Since the 2010s, Bangladesh’s socioeconomic landscape has transformed significantly. Because of its burgeoning youth demography, the country has prioritised technology and infrastructure to sustain its development.

As per Bangladesh’s key long-term development policy instrument, the Perspective Plan 2041, the country aspires to become an advanced economy by 2041. This will require significant growth in the economy. Meanwhile, the country’s mid-term policy priorities, set every five years as ‘5-year plans’ (currently it’s in the eighth 5-year plan), estimate that economic growth will reach 8.5% by 2025. These policy plans underscore the criticality of bolstering public–private partnerships (PPPs). But what are these?

A PPP is a collaboration between government and private business to deliver public infrastructure or services. It is a cooperative arrangement whereby both sides bring in their expertise and resources to develop and operate projects for the public benefit. These partnerships often involve long-term contracts that outline each side’s roles and responsibilities. More importantly, they also outline how costs will be shared.

PPP models vary depending on the type of project. The government usually sets out the objectives and regulatory framework, while the private player brings in investments and technical know-how. This partnership combines the strengths of both government and businesses to create better delivery than either could achieve alone.

Bangladesh needs substantial investments in infrastructure sectors like power, water, telecoms, transportation and logistics (including ports and airports) to support economic growth. The public sector has neither the capacity nor the finances to deliver the needed infrastructure projects. Robust public-private partnership, catalysed by supportive policies, is indispensable.

The regulatory framework

Bangladesh first introduced the concept of PPPs in 1996 with its Private Sector Power Generation Policy. This policy restructured the energy sector by promoting private sector participation in power generation. The rationale was to attain efficiency in the economy. It all started with a small power generation plant commonly known as an independent power project (IPP), the Haripur Power Project near the capital Dhaka, which commenced operations in 1997. This was a game-changer. It was the first time a private player had helped meet the country’s energy demands, and also in an efficient way.

The Haripur Power Project was a milestone in Bangladesh’s energy sector, setting a precedent for subsequent independent power projects. It also started diversifying the country’s power generation sources. Since then, numerous successful power projects have been operationalised under the Private Sector Power Generation Policy.

The Haripur Power Project was a milestone in Bangladesh’s energy sector, setting a precedent for subsequent independent power projects.

The policy focused only on power, leaving out other areas. To support partnerships in more sectors, Bangladesh set up new guidelines in 2004. It finally formulated a holistic PPP policy in 2010. Considering the need for a robust legal framework, it enacted the PPP Act in 2015, replacing the 2010 policy. Since then, all PPP projects have been implemented under this PPP Act.

Selecting private partners

Bangladesh has set up a public-private partnership (PPP) facilitation agency, the PPP Authority, to support the PPP Act. The PPP Authority plays a pivotal role in supporting different government agencies to develop PPP projects. In this light, the PPP Authority has formulated the following guidelines:

  1. The Procurement Guidelines for PPP Projects 2018 (PGP);
  2. The Guidelines for Unsolicited Proposals 2018 (GUP);
  3. The Policy for Implementing PPP Projects through Government-to-Government Partnership 2017 (G2G);
  4. The National Priority Project Rules 2018 (NPP).

Bangladesh’s Procurement Guidelines for PPP Projects (PGP) sets out the step-by-step process for the selection of a private partner for a PPP project. The process is divided into four phases: 1) identification; 2) development; 3) bidding; and 4) award and approval. The PGP helps select private partners through a competitive bidding process.

Bangladesh’s G2G Policy is a guide on how PPP projects can work in partnership through other governments. This can involve state-owned or private entities. The option for a G2G partnership can be taken any time before the bidding starts. The process for picking investors involves an agreement between the partner governments. If needed, a private partner can be chosen directly by the other government.

Under the National Priority Project Rules (NPP), a project can be categorised as a ‘nationally important project’ (NIP). A NIP has special priorities. For NIPs, the government can reach out directly to any investor, bypassing the bidding process. There are, however, procedures to follow for a project to obtain NIP status.

In Bangladesh, every PPP project has to go through an approval process led by the government’s Cabinet Committee on Economic Affairs.

A snapshot of PPPs

In Bangladesh, there are 80 projects in the PPP pipeline as of 2023.[1] The total investment amount is USD 41.6 billion. Among these, PPP contracts have been signed only for 19; the rest are in the procurement or planning stages.

Of all signed projects, only four are fully operational.[2] The Dhaka Elevated Expressway, which cuts through the heart of the capital, is the signature PPP that is in operation. The contracts for two other projects, the Jhilmil Residential Project (signed in 2017) and the Dhaka Bypass Project (signed in 2018), are promising. However, similar to numerous other PPP initiatives, progress on these has been slow.

Bangladesh is now focusing on the G2G Policy, and G2G PPPs have been on the rise. These G2G projects are in different sectors, including transport, water, sanitation and hygiene. Their success could significantly improve the lives of many.

 Financial support and tax benefits

The public-private partnership (PPP) projects need clear finance strategies. Bangladesh has created some PPP financing policy documents. The Rules for Public–Private Partnership Technical Assistance Financing, formulated in 2018, established a PPP Technical Assistance Fund. The fund provides early-stage funding support for sanctioned PPP projects. Bangladesh has used it to pay for feasibility studies for projects.

Bangladesh’s public-private partnership projects need clear finance strategies.

Then came the Rules for Viability Gap Financing (VGF) for Public–Private Partnership Projects, also established in 2018. According to these, Bangladesh can offer viability gap funds to certain projects. In other words, these projects are considered crucial for the public good but are not commercially feasible. So far, this has been a less-used policy tool. A VGF agreement has been signed for one project: the Dhaka Elevated Expressway.

Businesses in PPP projects are entitled to tax benefits. They get tax exemptions when availing services from construction firms and consultants.[3] In some PPP projects, the crucial incentive is the income tax exemption for a period of 10 years.[4] Additionally, when shares of a PPP project company are transferred, there is no capital gains tax. Also, for the first 10 years after the project starts running, there are no taxes on fees for things like royalties or technical assistance.

The landscape

Despite Bangladesh’s efforts to promote public-private partnerships, the success rate remains notably low. Only a few hand-counted PPP projects are in operation. Some large and capital-intensive projects are being implemented through turnkey contracts funded by the government or through foreign loans. These include the Padma Bridge, Dhaka Metro (Line 1), Bangabandhu Sheikh Mujibur Rahman Tunnel (in Chattogram) and Dasherkandi Sewage Treatment Plant (in Dhaka), all of which were inaugurated in 2023.

Bangladesh’s PPP experience has reflected some key challenges for both government and private players:

  • Land acquisition issues: In almost all of the PPP projects, the government (which is the contracting authority) procures and grants the usage rights over the land for the project. As Bangladesh is densely populated and unused land is almost unavailable, the government often has to acquire land through a special legal provision, the Acquisition and Requisition of Immovable Property Act, enacted in 2017. The law empowers the government to acquire land only in the public interest after compensating the landowner. The process of identifying, acquiring and transferring the land parcel to the private partner is time-consuming, which delays the project.
  • Lack of expertise: Bangladesh’s PPP Authority has evolved over the years. However, it still lacks the technical expertise for implementing complex PPP projects. The PPP Authority appoints consultants (technical, financial and legal experts) for feasibility studies, risk assessments, bids and concession agreements. The onboarding of these consultants, while essential, is a time-consuming process.
  • Bankability issues: In the signed projects, the private partners struggle to find time-bound Financiers require reliable revenue streams along with a well-defined payment plan on how the private partner will be paid for their services. As the land is typically leased (or licensed) to companies, financiers cannot apply a traditional mortgage over the freehold interest of the land. It becomes difficult to set a reliable security structure. The financiers also expect guarantees from the government (such as minimum revenue guarantees) or assurances against political risks, which include assurances of foreign currency.

Potential reforms

Addressing the challenges is imperative for Bangladesh to enhance the success of its PPP projects. Accelerating foreign direct investment (FDI) into the country is crucial to speed up PPP projects. Improving the investment climate will be necessary to attract FDI. Bangladesh can consider the following reforms:

  • Model agreements: Develop standardised model agreements for different types of PPP projects. This will reduce negotiation time and ensure consistency. In Bangladesh, financiers feel comfortable with the agreements for the power sector projects. But they are still unfamiliar with PPP projects, which makes them uncomfortable. Standardised agreement templates will help ease them.
  • Comprehensive risk analysis: Conduct a comprehensive risk analysis for each project. Then develop risk allocation frameworks tailored to the specific needs of different sectors.
  • Training: Conduct training programmes for government officials working on the PPP projects, to enhance their skills in project management, risk assessment and negotiation.
  • Dedicated PPP units: Establish dedicated PPP units within government agencies, with experts to streamline project management processes.
  • Financial viability assessment: Implement rigorous financial viability assessments before initiating PPP projects to identify challenges and opportunities.
  • Regular consultations: Establish mechanisms for regular consultation with stakeholders, including local communities, to foster collaboration.
  • Innovation incentives: Provide incentives for innovative approaches and cutting-edge technologies that can help sustain PPP projects.

In Bangladesh, financiers feel comfortable with the agreements for the power sector projects. But they are still unfamiliar with PPP projects…

Conclusion

To reach the ambitious target of achieving more than 8% to double-digit GDP growth, in the short and long terms, investment in vital infrastructure will be crucial for Bangladesh. This means policy-makers need to concentrate on building strong networks for the smooth flow of goods and services to markets. It means maintaining a competitive edge. The government cannot do this alone; it needs private partners. Bangladesh is determined to advance and, with focus, the country can make great strides into the future.

 

[1] According to the Annual Report of Bangladesh’s PPP Authority for 2022–2023.

[2] The first were two haemodialysis centres (at the National Institute of Kidney Diseases and Urology in Dhaka and at Medical College Hospital in Chattogram) and the development of water distribution and supply facilities in Purbachal, a satellite town of Dhaka. The Dhaka Elevated Expressway, signed in 2013, went into operation after 10 years in 2023.

[3] The value added tax (VAT) gets exempted.

[4] The incentive kicks in from the date commercial operations begin.

 

Cover ©Motorcade of Bangladesh’s prime minister takes the inaugural drive through the Dhaka Elevated Expressway. The elevated expressway, crossing through the heart of the capital, is the first successful mega infrastructure under public-private partnership scheme, Dhaka, Bangladesh, 2 September 2023 | Photo by Mahmud Hossain Opu.

Photo © Mahmud Hossain Opu

Arunima Dutta Aurni is a Junior Partner at Farooq and Associates, Dhaka. She is a lawyer. She specialises in infrastructure development support and structured financing transactions. She has worked as an advisor on infrastructure, power and economic zone projects in Bangladesh. She pursued her undergraduate studies at the University of London, UK and was called to the Bar of England and Wales from Lincoln’s Inn.