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WB calls for major changes in PPP projects
View(s):Sri Lanka is over-reliant on public finance, has not prioritised its projects, has multiple agencies with overlapping functions and has been dependent on unsolicited proposals, the World Bank (WB) says. The Western Region Megapolis Programme consists of more than160 projects with an estimated investment volume of US$ 40 billion. There are also a large number of other projects identified by various agencies at national level.
But there was no framework to prioritise such projects. Many of them were not being properly assessed for feasibility or readiness for implementation, the WB’s Sri Lanka Public-Private Partnership (PPP) Diagnostic Note states. The WB’s systematic country diagnostic reports are prepared by WB staff in close consultation with national authorities and others. They are aimed at identifying challenges and opportunities for a country to improve progress towards development.
The PPP diagnostic report points out that, as a result of limited budget resources, the Sri Lankan Government will have to explore and consider alternative financing options to address the country’s infrastructure needs. One option would be to mobilise private sector financing through the use of PPPs.
“In Sri Lanka today, many projects that are suitable candidates for PPP procurement are typically being financed through the public sector, with public sector funds often being sourced through sovereign loans backed by sovereign guarantees,” the report states. “Private sector financing is only sought in cases where a project is unable to secure public funding.”
“This practice is partly a result of the lack of a framework that can help line ministries determine the most appropriate method of procurement and financing (public sector versus PPP) at the project inception stage,” it says.
China is currently Sri Lanka’s biggest foreign investor, funding or building nearly 70 percent of the country’s infrastructure projects. Sri Lanka has 16 ongoing Chinese-backed infrastructure projects. “This public financing model is now facing possible sustainability issues given the high levels of public sector debt,” the report warns.
Sri Lanka also faced issues with land valuation: “A perceived lack of consistency with respect to the allocation and valuation of Government land for investment has implications for a successful PPP programme.” PPPs were typically partnerships between the public and private sector with mutual benefit “by focusing on what each party does best and by allocating risk to the party best able to manage it”. In Sri Lanka, there was a lack of understanding of PPPs as a concept as well as a lack of clarity regarding which sectors were open to PPPs.
“Given this and the absence of a guiding PPP policy framework, the private sector has often sought to ‘kick start’ projects themselves by initiating unsolicited proposals,” the report says. “However, at the same time the lack of predictability and consistency in Government policy with respect to private sector participation in infrastructure investments has often constrained private sector appetite to pursue investments.”
Coordination among line ministries and institutions was limited and complicated by overlapping mandates, it observes. “For example, the highways portfolio is attached to the Ministry of Higher Education instead of Ministry of Transport,” the report elaborates. “In addition, decision-making tends to be fragmented and inefficient as the various line ministries typically tackle their own challenges and problems in isolation.”
The report makes several recommendations, including the establishment of a high-level committee, with representatives from key sectors. “Such an apex institution would have the mandate to review all proposed investments and assess whether they should be financed publicly or be developed through a PPP,” it says. “An inter-ministerial or cabinet level sub-committee could act as such an apex institution.”
It also calls for a strengthening of procurement guidelines, particularly with respect to managing unsolicited bids. “Specifically, the mechanisms and procedures for handling unsolicited proposals need to be clarified and strengthened to ensure more effective adherence to the principles of competitive tendering and value for money,” it states.