Transcript Slide 1

Public Private Partnerships in Pakistan with a focus on
Sindh
By Mujtaba Shahneel, CFA
Former Director General
PPP Unit, Finance Department
Government of Sindh
Pakistan
April 2015
Pakistan Snap-shot
Key Statistics
Strategic Location
Area
803,940 km2 GDP (US$ b)
200
Population
200 m
GDP / capita (US $)
1386
Pop. Growth Rate
1.80%
Ex. rate PKR/$
101.8
Labour Force
151.4 m
Inflation
8.6%
Literacy
60%
Pop < 30 yrs age
130 m
GDP Growth
4.14%
GDP Break up
Central Asia
China
Iran
Middle-East
India
GDP Growth
4.5%
4.1%
4.0%
Industrial
21%
Agriculture
21%
3.6%
3.8%
3.7%
2012
2013
3.5%
3.0%
2.6%
2.5%
2.0%
1.5%
Services
58%
1.0%
0.5%
0.0%
Source: Pakistan Economic Survey 2013-14
2010
2011
2014
Untapped Potential
6th largest
emerging
market
On current trajectory, Pakistan is likely to be the 4th largest country by population by 2050. One of
only ten countries with population of +100m and GDP of +US$100b
Growing
consumerism
Growing per capital income levels and urbanization with an exceptionally young demographic (100m
< 30 yrs) is driving consumer lifestyles
Large natural
resource base
Rich in natural resources including hydrocarbon reserves & minerals resources as well as a large stock
of highly fertile agriculture land & hydel power potential
Natural Trade
Corridor
Access to regional markets including Central Asia, China, Afghanistan, GCC, India and Iran
Fragmented
industries
Substantial scope to improve scale economies and reduce inefficiencies through consolidation as most
businesses operating with sub-optimal capacities
Developed
regulatory
environment
Liberal
investment
environment
Well developed regulatory environment with strong execution. Runner-up reformer in the South Asian
Region (after Maldives) according to the Report of the World Bank and IFC
All economic sectors open to foreign investors with up to 100% foreign equity allowed. Repatriation of
capital, profits, royalty, technical & franchise fee allowed
Large labor
pool
Source: Pakistan Economic Survey 2013-14
Pakistan is a major exporter of semi-skilled and skilled labor
Infrastructure Bottle-necks
 On average around 5000MW shortfall in the system




Reduction in GDP growth by around 3%
Some major cities facing 12hours of load-shedding
Inefficient fuel mix leading to unsustainable subsidies
30-35% line losses
 Per capita road km – 0.0014
 Lowest in the region
 Logistics of agricultural and industrial produce are severely affected
Source: Pakistan Economic Survey 2013-14 and Pakistan Energy Report
Infrastructure Bottle-necks
 Transport
 No railway based intra-city facility
 Karachi is the largest city(population 23.5 m) in the World with no proper
mass transit system
 Education
 60% literacy rate; which includes people who can hardly read and write
 Increasing pressure due to large youth pool
 Health
 Failure to eradicate polio leading to travel restrictions
 Highest infant mortality rate in the region
Source: Pakistan Economic Survey 2013-14 and Pakistan Energy Report
Why PPPs?
 Bureaucratic system – Capacity constraints
 Same system as was in place during the colonial times
 Training based on Administrative tasks lack of specialization
 Archaic system still based on paper files and registers lacking
detailed back ground analysis
 Lack of resources – Cashflow constraints
 War on Terror
 High public debt ( 60% of GDP)
 In case of short-falls the 1st cut is directed at the development
budget
Source: Business Recorder and PPP Unit, Sindh
PPP Map
Sector Agencies or Nodes to lead the transaction
Federal Government
Infrastructure Project Development Facility established in 2006
Punjab Province
Sindh Province
PPP Cell established in 2008
PPP Act in 2011 amended in 2014
Urban Unit also looks after PPP projects in
the major cities
PPP Unit established in 2008
PPP Act enacted in 2010
Balochistan Province
(No institutional set up exists)
Khyber Pakhtoon Khaw Province
(No institutional set up exists)
Source: PPP Unit, Sindh
Envisaged Federal PPP Program
But in reality………..
Source: PPP Unit, Sindh
Envisaged Federal PPP Program
Strengths:
•
•
•
•
•
•
Substantial ground work already done – can tit
the ground running
Framework & Guidelines Prepared
Draft Law prepared
Some capacity developed over time
Relatively more market recognition / Awareness
Better idea of project pipeline
Weakness:
•
Key Components of Framework never
operationalized
Law, VGF, PDF, RMF
Lack of understanding and acceptability of PPPs
in Public Sector
Credit Worthiness of Off Takers (local
governments, WAPDA etc.)
Difficulty in getting quality projects –Turf issues
•
•
•
•
Opportunities:
•
•
•
•
Opportunity to use PPPs to attract much needed
capital investment
Focus on common man issues – Provision of
services
Development of local financial markets
Development of local advisory and operational
expertise
Source: PPP Unit, Sindh
Threats:
•
•
•
•
Lack of support from the highest levels and the
bureaucracy
Jurisdictional issues
Tradition of ad-hocism – no institutionalized
structured approach
Lack of cohesive approach at the Government
level
PPP Experience in Summary
Federal
Sindh
Punjab
Focal point
Infrastructure
Project Development PPP Unit
Facility
PPP Cell
Housed
Finance Division
Finance Dept
P&D Dept
Framework
IPDF Guide-lines
Sindh PPP Act
2010
Punjab PPP Act
2014
Procurement
PEPRA
SPRRA 2010
Chapter IV
Chapter 14-20 of
the PPP Act
Chairman
Minister Finance
Chief Minister
Minister P&D
No. of projects
None
signed
Nine (9)
None
Risk
Management
Planned to be
through VGF Co.
Finance Dept
None
PPIB/AEDB
 1994 Power Policy – HUBCo, KAPCo.
 2002 Power Policy – Liberty Power, Atlas Power
 Renewable Energy Policy – Metro Power, FWE
National Highway
Authority
 Lakpas Tunnel
 Lahore-Faisalabad Road
 Revamp of M-9(Islamabad Lahore Motorway)
Ministry of Port &
Shipping
PPP at the Federal Level
 Port Qasim
 Pakistan International Container Terminal
 Fauji Akbar Portia Terminal
Sindh: History of PPPs
 Sindh PPP Act was passed in 2010
 First PPP Act in Pakistan
 Provides legal cover to the Institutional Framework (PPP Policy Board,
PPP Unit, PPP Projects and departmental PPP nodes)
 Regulates the contractual relationship between public and private sectors
including force majeure scenarios1
 Guide-lines & Rules




PPP Rules to help manage day to day functions of the initiative
PDF Guide-lines to govern Project Development Facility fund
VGF Guide-lines to govern Viability Gap Fund
Chapter IV of Sindh Public Procurement Rules dedicated to PPPs
 PPP Nodes & Unit
 Nodes or Pseudo-nodes have been formed in Energy, Works, Education,
Health and Transport
 PPPU is a mixture of Public and Private sector employees with the tilt
moving towards private sector personnel in the last three years
Source: PPP Unit, Sindh
Sindh: Institutional Framework
PPP Policy Board
Chief Secretary
Minister Law
Minister/Advisor P&D
Concerned Minister
ACS (Dev)
Finance Secretary – Sec. to Board
Concerned Secretary
Director General
Three private members
Two MPAs
13 other specialist nominated
Any
Source: Sindh PPP Act 2010, Sindh PDF Guide-lines
PPP Unit
Minister Finance – Vice Chairman
Approval of Projects, Policies
& Procedures
Chief Minister- Chairman
Transaction
Advisors for
Technical, Financial,
Economic, Legal &
Environmental
Analysis
Departmental PPP
Nodes for initial
project inception
and implementation
Sindh: Projects Executed
Project
Sector
Costs (US $ mn)
Stage
Year
Hyderabad Mirpurkhas
Dual Carriageway
Highway
80
Operations
2009
Jhirk Mulla Katiar Bridge
Project
Highway
50
NICH Security & Fire Safety
Health &
Security
1
Sindh Nooriabad Power
Energy
150
Education Management
Organization
Education
NA
Operations
2014
Karachi Thatta Dual
Carriageway
Highway
100
Financial
Close
2015
Inter City Buses &
Terminals
Transport
20
Financial
Close
2015
BRTS Yellow Line
Transport
200
Financial
Close
2015
Health Management
Organization
Health
NA
Handing
Over
2015
Source: PPP Unit, Sindh
Construction 2012
Operations
2012
Construction 2013
Sindh: Projects Pipe-Line
Project
Sector
Expected Size (US $ mn)
Stage
Hyderabad TMK Dual
Carriageway
Highway
50
Transaction
Structuring
Link Road - Katoar
Highway
40
Transaction
Structuring
Solar Farms
Energy
200
Bidding
BRTS Blue Line
Transport
700
Unsolicited
proposal
Bus Ops & ITS for BRTS Green
line
Transport
40
Transaction
Structuring
Modern Grain Silos
Food
18
Bidding
Livestock Tagging
Livestock
NA
Feasibility
Livestock Farms
Livestock
NA
Feasibility
Run of the River power
Energy
40
Feasibility
Dates Market, Khairpur
Agriculture
50
Transaction
Structuring
Mango Processing Unit
Agriculture
10
Feasibility
Source: PPP Unit, Sindh
Case study: Hyderabad Mirpurkhas Dual
Carriageway
Agency
Sponsor
Works & Services Dept, Govt of Sindh
Deokjae Construction Company, Korea
Sector
Policy
Road Sector
Sindh PPP Act 2010
Construction of 60km dual carriageway from
Hyderabad to Mirpurkhas
Scope
Model
Return
Hedge
Coverage
Minimum Revenue Guarantee upto 10%
Interest Swap over 10% interest rate
Soft loan at blended interest rate of 5%
17% Pak Rupee
None
Force Majeure (partial cover), Political Risks and
Change in Law
Case study: Hub Power Company
Agency
Govt of Pakistan through PPIB
Sponsor
International Power(UK), Xenel
Sector
Power Generation
Policy
Power Policy 1994
Scope
1200 MW RFO based plant
Model
Annuity payment structure= Debt payment +
Operations & Maintenance + ROE
Return
15% US $ based return
Hedge
US Inflation and currency depreciation
Coverage
Force Majeure, Political Risks & Change in Law
PPP Issues
 Lack of PPP market and capacity
No standardized documents and history except for
energy sector and to some extent road sector
Even consultants are not fully trained on the PPP models
 Political risks
GoP recalled several concessions under the 1994
power policy ; e.g Recalling HUBCo’s tariff
Political instability & War on Terror
 Legal risks
Several corporate deals have been struck down by the
courts mainly on the procurement issue ; e.g . Steel Mills
Privatization, JJVL et al
PPP Issues
 Circular Debt issue
Govt of Pakistan has delayed payments to the
Independent Power Producers which has led to
liquidity crunch in the financial markets & erosion of
confidence in Government’s ability to repay
 Lack of Developed Financial Markets
Plain Vanilla Structures with no room for innovation
Volatile interest rates with high interest rates
historically
No long term loans (maximum loan of 12 years)
Lack of long term investment funds while pension
funds are largely barred from investing in
equities/projects