The launch of the mega Kathmandu-Kulekhani-Hetauda Tunnel Highway project will certainly be a milestone in the history of Nepal’s public-private partnership (PPP). The project is estimated to cost about Rs 35 billion and is expected to be completed by December 2016, which is too good to be true given the enormity of the work yet to be done. This project has been called a ‘public-private-people’ partnership to highlight the community participation aspect of it. Technically speaking, it is based on one of the modalities of PPP, known as Build-Own-Operate-Transfer (BOOT).

The successful completion of this project could provide a remarkable boost to the image of Nepal’s private sector in terms of its operational, economical and technical capacity and efficiency. However, a failure to do so would not only dampen its reputation beyond imagination but would also raise many questions regarding the government’s capacity to create an enabling environment for the implementation of such a project. Thus, the stakes are high for both the government and the private sector.

Public-private partnership

The PPP has certain inherent challenges, benefits and risks. Globally speaking, there are some excellent examples of PPP successes and also those that went bust. It certainly provides an opportunity to use the private sector’s managerial efficiency, entrepreneurship, innovation, resources and technology. But what needs to be clearly understood is that the private partner in a public-private partnership does not have the liberty—as in a fully private investment where ownership remains permanently with a private entity—to use these financial and non-financial resources as they wish because there are shared responsibilities between the partners. As such, mutual trust, collaboration and the PPP experience is critical. In the case of Nepal, these endurances, however, remain untested for both sides.  

Cost overruns have been a major concern for development projects in Nepal. Implementation delays are frequent due to political and social unrest, indecision by government authorities, industrial action by workers’ organisations and management problems on the part of contractors. Other common factors for cost overruns are higher inflation rates than expected, poor quality assurance mechanisms and the rapid depreciation of national currency, which makes the cost of international expert services, equipment and construction material dearer. Furthermore, poor governance can result in bureaucratic hassles, making it harder for projects to get things done in a timely manner. Good governance is, thus, essential for project efficiency, value for money and sustainability.

Mutual benefit

That aside, there is always conflict of interest in PPPs. Governments seek to improve delivery of goods and services at minimal cost whereas the primary concern of private investors is sustainability and profitability. Indeed, a PPP would never materialise if both parties stick to their guns. Therefore, good negotiation skills based on the principles of good faith bargaining are critical at all times. Furthermore, a well-balanced, non-ambiguous legislation must be in place so as to safeguard a project from the conflicting interests of the partners and at the same time, ensure quality and reliable goods and services at competitive prices to the ultimate beneficiaries. Additionally, the government must ensure through transparent structures and procedures that no compromise has been made on project safety.

Existing laws related to private investment on construction and the operation of infrastructure seem to be more ‘control’ oriented rather than ‘facilitative’. For example, Article 35.1 of the Private Investment on Construction and Operation of the Infrastructure Act 2006 provides for the establishment of service charges or tariff review board by the Government of Nepal. The board will include representation from developer and consumers’ groups as well. However, its decisions are subject to approval of the government. This is where things usually get stuck due to indecision on the part of the government authority. It reflects a lack of mutual trust between the partners and provides room for vested political and economic interests.

This board should, thus, be provided with clear-cut parameters to consider while reviewing the tariff, instead of making it mandatory to get an approval from the government to implement its decisions. It would be highly appropriate if the law provides for the setting up of another mechanism to reach a viable solution if the board fails to decide on a tariff to balance the project costs and revenues. For example, is a government subsidy possible if the consumers or users’ group do not accept a tariff that is necessary to meet the cost and expected level of revenue generation? The lack of a technically competent judiciary and clarity in the PPP laws may obstruct the enforcement of contracts.

Challenges and solutions

The HNTB Corporation, an American infrastructure solutions firm, identifies four major challenges commonly faced by companies new to PPP projects. They are as follows: timely decision-making and decisions consistent with PPP risk allocation strategies; maintaining transparency through the PPP procurement process; maintaining owner control while getting the most from the PPP project delivery; and making the right risk allocation decisions that provide the most cost effective project solutions.

Some of the practices best identified to address those challenges are: a dedicated management team focused solely on delivering the project; a management team that is transparent and experienced in PPP delivery; and a project director that is responsible and empowered to take project decisions, direct the staff and coordinate at an executive level. Furthermore, the procurement process must be well-defined and strictly followed. An effective communication apparatus to communicate with potential bidders would also expedite the PPP process. Likewise, all participants in the selection process must be made to sign a conflict of interest and confidentiality statement along with an up-front risk management programme that first eliminates/mitigates risks before allocating them. Additionally, a cross-functional group that includes legal, financial and technical experts collaborating on risk allocation decisions would also be welcome.

Rajbanshi is associated with the ILO. Views expressed in this article are personal