Bridging the Gap - How collaboration with the private sector is mobilising GRID-aligned infrastructure investment
By Shambhavi Basnet
Since 1990, Nepal has been formulating a legal system to govern Public–Private Partnerships (PPPs), starting with a focus on the hydropower and electricity sectors. In 2001, the Public Infrastructure Build Operate and Transfer Policy came into being, bringing investments in infrastructure to the forefront. This was followed by the development of a PPP Policy in 2015 and the endorsement of a PPP model in the national budget of 2022/23, paving the way for private investments at a national scale. Given the endorsement of PPP models at the national level and now with greater decentralisation of power to the local government, it also falls on the municipalities to propel PPP forward and encourage private sector involvement in municipal projects.
“Most municipalities have an underutilised Project Development Fund,” says Mr. Ghanashyam Ojha, the Vertical Lead of Public Infrastructures and New Initiatives in the Nepal Infrastructure Bank Limited (NIFRA) – a leading private bank working in infrastructure development. “[But] they often lack the required capacity, knowledge, desire and incentives to use the funds available to them.”
A similar sentiment was shared by Mr. Axit Poudyal, Project Development and Management Consultant at the Office of the Investment Board Nepal (OIBN) – a high-level government body established to facilitate economic development in Nepal by creating an investment-friendly environment to mobilise both domestic and foreign investment – who noted,
The core value of PPP is in the collaboration – the partnership – between the public and the private sector. This collaboration enables the sharing of risks, responsibilities, and benefits. While the private sector brings in financing, technical know-how and nuance to project design, the public sector creates an enabling environment for issuing necessary approvals, supporting inter-agency collaboration, and the handling of assets. However, the municipalities and the private sector fail to come to an agreement on an effective sharing system, especially without opportunities for transparent and collaborative dialogue. There can often be mistrust and a lack of communication between the two participating sectors.
“The reason for any lack of trust between public and private sector is due to absence of proper education on what PPP entails.” Mr. Poudyal adds. “If each sector understands the other’s motive and if there is clarity on the definition of PPP, then there won’t be room for any misunderstanding.”
On the same topic, Mr. Ojha mentions, “The main reason why there is a trust issue between public and private sector is because there’s a gap in project identification.”
Because of the under-utilisation of the municipal Project Development Fund, municipalities struggle with finding a platform for small-scale municipal projects that require large investments and consequently, interested investors fail to identify projects that truly require financing. Such knowledge gaps and barriers in project identification and proper allocation of public funds at the municipal level comprise the common ground for organisations like NURP, NIFRA and OIBN to collaborate on finding the right projects and matching them with the right assistance in the municipalities.
Creation of an enabling environment & Private Sector Collaboration
Since Year 1, based on various discussions with the municipal and provincial governments, NURP developed Detail Project Reports (DPRs) of various infrastructure projects that were outside the financial capacity of the municipalities. Some DPRs developed by NURP, such as the inclusive park in Butwal, the redevelopment plan for the urban design of Old Batauli in Butwal, Ratna Sagar Area Redevelopment in Janakpurdham, and the lake-to-lake cycle route in Pokhara carry significant potential for private sector engagement.
Beginning from Year 3, NURP levelled up and supported project municipalities in PPP procurement processes and policy formulation including with the PPP Policy and Act in Janakpurdham and procurement processes for specific PPP projects in Butwal, such as the Tree Restaurant at Milan Park.
Subsequently, NURP moved to initiate Public Private Dialogue (PPD) Forums in the three municipalities. In Janakpurdham, the PPD Forum created with leadership from the municipality is co-led by the private sector to further strengthen the PPD process backed by a strong government mandate enabling ownership of the initiative by both the public and private sectors. Similarly, in Pokhara, a Business Promotion Centre was established within the Metropolitan City which will also function as a PPP Centre bringing together sectoral stakeholders to improve policy dialogue on productivity enhancement, labour skilling, technology transfer and related framework conditions to enterprise creation.
On 8 November 2022, a Memorandum of Understanding (MoU) was signed between NURP and NIFRA for the promotion of investment in infrastructure and Public Private Partnerships at the local level. The framework of this MoU is to allow the exploration, identification, development and implementation of activities to promote investment in infrastructure and PPP projects in NURP’s three target municipalities. Similarly, NURP and OIBN also signed a Minutes of Meeting (MoM) on 23 November 2022 with the objective to bridge a gap found in the municipalities related to ensuring commercial profitability, financial viability and larger economic benefits which in turn impacts the pipeline of bankable projects that can attract private sector investment. Additionally, NURP and the Town Development Fund (TDF) – an autonomous financing institution established by the Government of Nepal with a long-term institutional objective to become a self-sustaining and complementary part of the intergovernmental fiscal transfer system – have also come to an agreement and signed a Letter of Exchange (LoE) regarding possible collaboration on designing, developing and financing jointly identified and agreed GRID-aligned projects in the three target municipalities where NURP works.
Through these interventions and with more in Year 4, NURP has slowly built an enabling environment within the municipalities for both the private and the public sector to come together and collaborate on bankable, credible and feasible green projects. Such bilateral collaboration with three inter-agency entities: OIBN, NIFRA and TDF will aid in creating an ecosystem in the municipalities where the private sector is regarded as an important vehicle for change – a fact that needs to be also shared with local level leaders.
Despite the creation of an enabling environment for private sector investment and the steps taken for future collaboration, in reality, various factors can still affect whether a certain investible project will be of interest to the municipalities and the private sector.
This is where the Project Bank Guideline produced by OIBN is of use. The Project Bank Guideline is a framework for identification, screening, selection, prioritisation and appraisal of PPP projects which helps create a pipeline for well-planned, credible, and bankable projects through systematic and transparent systems which also function as a tool for better governance and cohesive collaboration backed by government ownership.
“OIBN’s Project Bank Guideline provides a proper framework for the municipalities to ensure their projects are not affected by a change in political leadership or the unpredictability of a regulatory environment.” says Mr. Poudyal. “Once a project is appraised to be bankable it will be protected by the necessary legal framework, such that the project will be untouched by any changes at the political or regulatory level.”
Role of NURP in the future of PPP
In the equation of public-private collaboration, NURP primarily plays the role of a mediator. Through years of rapport-building in the municipalities and current engagement with the private sector and government entities, NURP is a helpful entity to support both parties to select projects that can be developed. However, the role of NURP does not stop there. As NURP progresses into its final year of operation, we will continue raise awareness in the municipalities where we work about the benefits of public-private partnerships for green, resilient, and inclusive initiatives, and on the ways to most effectively go about it.
“The third party should act like a propeller,” says Mr. Ojha in his final statement. “Municipalities need not be dependent on them forever, but they need to propel a system which keeps the momentum going.”
Likewise, for common citizens to understand PPP, they need to stop depending on governments or Official Development Assistance (ODA) to financially support all projects and instead, think about selecting priority projects and developing concepts that are financially viable. The overall mindset, not only of the municipalities or the policy makers, but also of the common people – the service users – needs to recognise and accept PPP as household name for both large-scale investments and local initiatives.
NURP will continue its efforts to act as this propeller for the public and the private sector so that municipalities are able to create an enabling environment for the private sector to invest in feasible projects. When NURP, as a technical assistance programme ends in 2023, the initiative will be self-sustained for municipalities and the private sector to collaborate, using their budget effectively and taking up private projects moving forward. NURP has already begun to see evidence of such sustainable activities. With Pokhara pushing to issue a Letter of Interest (LOI) on a suitable solid waste management project for development and implementation via PPP on their own, we might see a system begin to form gradually in Pokhara, and eventually in all three municipalities.