Introduction

Procedures to be adopted at provincial level for promoting PPPs

The country like India where the federal system is in existence, the provinces have been entrusted with many powers and are having their own autonomy in making investment decisions. Nevertheless, Sri Lanka is functioning as a unitary state with provincial council system with a limited power of devolution. But even under this system there are opportunities in entering into PPPs and they can be used as a tool to face the problem of funding shortages. The Government of Sri Lanka has accepted the PPP investment approach as a policy and opportunities have been given to the provincial councils also to follow the same. In the Medium Term Development Policy Framework (2010-2016) published by the government, priority has been given for PPPs. Under the strategy worked out for attracting conducive environment it has been introduced desirable tax policies, and willingness to change the institutional framework. In the guidelines issued for the year 2012 to the provincial Chief Secretaries by the Finance commission, it is emphasized the requirement of implementing the projects though PPP basis by using limited development grants. In addition to obtaining the private sector participation, they should take action to get beneficiary contribution and it is further described the importance of assigning the responsibility of maintaining capital assests by the community organizations. When applying PPPs at provincial level projects, it is not necessary to enter into mega scale agreements as required at national level special projects. Since the projects to be implemented at provincial level are at middle or small scale, the investors should be selected accordingly. However, when entering into agreements with private sector, it is essential to maintain the transparency adherence to the accepted procurement procedures.    The involvement of provincial level Chambers of Commers, provincial commercial and development banks and private companies should be ensured.  It seems that for the provincial level projects, the provinces are heavily dependent on government funds. Although, the central government funds are to be utilized for the essential public services, the private sector participation could be obtained for the projects that could be carried out on commercial basis. Specially the PPP approach could be utilized for development of agriculture, dairy farming, industries, ayurveda and western medical centers,(hospitals not owned by the government ) In such a approach, the task to be performed by the provincial council and the private sector and their responsibilities need to be clearly identified and also enactment of new rules and regulations is also expected to be done wherever necessary. After setting up of a special consortium with participation of the institutions coming under provincial councils and the private sector that is willing to participate, a Special Purpose Vehicle (SPV) for the relevant purpose can be established. From the government side the land owned by the state can be given as part of the equity capital and financial allocations could also make available, if necessary. The private sector, in addition to providing financial contribution could get involved in project activities, project implementation and management.  Both parties have to equally agree to share  the risk factor, if any, and also the both parties should properly adhere to the basic principles such as social responsibility,  minimizing the cost, proper management increasing the working capacity, and efficient service providing  etc. In this type of integrated investment programs, the contribution of provincial councils should be limited for building of assets and it is more appropriate to assign the responsibility of running the venture by the private sector in a profitable manner. There is a provision to get contribution from NGO’s or community organizations as and when necessary.  In addition to this process, the responsibility of running and managing an asset built on government fund could be assigned to a private investor. However, the main principle is that the government or the provincial body should not directly involve or intervene in such ventures. The main reason is that the capability and the knowledge in handling commercial ventures is minimal  in the government institutions and such a service cannot be expected from  the government officials. But the responsibility in regulating the tasks assigned to private sector lies with the government institutions including provincial councils. Despite the fact that the money is invested through government funds or the private funds, the government has the responsibility with regard to maintaining the required standards of the service and fair price for the service. In summary, investments to be done on PPP approach at provincial level could be carried out under the following four methods.

1. 
   After completion of infrastructure facilities by the government, assigning of management to private sector; Example: small power plants.
   
2. 
   Putting of state land as a part of equity capital and to give a share value for the same. Example: projects in tourism sector.
   
3. 
   Putting capital investment proportionately like 50:50 basis by the both parties on a selected venture and share the profit accordingly. Example; Dairy Farming.
   
4. 
   Leasing out government assets or lands for a specific period. Example; Industrial states.
   

 

9. 
   Summary
   

PPP is a different process and it is not a synonym to privatization. In this process the sale of state assets to private sector is not taken place. The idea of the PPP is to provide common services through private sector or implementation of infrastructure projects by state agencies in collaboration with private companies. In such partnerships, the public sector and the private sector enter into agreements and the private party has to bear financing and technological responsibilities and to bear up a risk in that respect. As a solution to resolve the financial constraints, the governments engage in such partnerships and especially this approach is mostly used for development of economic infrastructure. This approach is also used in the field of social infrastructure like health and education. The state enters into agreements in assigning such a service providing responsibility to the private sector. Depending on the status of the project, the price for the service is paid by the state or the beneficiary. In this approach, sometime state contributes for the main capital investment and it will be done by way of financing or in allocation of state land. In addition, in order to encourage the private investments, state provides capital subsidy, revenue subsidy, tax breaks etc. At the same time, the private sector has to bear the social responsibility paying attention on environmental management, adoption of local knowledge and ensuring political support. Supply of services as agreed by the private sector in a fair manner is the main role that expected from the private sector. However, the principle of social responsibility is connected to the private sector in this exercise. Among the task to be performed by the government in ensuring the successfulness of the PPPs, the creation of clear legal background, preparation of strategic plans within the government policy framework, declaration of investment opportunities and proper monitoring mechanism are vital importance.  The countries like India, Pakistan and South Africa have taken institutional measures to promote PPP as an alternative financing mechanism.  The USA is adopting this approach in social infrastructure sector with a view to providing an efficient service to the clients. As stated in the Government’s Medium-Term Policy Framework, PPP approach has been accepted as a government policy to be adopted at the national as well as at provincial level. Setting up of required legal and political background is the responsibility of the respective government agencies and provincial councils. The existing rules and regulations sometime become obstacles for this approach and as such necessary amendments is inevitable. The existing laws and regulations of each institution sometimes become hindrance in entering into agreements particularly, on alienation of lands. Therefore, it is necessary to resolve such issues at provincial level. In PPP based investments, beneficiary contribution could also be obtained specially in maintaining public assets. In the formulation of investment plans and preparation of projects, the government is expected to give priority for PPP approach at national and also at provincial level and it would be a fruitful solution for the funding problem and improving the service efficiency. Another essential factor to be considered is to make the political authority, government officials, private entrepreneurs and general public be convinced about the capital market and its stakeholders and its practical behavior. ————————————————————————————————————————————– References:

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