The country’s regulatory framework remains fragmented both geographically and across industries. The Constitution gives provinces the responsibility for local infrastructure development; and Punjab and Sindh provinces have experience with legislation and PPP transactions. Certain sectors like national highways and power plants are still handled at the federal level. The power sector has implemented many PPPs, but not as part of the national dedicated PPP framework, and institutional knowledge has not been shared across stakeholders. The result is a fragmented system where PPPs in the power sector are thriving and attracting international investment, while PPPs in other sectors are less attractive to investors. In 2015, the government issued Pakistan 2025: One Nation, One Vision (otherwise known as Pakistan Vision 2025), a 10-year development plan that proposes a comprehensive policy regime to promote PPPs.
The country’s regulatory framework remains fragmented both geographically and across industries. The Constitution gives provinces the responsibility for local infrastructure development; and Punjab and Sindh provinces have experience with legislation and PPP transactions. Certain sectors like national highways and power plants are still handled at the federal level. The power sector has implemented many PPPs, but not as part of the national dedicated PPP framework; and institutional knowledge has not been shared across stakeholders. The result is a fragmented system where PPPs in the power sector are thriving and attracting international investment, while PPPs in other sectors are less attractive to investors. In 2015, the government issued Pakistan 2025: One Nation, One Vision (otherwise known as Pakistan Vision 2025), a 10-year development plan that proposes a comprehensive policy regime to promote PPPs.
Pakistan Vision 2025 lays down the foundation to fast-track Pakistan’s development with the ultimate goal of transforming the country to become one of the top 10 economies in the world by 2047, its first centenary. The document states that: “Public–private partnerships will be promoted through a comprehensive policy regime. The enhanced private sector participation would be used for better infrastructure development and improving connectivity to facilitate private sector growth.”
In 2019, the Government of Pakistan introduced a 3-year Public Sector Development Plus Program (PSDP+) that involves 53 megaprojects with $33.58 billion (PRs5.2 trillion at the end of 2019) investment to be implemented in 3 years during fiscal years (FYs) 2020–2023. PSDP+ projects will be implemented throughout Pakistan and are divided into two broad categories. At the start, there are 29 projects in 11 sectors with zero government investment, which are expected to inject a direct investment of $18.73 billion (PRs2.9 trillion at the end of 2019) into the economy. The government, through public sector investment, will also provide an enabling environment to crowd in the private sector—fostering PPPs and joint ventures to reduce the burden on the PSDP.
As approved by the National Economic Council in June 2020, the size of the Federal PSDP 2020–2021 is set at PRs650 billion, including foreign assistance of PRs72.5 billion. The Public Private Partnership Authority (PPPA) has been activated, leveraging a private sector investment of PRs50 billion to complement public resources. During FY2020/21, four projects with a tentative cost of PRs300 billion and an estimated investment of PRs50 billion would be implemented in PPP mode.
Based on the World Bank Private Participation in Infrastructure (PPI) database, the total number of infrastructure projects that attracted private investments and achieved financial closure from 1990 to 2019 were 108. The projects were predominantly in the energy sector (88%), with the remaining 12% in ports, information and communication technology (ICT), airports, and waste disposal sectors.
The total investment made in the 108 PPP projects is approximately $28.4 billion (PRs4.40 trillion at the end of 2019).
Though the PPP market in Pakistan has relatively matured, there have been various challenges to PPP implementation in Pakistan:
- The federal procurement policy provides a sufficient framework for transparency and competition, but projects are subject to sector and provincial laws, which adds a layer of regulatory uncertainty. However, projects under the provincial PPP framework are not subject to federal PPP framework. Further, till recently, all energy projects higher than 50-megawatt capacity and ports were under the federal government. These projects have moved to provincial level only recently. However, the federal government gets involved during the final phases of the project development, mainly during the approval of government guarantee frameworks.
- The federal government recognizes the potential of PPPs in infrastructure development. However, the lack of coordination results in overlapping efforts and regulatory risks for the private sector. In addition, the framework for dispute resolution, conciliation, and arbitration is unclear. Many line ministries lack experience in negotiating contracts and rely on technical assistance from international consultants.
- Another challenge is the lack of long-term debt financing in the market. Currently, in majority of the cases, commercial banks only offer short- to medium-term loans, which shortens the payback period and financial viability for PPPs. However, there are instances where commercial banks have also provided 10- to 15-year loans on a floating rate basis linked to the Karachi Interbank Offered Rate. Such instances were exceptional and have been done under the regulatory regime, which provided them the certainty of returns (e.g., wind and solar projects that have feed-in-tariff pre-fixed, protecting the revenue risk for the private sector). At the provincial level, capacity and efficient use of resources are key challenges. Provincial governments have limited capacity to identify a pipeline of viable projects, develop these projects, and provide adequate guarantees and financing.
- The country does not have sufficient guidelines, checklists, and model documents for various sectors, which discourage private sector investments.
