Govt introduces much-awaited PPP Policy

Kathmandu, October 17

The government has introduced the much-awaited Public Private Partnership (PPP) Policy, paving the way for creation of viability gap fund and project preparation facilitation fund to assist project developers and expedite implementation of PPP projects.

The policy, endorsed by the Cabinet on October 9, says that the government must prepare guidelines for operation of viability gap fund and project preparation facilitation fund within a year.

The policy also calls on the government to prepare templates for procurement, and project evaluation and approval within a year. The Act, regulation, directives and guidelines on PPP should also be framed based on this policy.

The government had introduced the PPP Policy after holding discussions with various stakeholders for over two years. Using this policy, the government intends to engage the private sector in development of various physical infrastructure, such as roads, bridges, hydropower projects and transmission lines.

The projects to be built under PPP will be identified by the government. For this, the policy has directed all public entities to identify priority areas and hold consultations with the private sector on project development.

But the policy also incorporates a provision on ‘unsolicited proposal’, which paves the way for private developers to directly approach the government for development of various projects.

The government must hand over projects to the private sector through competitive bidding process, says the policy. And if the projects are worth more than Rs one billion, global bidding is a must.

Procurement documents and draft of the agreement must be prepared prior to initiating the bidding process, adds the policy. Also, procurement process for projects worth Rs 500 million or more should be initiated upon getting green signal from the PPP Steering Committee, which is headed by the finance secretary and comprises secretaries of various ministries as members.

The policy has given the authority to implementing agencies to design projects, appraise utility of projects and approve necessary documents without taking prior permission of the PPP Centre — to be set up at the National Planning Commission — if the project cost is less than Rs 100 million.

But if the project is worth more than Rs 100 million, requires viability gap funding or needs government subsidy, then project design and other documents must be approved by the PPP Centre, says the policy.

This provision, however, does not necessarily apply to projects being implemented by the Investment Board Nepal.

Once the projects are built under the PPP modality, the government must allow private project developers to use these projects for certain years. After using the projects for certain years, these projects must be handed over to the government for free and in a good working condition.

To encourage the private sector to build PPP projects, the policy has allowed the government to extend tax relief. Also, the government will create a mechanism to enable the private sector to obtain financial resources for a longer term.

The policy also says the government will acquire adequate land required for project development on behalf of the private sector.

“The government will not sign an agreement with project developer unless 80 per cent of the land required for the project has been acquired,” says the policy. “The Ministry of Finance will create a revolving fund to acquire land. The developer will later have to recompense the government, fully or partially, or pay royalty or rent based on the nature of the project.”

Also, the government intends to share risk and benefits proportionately with the private developer during and after the construction phase.

Generally, risks emanating from design, management, quality, non-compliance of environment protection rules and lack of technical knowhow and expertise should be borne by the project developer, says the policy.

But risks that stem from political condition, lack of coordination between government agencies, lethargic land acquisition process and delay in extension of required licences, permissions or funds promised by the state should be borne by the concerned government agency. Also, the responsibility of servicing the debt will rest on the shoulder of the concerned state agency, if the government cancels the project mid-way, says the policy.

Major points

  • Guidelines for operation of viability gap fund and project preparation facilitation fund to be prepared within a year
  • Projects to be built under PPP to be identified by govt
  • Policy incorporates a provision on ‘unsolicited proposal’
  •  If a project is worth over Rs 1bn, global bidding is a must
  • Procurement process for projects of Rs 500m or more to be initiated upon getting approval from PPP Steering Committee
  • If a project is worth over Rs 100m, requires viability gap funding or needs govt subsidy, then project design and other documents must be approved by PPP Centre
  • Policy allows govt to extend tax relief to build PPP projects

    Govt to share risk and benefits with pvt developers