfers (e.g., remittances).For most developing countries, FDI is the
preferred private financing modality given its potential to strengthen
productivity and growth, and help diversify the economy. Although many
developing economies have enjoyed increased access to international capital markets
over the past decade, there is an increasing mismatch between available
financing and investment needs. This is partly due to fragile market conditions
in the wake of the global financial crisis, which constrain the availability of
the type of long-term finance needed to support productivity-enhancing
investment.
Accessing long-term finance for infrastructure is critical and will require
greater attention to investment in
project preparation and policies and instruments that
can lower risk and strengthen the confidence of investors over a long-term
horizon.
Innovative sources of finance:
Development partners are helping to develop new tools to
help generate financing for development. The paper discusses a number of these:
Pull mechanisms for development, which involve
ex-post economic incentives for innovation to solve a well-defined problem. By
linking payments to the actual impact of an innovation, they can lay the
foundations for a self-sustaining, competitive
market for the relevant product.
A number of African countries have adopted the resources-for-infrastructure
(RfI) financing model to overcome limited capital market access and domestic
capacity constraints. Under RfI, oil or mineral extraction rights are exchanged
for turnkey infrastructure, complementing standard tax and royalty regimes.
Diaspora resources (via diaspora bonds and remittance-backed bonds) could help
finance infrastructure projects. The annual savings of developing country
diasporas—US$400 billion by some estimates—represent a hitherto untapped source of financing for development.
Linking climate finance and development finance can enhance development impact
by allowing the
fight against poverty to take climate effects into account and vice versa.
Comprehensive carbon
pricing policies, the removal of inefficient fuel subsidies, and cap-and-trade
schemes are promising
options to mobilize larger and higher-return investments.
The role of the World Bank Group and
regional development banks:
The World Bank
Group and its regional counterparts can add value through a combination of
technical expertise, prudent risk management policies, application of clear
standards to project design, execution, and corporate governance, a long-term perspective,
and cross-country experience. Multilateral development banks (MDB) can bring
financing partners into specific deals, for example, in the form of syndications
or through co-financing arrangements. Generally, the MDBs’ stamp of approval
and role as an“ honest broker” in disputes can help to reassure investors and
contribute to a project’s viability, which in turn reduces the cost of
engagement, including to private investors. MDBs can also contribute to
extending maturities of private flows to finance productive investments.
Public-Private Partnerships(PPP) in the People's Republic of
Bangladesh :
In August 2010, the Government of Bangladesh issued the
Policy and Strategy for Public Private Partnership (PPP) to facilitate the
development of core sector public infrastructure and services vital for the people
of Bangladesh. The PPP program is part of the Government's Vision 2021 goal to
ensure a more rapid, inclusive growth trajectory, and to better meet the need
for enhanced, high quality public services in a fiscally sustainable manner.
The recent socio economic success story of Bangladesh has
been widely acknowledged locally and internationally. On the social front
Bangladesh has made significant strides in meeting several of the UN Millennium
Development Goals such as reducing income disparity ratio, attaining gender
parity in education, reduction in infant mortality etc. In addition, Bangladesh
has made remarkable progress in reducing the prevalence of underweight
children, increasing enrolment at primary schools,lowering the maternal
mortality ratio and improving immunization coverage. On the economic front it
is one of the few countries to have demonstrated consistently strong GDP growth
rate averaging over 6% over the last five years despite the general global
slowdown. Over the same period per capita income has increased from $638 in
2009 to over $1000 in 2013. The foundation to this path of socio-economic
growth, success and prosperity for Bangladesh has been set out in the Vision
2021; the Vision that sees Bangladesh progress to a middle income country by
the year 2021. The strategy for implementing Vision 2021 identifies the need to
increase investments in infrastructure from around 2% to 6% of GDP as one of
the key requirements to achievement of the vision. Therefore, the government
has identified and prioritised the Public Private Partnership (PPP) as one of
the key initiatives to meet this investment priority and close the
infrastructure gap. Bangladesh’s success has been built on the foundations of a
very dynamic and vibrant private sector. The public sector has worked together
with the private sector in different modalities in delivering infrastructure
projects for nearly two decades. As such it is keen to build on this strength
and forge a lasting partnership between the public and private sector for the
accelerated development of our country. Through the PPP program the government
intends to pursue opportunities that benefit the private sector through generating
a profitable revenue stream one that delivers to its citizens much needed
social and economic public infrastructure services and fulfil the commitment of
government to meet its social obligations and development imperatives.
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.
NTRODUCTION TO THE PPP PROGRAM:
Public Private Partnerships (PPPs): PPPs are co-operative ventures between the
public and private sectors built on the expertise of each partner that best
meets clearly defined public needs through appropriate allocation of resources,
risks and rewards. The partnership is reinforced through legally binding
arrangements, typically medium to long term, between the public and private
sectors whereby services that traditionally have been provided by the public
sector are delivered by the private sector, with clear agreement on shared
objectives and allocation of risk for delivery of public infrastructure and/ or
public services. PPPs do not include outsourcing of a simple function of a
public service, turnkey construction contracts, which are categorized as public
procurement projects; or the privatization of utilities where there is limited
on-going role for public sector.
PPPs regulated in Bangladesh:
The Policy and Strategy for Public Private Partnership (PPP)
2010 and the Guidelines for Formulation, Appraisal and Approval of Large
Projects, Medium Projects and Small Projects, 2010; all gazetted on August 2010
establish the PPP Policy Framework for Bangladesh. These documents are updated
and supplemented from time to time by specific PPP guidelines providing further
details (for e.g. the Guidelines for Viability Gap Financing 2012).
Sectors are covered by PPPs:
PPPs can be used for
the delivery of public service projects in any social or economic
infrastructure sector. Globally there are many successfully examples of PPPs in
a wide range of sectors including Transport (e.g. Port, Airport, Highway,
Railway, Bridge); Energy (e.g. Power Plants, Transmission Lines); Civil
Accommodation (e.g. Economic Zones, Public Buildings, Convention Centers,
Sports Facilities, Commercial Development, Residential Housing, Education
Buildings); Health (e.g. Hospitals, Health Care, Dialysis and Diagnostics);
Tourism and Hospitality; Water, Sewerage and Waste; IT infrastructure and
Agriculture. In Bangladesh PPP projects have already been delivered or are
being developed in many of the sectors listed above.
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 solution’ that benefits all stakeholders.
UNDERSTANDING PPPs :
Different contractual models for PPPs applied in Bangladesh:
A number of different
contractual models of PPPs have been developed globally and are widely applied
in projects. Each PPP model represents a different allocation of risk and
responsibility between the public and private sector. These can differ in
relation to size of investment by the private sector, the basis of the revenue
stream, the responsibilities undertaken in relation to construction, operation,
maintenance and service performance, ownership of asset and the length of the
contract period. Where the public sector retains too much risk or it transfers
most of it to the private sector than it falls outside the framework of a PPP.
The range of contractual models that typically fall under the PPP framework is
set out in the figure below. The PPP contractual model is determined on a case
by case basis following the conclusion of the feasibility and market engagement
study that will determine the optimum option to deliver the public sector
objectives through a viable, bankable and sustainable project for the private
sector.
Difference between Traditional Public Procurement and PPPs :
In
traditional public procurement the focus is on the delivery of an asset,
however, PPPs focus on the delivery of service outputs which require the
construction, operation and on-going maintenance of assets. This conceptual
difference means that the roles and responsibilities carried out by the public
and private sector in traditional procurement and PPPs differ depending upon the
specific contractual model that is being applied to the PPP. For example, in a
BOT public sector retains responsibility for specifying the project scope,
service requirements and standards. Public sector takes responsibility for
providing land that is free from encumbrances and carrying out any linked
projects (for e.g. relocation of utilities). Private sector takes
responsibility for detailed design construction, financing, operation and
maintenance of the asset. The revenue payment risk can be taken by the private
sector, by the public sector or be shared between the parties.
Interested private sector investors participate in PPP projects:
The public
agency with the mandate for the PPP project has responsibility for the
procurement and selection of a private sector investor. The procurement process
to be used is detailed in the PPP policy framework, which mainly provides for
the option of a single stage or a two stage open and competitive tender
process. The two stage procurement starts with the Request for Qualification
(RFQ) being issued to interested investors. An inter-ministerial committee
evaluates the qualification submissions to select the pre-qualified bidders.
This is followed by issuing the Request for Proposal (RFP) to the pre-qualified
bidders. The same inter-ministerial committee will complete the evaluation to
recommend the preferred bidder. On selection of the preferred bidder the public
agency (supported by the PPP Office) will negotiate on issues specified in the
RFP (if any), following which the legal vetting is completed on any
non-standard contractual provisions. The public agency will seek final approval
from the approving authority, before awarding the contract to the preferred
bidder. In the single stage procurement the RFQ and the RFP Stage is combined
into a single RFP stage; however the remaining steps remain unchanged. In both
single and two stage procurement processes the public agency may issue a
Request for Registration of Interest prior to the formal procurement launch.
This is an optional stage designed to support the market engagement process,
create awareness and help enhance the procurement documentation.
Figure: GDP Growth of Bangladesh 2015
