Sunday, 5 December, 2021

Financing problem holds back PPP projects

The government has high hopes for Public-Private Partnership (PPP) projects but the initiatives so far taken have not reached the expected level because of multifaceted complexities, including financing problems.

Currently, some 79 projects of 26 agencies under 17 ministries are in the PPP pipeline, of which one is operational while six are under construction and contracts have been signed for another 10 projects, according to PPP Authority.

Two projects are waiting for the contract signing, tenders have been floated for 13, detailed feasibility studies are underway for 27 schemes and the number of newly picked up projects is 20.

The PPPA Authority had signed financing MoUs with 14 banks and FIs in 2016 but only 4 of them came up with project financing.

PPPA has recently signed fresh financing MoUs with 15 banks and FIs with five years tenure.

The mismatch between loan-term PPP projects and saving and loan disbursement period of banks and FIs has been identified as a major challenge to PPP project implementation.

 Other challenges include limited use of project finance methods for financing PPP projects, non-mortgage of government land as collateral, limitation of the maximum single borrower limit, FIs’ creditable fund crunch and absence of alternative sources like the bond market, insurance fund and pension funds.

Principal Secretary to the Prime Minister Dr Ahmad Kaikaus thinks that financing is the most important part of the PPP projects and the issue should be integrated from the very beginning of the project launch.   “Before signing new MoUs, the cause of failure of the previous MoUs should be investigated first. Otherwise, the MoUs will remain in paper only,” he told PPPA high officials at the new MoUs signing ceremony.

“In contrast to bank’s regular credits to clients, usually a PPP project takes a long time to end, which shoots up the financing bank’s NPL and enhance other regulatory requirements against that NPL,” said Sayed Mahbubur Rahman, managing director of Mutual Trust Bank, which has signed MoU with a PPPA recently.

“It is not clear when a PPP project will finish or its cost will go up to what extent. Banks don’t have long-term liquidity,” he added.

“All banks, FIs, finance division, financial institutions division, Bangladesh Bank and Securities and Exchange Commission need to come forward with necessary changes in the conventional banking system to provide required funds to PPP projects,” PPPA Chief Executive Officer Sultana Afroz.

In line with its Vision 2041, the government has set a target of getting $3.8 billion investment for PPP projects per year. In addition, 5.5 per cent of the total SDGs financing requirement has also been targeted through PPP.

So far, dialysis centres have been set up at National Institute of Kidney Disease and Urology (NIKDU) and Chittagong Medical College Hospital (CMCH) under a health sector PPP project that has been completed. 

Important projects like the Dhaka elevated expressway, Mirpur Township project in Dhaka, construction of two jetties at Mongla port, Purbachal water supply project and Dhaka bypass expressway are now underway.

The PPPA CEO informed that they are trying to discontinue some projects that have been hobbling for years without any possibility of progress.

Financing for Jhilmil Residential project is not certain, while financing uncertainty also engulfed two health sector projects and two textile mills schemes, according to PPPA.

“Only increasing the list can’t be fruitful. We are trying to identify PPP projects which are beneficial to the country,” Sultana Afroz told Daily Sun.

She said although PPP projects have been hit hard by the corona pandemic, the projects are now going very well, adding that they are also receiving good responses from foreign investors. 

Citing some lack of coordination among the different government agencies, she said all the ministries concerned should come forward so that the issues facing the PPP projects can be addressed.