Interview: Mujtaba Shahneel

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In Pakistan, the ownership of PPP has really increased as of late because everybody recognizes there is a need for infrastructure.
The finances of the government are already squeezed because of the war on terror and the budget deficit. So they are looking for the private sector to bring in foreign investment. So there is a focus on PPPs for that reason.
Another reason is that they think they can tap user fees and tolls through that.
There is not really a culture in Pakistan to have tolls and user fees and taxes. So they want to introduce that culture to reduce the budget deficit as well.
The two specific sectors where they are really looking to implement through PPPs, one is toll roads and another one is alternate energy, which includes solar, wind and hydro projects as well. So there are the things that are going to be big in terms of PPPs going forward.
In the power sector, we have the alternate energy development board, which is already doing wind power projects. And they have done that very successfully. They’ve already done a small hydro-power project of about 75 megawatts.
And I think that has already been commissioned, and that was a success. They’ve recently entered the solar market. There hasn’t been a project because there in the beginning process.
One good thing they have done is that they have announced a free tariff. So people are taking their projects to the alternate energy board for approval.
So they are moving very fast on that, on the alternate energy side. On the road side, although if you look at the world map, usually all the countries go for road PPPs.
In Pakistan, people don’t understand that PPPs are not free lunches. When you go to the bank, they usually ask for some sort of guarantee or that sort of thing. But the government is not willing to give guarantees on tolls or go for an annuity model.
So even though we have done a few PPPs, some with BOT (Build-operate-transfer), some with annuity model, but at the federal level the understanding of the BOT model, in terms of minimum revenue guarantee or how to repay the debt, is not really there at the moment. It will take some time.
They have a couple of projects but they were with state-owned enterprises and they were largely funded by state-owned banks as well.
So there was a good amount of political will behind that instead of the project being viable in itself. So I think that will take a couple of years to mature.
While on the alternate energy side it’s going to go through, they already have the case studies in place.
I think the important thing is they will still take their sweet time. It’s not going to happen overnight.
You have to have the PPP units, the viability gap fund, the have the proper feasibility done because the private sector is not going to take a call when they don’t have the data, how things are going to move forward.
So the government needs to do a proper feasibility.
What has happened of late is the government has launched a few projects under traditional procurement. And what they have done with that is they will start work on the road and people are happy about it, but at times those projects linger on for very long.
For example, there is a very important project in Karachi which is the biggest city in Pakistan.
It started in 2003, at 3 billion rupees cost, which is in today’s money around 30 million dollars. It’s still not complete.
The government has already spent about 110 million dollars on it and the estimate is that it will go up to about 150 million dollars.
So in public procurement, they start to work on the site, but they are not able to deliver.
所以在公共采购项目中,虽然政府已经开始了项目建设工作, 但仅靠一己之力无法完成项目。
So they need to understand that PPPs will take their sweet time but they will at the end of the day, deliver.
Another thing is that the government needs to not involve politicians in the project construction. Keep the political and bureaucratic pressures off the PPP at least for the next five years so that they have the pilot projects on the ground, after which they can push them to do a lot more projects but at least keep these pressures off them for the next three or four years, at least.
PPPs are going to be huge in Asia.
Asia has a very good young population which needs infrastructure, education facilities and energy.
So the need for infrastructure is there and the economies are growing so eventually the commercial availability will also be there.
One thing I observe is that on the whole — I was just talking to the Mongolia representative, you talk to the Bangladeshi people, you talk to Nepal, everybody is looking at China.
Because of the young population trying to do huge projects and they don’t have the money to do that. And they are looking at China.
So China might turn out to be the main private equity for PPPs sort of country, or hub, for the foreseeable future.
Because I know that in Pakistan I meet a Chinese company every week. Not all of them are there for the PPP, they are mainly there for the EPC, but some of them are now venturing into the PPP territory.
And everybody’s looking at China because they know China has the funds to invest in PPP projects across Asia.
So the need is there and the governments will have to do it because they have very large population and they can pay in the future as well because their economies are growing largely. And China is going to be the hub from all the money is going to come.