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ADB: Private sector can play key role
There is ample evidence, says an
Asian Development Bank economist, that public-private partnerships
(PPPs) in Asia and the Pacific “can be a powerful, market-friendly
instrument for poverty reduction”.
For this outcome policy frameworks must focus on widening service
access and competitive service delivery with subsidies that are
well designed and tariffs carefully assessed.
Pro-poor regulations and effective regulators must also be in
place.
This is the view of Adrian T.P. Panggabean, writing in an ADB
working paper, ‘Expanding Access to Basic Services in Asia and the
Pacific Region: Public-Private Partnerships for Poverty
Reduction’.
He said there was sometimes a case to be made for a public grant
to a PPP “if this will substantially extend its social benefits”.
More Asian governments have been turning to PPPs because of the
tremendous strains on infrastructure caused by the emergence of
mega cities – 17 of the world’s 19 huge cities are in Asia – and
because private sector capital can improve public services and
management of public assets.
PPPs can also enhance efficiency in the delivery of services and
“are often considered to be politically safer than privatisation”.
Panggabean writes that because the causes of poverty are diverse
and efforts to reduce poverty must be tailored to diverse
circumstances, government programmes need to be country-specific.
“Unless suitable policy frameworks are in place, it is difficult
to attract bona fide investors or to secure the financial support
required to put pro-poor PPPs into operation.”
Such frameworks would include the commercial practices of PPPs,
the nature of services provided, eligible providers, service
performance specifications, tariff arrangements and dispute
resolution procedures.
Getting the framework right was a first step with serious
attention needed on the degree to which the private sector has an
incentive to serve the poor.
Panggabean said that one of the ways of ensuring good outcomes was
to define universal service access as one of the major performance
goals for any given PPP.
Otherwise, there is a risk the poor may be excluded from privately
provided services.
He cited the case of the Maynilad Water Services Company in
Manila, which was given the right to collect revenue for 25 years
in the western part of the city but with an obligation to service
an increasing proportion of residents.
“Targets were set at every five years, with an end-of-contract
connection target of 98.4% by the end of the 25-year concession,”
he said.
In another instance in China’s industrial city of Chengdu, a
build-operate-transfer water supply project was externally
financed without a government guarantee, aided by an ADB loan of
US$26.5 million and commercial debt funding of US$21.5 million.
Panggabean warned against replacement of monopoly public service
providers with private monopolies and suggested PPPs should
“inject a measure of dynamism and consumer responsiveness to
previously sheltered sectors”.
He cites the case of the Grameen Bank in Bangladesh, which
launched a mobile phone company 10 years ago in 1997 when a public
telecommunications monopoly operated 95% of all phones.
By 2002, its subscriber base had reached 730,000 people and 70% of
the country’s mobile phone market, a sharp contrast to the
previous situation when there were only two phones per 1,000
inhabitants.
He said many of the village phones had had large, positive social
and economic impacts on the poor, giving them access
to market information and relatives in distant places.
“A call that would replace a single trip from the rural areas to
the urban centres can be as much as 2-10% of the annual income of
the poor, savings that few other innovations could match,” he
noted.
He suggested that although subsidies could be put to good effect,
across-the-board subsidies were not a good idea because they
benefit people who are better off and who have a higher
consumption of goods and services that PPPs deliver.
Another success story in Bangladesh was the 450 megawatt
Meghnaghat Power Project, the first to be financed by the private
sector with ADB assistance.
Built to provide power to agriculture and industry on the northern
banks of the Meghna River, this build-own-operate venture “has the
lowest power tariff in the world”.
Also in Bangladesh, one of Asia’s poorest countries, an urban
primary health care project was contracted out to non-governmental
organisations to target the poor in major cities that had many
slums.
“The project provided services such as immunisation, micronutrient
support, family planning, prenatal care and assistance to victims
of domestic violence,” Panggabean noted, adding that one quarter
of deaths among women aged 15
to 44 was maternity-related.
“The project has also helped local governments strengthen their
ability to manage, finance and plan health services.”
In Sri Lanka, the PPP model was used to resuscitate the plantation
sector, which had been nationalised between 1972 and 1975 under
two state-owned corporations.
By 1992, these two companies had operating losses of 1.5 billion
rupees annually.
Despite opposition from trade unions and some political parties, a
PPP scheme was implemented in 1992 with 23 regional plantations
companies and their management assigned to private management
companies on a five-year, performance-linked contract.
Efficiency gains were made quickly and increased earnings led to
higher wages with 14 of these companies listing on the local stock
exchange.
Three years later, the government transferred 50-year leases to
the new owners.
Between 1991 and 1998, average tea yields rose 48% and tea
production rose from 231 million kg in 1993 to 280 million kg in
1988 with labour productivity up 22%, enabling most of these
companies to pay dividends to the government.
Panggabean said it was important that PPP strategies and business
plans were carried out in the context of national poverty
reduction strategies with good commercial practice providing
opportunities for business to profit in partnership with
government.
 
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