The government spelled out the Public-Private Partnership (PPP) approach in its programme and policies for this fiscal year.

Nepal has learned some lessons from PPP during past years at the local level. There are some encouraging and some rather less encouraging signs that call for a more cautious approach. The reasons for caution, patience and diligence as we proceed with PPP activity in future basically has to do with overly ambitious individuals and groups who are in a sense misleading themselves despite repeated deliberations and explanations as to how some of the most successful PPPs have been conceptualised and actually operationalised.

We have to clearly understand three fundamental factors upon which the concept of PPP is based — Value for Money, Project Structuring and Project Financing.

Value for Money is the core idea upon which PPP arrangements are made. It is assessed in terms of Price, Quantity and Quality of service and believed that PPP arrangements can provide better value for money to consumers and service providers alike. Risk sharing or transfer is the basis of high value of Money. The better the risk managed, the higher the value for money is received. Risk is best managed when it is allotted to one who has the highest risk bearing capacity. Political risk is best managed by the government while commercial risk is best managed by the private party.

Government needs to compare the cost incurred in a traditional system of service delivery and the envisioned PPP project and make decisions based upon highest value for its money.

The primary concern of the Value for Money concept is to study and analyse the wide range of options in delivery of the essential infrastructure facilities. The major objective is to select intelligently and prudently that specific option, among the full range of project delivery options,

which provides the best Value for Money outcome for both government and the private including the community.

The second most important factor in the establishment of a PPP is the structuring of the project itself. PPPs are an innovative form of partnership among the triangle of government, business and civil society. At a very basic level, PPP arrangements have to fulfill the responsibility of government towards its citizens, while also taking into account commercial interests from the vantage point of business. PPP arrangements must strike a balance between the commercial viability of a project and the project’s social and environmental repercussions.

This issue comes to the fore when we begin to look at the pro-poor functionality of PPP arrangements, for instance if we imagine the creation of some infrastructure which is meant to address the social, environmental and health concerns of lower-income members of society. If a PPP modality is utilised in this instance, we can reasonably expect that the private business sector will be driven primarily by the profit incentive but this is where government or public sector’s involvement can compensate positively for the private sector’s under-investment in the social, human and environmental dimensions of a given infrastructure project.

Pro-poor functionality of PPP can be viewed from two aspects: directly providing services to poor community such as improved access to water and sanitation and indirect impact of PPP projects to poor community through enterprise creation and/or employment generation. Access to drinking water to poor community with inbuilt cross subsidy system or differential pricing system or municipality incentive package is the direct pro-poor functionality of the PPP projects. Sub-contracting of service facilities like Toilets, Electrical works, Plumbing works, Cleaning and up keeping works in Bus Terminal, Shopping complex are the possible pro-poor functionalities tied up with the PPP projects in an indirect way.

Similarly contractual agreement to reserve some rentable area for the entrepreneurs belonging to marginalised groups is another pro-poor functionality of the PPP projects.

The essence of the matter is that any given PPP project can be structured in such a fashion as to adequately and equally address the main interests and concerns of both public and private entities. In terms of the profit incentive of the private sector, this interest can be simultaneously incorporated within a PPP project structure, while also addressing the social responsibility, health, environmental and job generation concerns of the government. In other words, a PPP project can begin with the premise that it will have an explicitly pro-poor focus and functionality, but this does not have to preclude the presence of a profit incentive vis-à-vis the private partner. The main point is that any given PPP project has the potential to address a wide range of issues and problems as well as the capability to make available incentives (in a simultaneous manner) to both public and private actors alike.

There are various forms of PPP arrangements that could be designed as per the need of the particular project in concern. PPP can be of Operational type or can be of Investment type. Under operational PPP there can be various sub-types and various combinations of the sub-types also could be formulated / designed. Similarly under Investment PPP, various sub-types or various combinations of the sub-types could be made.

The financing of PPP projects is another very important factor, which is to be taken into account while deciding on a PPP project. There are three forms of such PPP project financing. The first category is the self revenue generating projects, in which the private sector finances,

constructs and operates the project through cost recovery modality. A good example of such projects is the BOT variants. The second one is that type of PPP project in which the government makes payments to private service providers through the existing tax framework or by levying new taxes to meet these payments. The third form of the PPP project financing is the combination of cost recovery and government subsidy. Thus, the PPP practitioners should not be overwhelmed by the benefits of the PPP, rather judgements should be based on thorough study, analyses and implications of PPP projects.