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Initiative to attract foreign investment

Discussion in 'Pakistan Economy' started by Dance, Jun 12, 2011.

  1. Dance


    Jul 20, 2010
    +0 / 4,993 / -0
    ISLAMABAD: Owing to rising public sector development constraints, the government has decided to constitute a 10-member high-level inter-agency forum to pursue implementation of major infrastructure projects by the private sector, particularly involving international firms, to reduce delays and cost overruns.

    This is being seen as a major step in attracting international firms to major infrastructure projects. This is one of a series of arrangements the government is trying to put in place along with new financial, judicial and institutional overhaul to kick-start implementation of major infrastructure projects through Public-Private Partnership on build-operate-transfer (BOT) basis.

    Some other measures include pre-arranged financing by the government for international firms or sovereign guarantees on behalf of the executing agencies — like the National Highway Authority, CDA and Wapda — to full contract payments. The international concessionaire or participating consortium will have a long-term, 25-year contract to recover the project cost as partners.

    Informed sources said the government had selected M-9 (136-km Karachi to Hyderabad motorway) as a pilot project to start with the new arrangement and then extend its applicability to other major projects. The Planning Commission estimates that with the new strategy in place very shortly, the implementation schedules could be reduced by 6-12 months, instead of allowing projects to exceed completion time and cost targets.

    The government has already invited expressions of interest for Rs13 billion M-9 to convert existing 4-lane highway into 6-lane motorway on build-operate-transfer (BOT) basis.

    Having lost its pride and powers to provincial governments as a result of devolution, the Planning Commission is entering into more focused and professional areas where wastage of national wealth could be minimised, an official said.

    “In order to achieve the desired results, the implementation board would have representation from the ministries and departments concerned and preferably comprise members with requisite experience and authority to get the decisions implemented by the executing agencies,” he added.

    The 10-member board, to be led by Deputy Chairman of Planning Commission Dr Nadeemul Haque, will also have secretaries of planning and communications, Planning Commission members for implementation, infrastructure and transport, representatives of Infrastructure Project Development Fund and National Highway Authority.

    Currently, the executing agencies take up to 14 months from inviting expressions of interest to awarding of contract and then the concessionaires take anther eight months to achieve financial close. There is also no forum for amicable resolution of disputes between government agencies and the private concessionaire and it results in reluctance on the part of international parties to participate in the project and because of this the cost of the project keeps rising.

    This could be gauged from the fact that average cost per scheme has risen from Rs952 million in 2006-07 to Rs1638 million in 2010-11 – 72 per cent higher than estimated originally – partly as a result of inflation. In many cases, cost overruns have exceeded 400 per cent of the original cost.

    The implementation board will now ensure implementation of rules, regulations, policies and monitor project timelines. It will also coordinate with other ministries for fast-track development and management of projects, and involve banks and financial institutions during the bidding and negotiation process to save time spent on financial close.

    The Board is also to act as a neutral body to strike a balance between interests of public and private parties and give confidence to developers and investors to address their grievances. The lenders would become part of the bidding process and then would be asked to provide term sheets of their financing. The bank offering best terms would be selected.

    The terms agreed between lending consortium and the implementation board will be transferable to the concessionaire. In order to protect lender interest in providing financing on commercial terms, the consortium of banks will have the rights to give comments during selection of concessionaire and satisfy them about credit worthiness of the project.

    Initiative to attract foreign investment | Business | DAWN.COM