CONFIDENTIAL

(TO BE RETURNED AFTER CONCLUSION OF SYNDICATE DISCUSSION)

NATIONAL INSTITUTE OF MANAGEMENT LAHORE

10TH MID CAREER MANAGEMENT COURSE

(Monday, 20th Sept, 2010 to Friday, 24th Dec, 2010)

FACULTY GUIDE

TUTORIAL DISCUSSION

A SITUATIONAL ANALYSIS OF POVERTY AND POVERTY REDUCTION

STRATEGIES WITH SPECIAL FOCUS ON MEETING THE TARGETS OF
MILLENNIUM DEVELOPMENT GOALS (MDGS)

Sponsor DS: Mr. Salman Choudhry

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Disclaimer:

This document contains training material designed exclusively to promote discussion by the
participants of 10th MCMC at NIM Lahore. It is not prediction of the future, nor does it
necessarily reflect the views of the institution.

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Tutorial Discussion on public Private Partnership (PPP): Operational Issues

Methodology/Requirement:
Syndicate activity is planned in two phases, discussion and reducing its essence into
written form. First, the Syndicate DS would open the discussion by introducing the topic.
He would then invite the syndicate members to present their considered views cross
cutting all dimensions of the topic. The discussion will follow the sequence of the stated
parameters steered by the DS. This activity will be undertaken for about one and a quarter
hour.
The first five to ten minutes of the remaining forty five minutes will be utilized for
presentation of a nominated sub-syndicate on recapitulation of important points that come
up in the discussion. At the conclusion of the discussion, any one participant, a volunteer
or as nominated by the DS will be assigned to reduce the essence of the entire meeting
into a written form containing five to six pages, also adding his own views and
explanations as deemed appropriate. It is incumbent upon all members to continually jot
down the important points and issues that emerge out of the discussion which would later
facilitate the writing part.
Aim
1. To sensitize the participants to the basic concepts of the Private Public Partnership
(PPP).
2. Its evolution and development.
3. Comparison of PPP with Privatization.
4. To discuss PPP as a viable tool for governance and management in Public Sector
Organization.
5. To discuss PPP as a development tool.
6. To discuss PPP as catalyst for broad sector reforms.
7. Critical appraisal of PPP Policy 2010 of Pakistan.
8. The scope of PPP policy in development after Floods 2010-operational issues.

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Discussion Parameters:
A) What is the definition of PPP?
The term ―public–private partnership‖ describes a range of possible relationships
among public and private entities in the context of infrastructure and other services.
Other terms used for this type of activity include private sector participation (PSP)
and privatization. While the three terms have often been used interchangeably, there
are differences:
 PPPs present a framework that—while engaging the private sector—
acknowledge and structure the role for government in ensuring that social
obligations are met and successful sector reforms and public investments
achieved.
A strong PPP allocates the tasks, obligations, and risks among the public and
private partners in an optimal way. The public partners in a PPP are
government entities, including ministries, departments, municipalities, or state-
owned enterprises. The private partners can be local or international and may
include businesses or investors with technical or financial expertise relevant to
the project. Increasingly, PPPs may also include nongovernment organizations
(NGOs) and/or community-based organizations (CBOs) who represent
stakeholders directly affected by the project.
Effective PPPs recognize that the public and the private sectors each have
certain advantages, relative to the other, in performing specific tasks. The
government’s contribution to a PPP may take the form of capital for
investment (available through tax revenue), a transfer of assets, or other
commitments or in-kind contributions that support the partnership. The
government also provides social responsibility, environmental awareness, local
knowledge, and an ability to mobilize political support. The private sector’s
role in the partnership is to make use of its expertise in commerce,

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management, operations, and innovation to run the business efficiently. The

private partner may also contribute investment capital depending on the form
of contract.
The structure of the partnership should be designed to allocate risks to the
partners who are best able to manage those risks and thus minimize costs while
improving performance.
 Public Sector Participation (PSP) is a term often used interchangeably with
PPPs. However, PSP contracts transfer obligations to the private sector rather
than emphasizing the opportunity for partnership. In the mid to the late 1990s,
there was a slowdown in public–private contracting in infrastructure sectors,
which was largely precipitated by a social backlash against the perceived
preference for the private sector over the public sector in delivering
infrastructure services in developing countries. To some degree, the social
backlash was rooted in confusion between PSP and privatization. Some PSP
schemes were overly ambitious and the social agenda was overlooked, leading
to legitimate public concerns. The critical analysis of PSP experience has led to
the design of a new generation of transactions, which are now more commonly
known as PPPs.
 Privatization involves the sale of shares or ownership in a company or the sale
of operating assets or services owned by the public sector. Privatization is most
common and more widely accepted in sectors that are not traditionally
considered public services, such as manufacturing, construction, etc. When
privatization occurs in the infrastructure or utilities sectors, it is usually
accompanied by sector-specific regulatory arrangements to take account of
social and policy concerns related to the sale, and continuing operation of
assets used for public services.
Sectors in which PPPs have been completed worldwide include:

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 power generation and distribution,

 water and sanitation,
 refuse disposal,
 pipelines,
 hospitals,
 school buildings and teaching facilities,
 stadiums,
 air traffic control,
 prisons,
 railways,
 roads,
 billing and other information technology systems, and
 Housing.
B) Evolution and development of PPP:
Private sector involvement in the delivery of public services is not a new concept;
PPPs have been used for over three decades, predating the contracting out
initiatives of 1970s in the USA. Initially focussing on economic infrastructure,
PPPs have evolved to include the procurement of social infrastructure assets and
associated non-core services. PPPs have extended to housing, health, corrective
facilities, energy, water, and waste treatment. PPP policy has also evolved globally
as public sectors develop the necessary skill base to procure infrastructure by way
of PPP, including the capacity to create and maintain a regulatory framework. The
private sector has also become increasingly innovative in several experienced
countries, thereby adding significant value to public procurement.
In developing countries, contracting out was introduced in the mid 1980s during
the first wave of governmental privatisation of state enterprises, under structural
adjustment programs. Policies were adopted to address the perceived lack of
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managerial capacity in government, as well as the need to stop the continued

dependence of state enterprises on state subsidies.
According to Deloitte, in Africa, between 1990 and 2004, approximately 14% of
public sector infrastructure was provided through a PPP, the most common sectors
being water, energy and transport.
The PPP trend is global, accelerating and encompassing a broad range of
infrastructure sectors. Applying PPPs in social infrastructure sectors has to some
extent reduced the concentration of PPP projects at the central government level.
Increasing number local authorities are engaging in PPP arrangements to procure
much needed local infrastructure.
C) Comparison of PPP with Privatization?
The difference between full privatisation and a PPP arrangement is that in a PPP
the public sector retains a substantial role while in privatisation subsequent
government involvement is minimal unless regulation of the post-privatised entity
is necessary. According to Savas privatisation is the act of reducing the role of
government or increasing the role of other institutions of society in producing
goods and services and in owning property. What this does is change the portfolio
of activities carried out by the government, thus reducing the size of the public
sector. The argument is therefore that New Public Management NPM is about how
to improve the management of activities that remain under public ownership by
applying private sector practices, and as such, outright privatisation should be left
out of PPP discussions.

D) Is PPP a viable tool for governance and management in a Public Sector

Organization?
Governments face an ever-increasing need to find sufficient financing to develop
and maintain infrastructure required to support growing populations. Governments
are challenged by the demands of increasing urbanization, the rehabilitation
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requirements of aging infrastructure, the need to expand networks to new

populations, and the goal of reaching previously unserved or underserved areas.
Furthermore, infrastructure services are often provided at an operating deficit,
which is covered only through subsidies, thus constituting an additional drain on
public resources.
Combined with most governments’ limited financial capacity, these pressures
drive a desire to mobilize private sector capital for infrastructure investment.
Structured correctly, a PPP may be able to mobilize previously untapped resources
from the local, regional, or international private sector which is seeking
investment opportunities.
The goal of the private sector in entering into a PPP is to profit from its capacity
and experience in managing businesses (utilities in particular). The private sector
seeks compensation for its services through fees for services rendered, resulting in
an appropriate return on capital invested.
E) PPP as a development tool:
The efficient use of scarce public resources is a critical challenge for
governments—and one in which many governments fall far short of goals. The
reason is that the public sector typically has few or no incentives for efficiency
structured into its organization and processes and is thus poorly positioned to
efficiently build and operate infrastructure. Injecting such incentives into an
entrenched public sector is difficult, though not impossible, as Singapore has
demonstrated by developing a government-wide dedication to efficiency while
maintaining many critical services within the public domain.
Private sector operators, however, enter into an investment or contracting
opportunity with the clear goal of maximizing profits, which are generated, in
large part, by increased efficiency in investment and operations. If the PPP is
structured to let the operator pursue this goal, the efficiency of the infrastructure

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services will likely be enhanced. Improving the efficiency of services and

operations also increases the chances that those services are economically
sustainable and provided at affordable rates—even after satisfying the profit
requirements of the private operators.
PPP allows the government to pass operational roles to efficient private sector
operators while retaining and improving focus on core public sector
responsibilities, such as regulation and supervision. Properly implemented, this
approach should result in a lower aggregate cash outlay for the government and
better and cheaper service to the consumer. This should hold true even if the
government continues to bear part of the investment or operational cost since
government’s cost obligation is likely to be targeted, limited, and structured within
a rational overall financing strategy.
F) PPP as a Catalyst for Broader Sector Reform
Governments sometimes see PPP as a catalyst to provoke the larger discussion of
and commitment to a sector reform agenda, of which PPPs are only one
component. A key issue is always the restructuring and clarifying of roles within a
sector. Specifically, there is a requirement to reexamine and reallocate the roles of
policy maker, regulator, and service provider, particularly to mobilize capital and
achieve efficiency, as outlined above. A reform program that includes PPP
provides an opportunity to reconsider the assignment of sector roles to remove any
potential conflicts and to consider a private entity as a possible sector participant.
Implementing a specific PPP transaction often forces concrete reform steps to
support the new allocation of sector roles such as the passage of laws and
establishment of separate regulatory bodies. In essence, re-examination of the
regulatory and policy arrangements is critical to the success of a PPP project.

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G) Critical appraisal of PPP Policy 2010 of Pakistan:

Pakistan Policy on PPP has been approved by the Economic Coordination
Committee of the Cabinet on January 26, 2010.
The key objectives of this policy are to:
a) Promote inclusive social and economic development through the
provision of infrastructure
b) Leverage public funds with private financing from local and
international markets
c) Encourage and facilitate investment by the private sector by creating
an enabling environment in PPP in infrastructure
d) Protect the interests of all stakeholders including end users, affected
people, government and the private sector
e) Set up efficient and transparent institutional arrangements for
identification, structuring and competitive tendering of projects
f) Develop efficient risk sharing mechanisms such that the party best
equipped bears the appropriate level of risk
g) Provide viability gap funding where the projects’ viability is
insufficient to attract private sector funding.
The PPP Policy is therefore targeted to provide a wider variety of better quality
and timely services. This will be achieved through faster project implementation,
maximum leveraging of public funds, enhanced accountability and a shift to life
cycle costing and infrastructure management by the private sector.
H) The Scope of PPP policy in development after Floods 2010:
A discussion should be initiated on how to employ the broad parameters of the
PPP policy in the development efforts in flood affected areas, for instance
provision of safe drinking water.

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Final Word:
PPP is a collaboration of government, communities, NGOs, individuals and
private sector, in the funding, management and operations to support Public Sector
development in Pakistan.
PPP can be stated as complementary policy for all partners to enables them to
maintain their identities and to also draw out their respective comparative
advantage.
Collaboration may be at:
a) government learning sites /institutions,
b) community sites, and
c) private sector sites.
Re-conceptualization of PPPs, it is not an abdication of the state but it is for
improved service delivery.

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Essential Readings:

 Public-Private Partnerships
Literature Review - Draft
Gladys Palmer
Aid Delivery Methods Programme
07/01/2009
PublicPrivatePartnership__Lit__Review.doc
http://www.dpwg-lgd.org/cms/upload/pdf/PublicPrivatePartnership__Lit__Review.doc

 Conceptual Issues in Defining Public Private Partnerships (PPPs)

Nilufa Akhter Khanom
Paper For Asian Business Research Conference 2009

 PAKISTAN POLICY ON PUBLIC PRIVATE PARTNERSHIPS

Private Participation in Infrastructure for Better Public Services
Approved by the Economic Coordination Committee (ECC) of the Cabinet
January 26, 2010

Recommended Readings:

 Managing Tourism in Pakistan (A Case Study of Chitral Valley)

Qadar Bakhsh Baloch
http://www.qurtuba.edu.pk/jms/default_files/JMS/2_2/01_qadar_bakhsh.pdf

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