Improving the attractiveness of PPPs in Pakistan

02 May 2022
Improving the attractiveness of PPPs in Pakistan
Pakistan aims to be in the top 10 global economies by its centenary in 2047. But its growth prospects are constrained by limited public investment in key sectors—including in infrastructure.

In a 2019 report, the World Bank noted that inadequate public services and infrastructure are affecting the economy’s competitiveness. The report highlighted that “attracting private sector investment will be a key priority” if the country is to meet its development goals.

Public-private partnerships (PPPs) are part of the answer. Governments can partner with the private sector to finance and operate infrastructure assets. In Pakistan, the government’s PPP Authority (P3A) is responsible for helping line ministries and agencies identify and develop infrastructure projects suitable for private sector participation, including the participation of international firms.

Although Pakistan has developed a PPP framework and successfully tendered projects (mainly in the energy sector) at federal and provincial levels, it faces several constraints in executing wider PPP programs. These include the lack of clarity on infrastructure financing needs, a limited pipeline of bankable projects, a lack of suitable financing mechanisms, and weak accountability for PPP-related fiscal commitments and contingent liabilities (FCCLs).

World Bank Support

The World Bank Group is implementing a $13.7 billion country portfolio in support of Pakistan’s development ambitions. It includes support for reforms to strengthen institutions, fiscal management and human development. Clean energy, urban development, and social and financial inclusion are major priorities.

The government is committed to supporting the PPP agenda and receives support from multilateral development banks including the World Bank. Pakistan’s P3A is housed in the Ministry of Planning Development and Special Initiatives (MoPD) and was established under the 2017 PPP Act as amended by the Public-Private Partnership Authority Act 2021. The main objective of the P3A is to provide a supportive enabling legal and regulatory framework for developing, executing, and implementing PPP projects and, in this context, has the mandate to facilitate federal implementing agencies in developing, structuring, and procuring their infrastructure projects on a PPP basis.

The World Bank is working closely with the P3A to strengthen the institutional, legal, and regulatory enabling environment for PPPs and discuss appropriate structures and mechanisms for piloting PPP projects at the federal level.

PPIAF’s Role

PPIAF is behind the efforts of the World Bank in support of Pakistan’s PPP program. The World Bank assists the government in these three ways. First, it is helping to develop a PPP pipeline that will attract the interest of private sector investors and operators. Second, the World Bank is working with the federal government to identify and develop government support mechanisms (GSMs) that will help mobilize private capital. Finally, it is providing advice on the development of a framework for managing FCCLs.

With the support of PPIAF, three projects have been selected by the P3A from the pipeline of potential PPP projects for accelerated development. PPIAF also recommended the establishment of a government-backed multi-window financing vehicle to support the mobilization of private capital. Depending on its final structure, such a vehicle would support PPP projects through the provision of project development funding, viability gap funding, partial credit guarantees, and refinancing risk support, etc.

Complementing these initiatives, PPIAF provided training on PPP pipeline screening, FCCLs, and climate considerations to build the capacity of the P3A. PPIAF is also preparing a high-level climate screening questionnaire and green financing report, under the Climate Resilience & Environmental Sustainability Technical Advisory (CREST) initiative, which can improve the attractiveness and bankability of PPP projects in Pakistan by taking climate considerations into account.

Leveraging off the support being provided by PPIAF, the World Bank is preparing a technical assistance loan to MoPD which includes a component on PPPs.

When PPIAF’s activity is completed, a follow-up activity is being planned in partnership with the Global Infrastructure Facility (GIF) to help further the development of the multi-window financing vehicle, expand the PPP pipeline to include social infrastructure projects, and provide additional capacity building support.