12:00 AM, August 09, 2018 / LAST MODIFIED: 01:09 AM, August 09, 2018

Making a difference in delivering public services

A construction site of the Dhaka Elevated Expressway near Air Port Road, Khilkhet. Photo: Sk Enamul Haq

The progress and prosperity of Bangladesh over the recent decade has been driven by the rise in trade, commerce and business activities. The private sector led growth can be best witnessed by the vibrancy of the capital city, Dhaka. With a population of 18 million who make around 30 million daily trips in public and private transport, traffic congestion has become a part of everyday life.

The government has been working on a multi-sectorial strategy to reduce traffic congestion and increase the range of public infrastructure services available. Investment plans in different modes of public transport infrastructure, such as Mass Rapid Transit (MRT), Bus Rapid Transit (BRT), flyovers and elevated expressways, have already been finalised with the construction of underway for a number of these transport networks.

To ensure that transport infrastructure can meet public service requirements, the government in its 7th Five Year Plan has identified the need to increase investment in transport infrastructure from around $3.5bn per year to approximately $12.5bn per year over a five year plan period.

However, sourcing this significant amount of financing is a key challenge. It is in this context that the government has prioritised the application of Public Private Partnership modality in the delivery of transport infrastructure. 

By tapping into private sector finance to meet investment gaps, government can accelerate the pace of development and fast track the socio-economic benefits for the nation. However, without the establishment of a robust regulatory framework, successfully realising PPP projects can be challenging. There is a need to blend public service delivery needs with private sector investment returns. There are interface risks between timely delivery of government commitments, such as land acquisition and utility shifting, and the commencement of private sector construction. Risk allocation needs to be carefully structured to ensure that the private sector is not taking on risks that they are unable to manage.

The challenges of delivering a PPP project in advance of the establishment of a completed regulatory framework can be identified from the Dhaka Elevated Expressway Project. Originally signed in 2011, by Ital-Thai Development Public Company, the concession agreement had to be amended in 2014 to address issues in land acquisition. The resulting change in alignment and the need to revise the designs and other consequential matters meant that the transaction structure was not sufficiently mature to complete the necessary financing arrangements. Added to this was the size of the transaction; with a capital cost of $1.2bn, the Dhaka Elevated Expressway is one of the largest PPP road projects in South Asia. This created significant challenges in raising the necessary finances for a project of such size, made all the more acute given the limited domestic market for long term financing.

However, it is in the First Dhaka Elevated Expressway PPP Project that one can witness the true nature of PPPs. Despite the various project changes, difficulties and delays, the strong partnership ethos between the private sector and government has shone through. With a commitment to ensuring the delivery of the project, both parties have shown willingness and a keen determination to maximise co-operation within the framework of the PPP contract. This flexible attitude within a structured approach has helped the project to overcome its initial difficulties and has now set it on the path to delivery. 

Construction Commence Date for the project, representing the formal start of the concession period, was issued on April 1, 2018. The private sector has demonstrated their commitment by already investing around $100m in carrying out bored piling, footing and pile cap works, and installing pile columns and cross beams for the first phase of construction. Additional equity injection from new consortium members is expected, and discussions are at a final stage for the financing of the project from international lenders.

With the PPP regulatory framework now in place and PPP projects being subject to additional scrutiny, enhanced project preparation and a more standardised and balanced risk structure being applied, it is expected that many of the challenges faced by the Dhaka Elevated Expressway Project will be addressed for future projects and help to accelerate the pace of development. 

With the Dhaka Elevated Expressway project, followed by the Dhaka Bypass PPP project and a number of other PPP road projects in Dhaka, in addition to the MRT and BRT projects, as well as other public sector projects, we can see that Dhaka is well on its way to having the range and quality of transport infrastructure services that is needed to meet its dynamism and growth trajectory.

 

Syed Afsor H Uddin is the CEO of the PPP Office under the Prime Minister's Office, Government of Bangladesh.