1. Sri Lanka
  2. National PPP landscape

National PPP landscape

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  • Overview

    National PPP image

    NUMBER OF PPPs AND INVESTMENT IN PPPs

    • PPPs reaching FC (#)
      179
    • PPPs reaching FC (Value)
      $ 5,240 M

    REVENUE MODEL AND GOVERNMENT SUPPORT TO PPPs

    • PPPs with Govt. Support (#)
      32
    • User Charge PPPs (#)
      20
    • Govt. Pay PPPs (#)
      152

    PPP UNDER PREPARATION AND PROCUREMENT

    • PPPs under preparation (#)
      4
    • PPPs under procurement (#)
      9

    FC = financial closure, Govt. = government, M = million.

    • National Framework for Enabling PPPs

      Types of PPPs

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      Service Contracts

      Management Contracts

      Affermage or Lease Contracts

      Design-Bid-Build (DBB)

      Design-Build (DB)

      Build-Operate-Transfer (BOT)

      Design-Build-Finance-Operate-Transfer (DBFOT)

      Build-Own-Operate (BOO)

      Concessions

      Joint Venture

      Hybrid Contracts

      Others

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      National Framework for Enabling PPPs

      Types of PPPs

      Most PPP projects in Sri Lanka have been implemented as build–own–operate (BOO) and build–own–transfer (BOT) projects. As per publicly available information, most PPP power and ports projects implemented in Sri Lanka have been implemented under BOO and BOT basis for concession periods of 20–35 years.1

      In addition to BOO and BOT, the 1998 PSIP Guidelines also refers to build–own–operate–transfer (BOOT), as well as other structures that are not specifically defined as forms of projects that may be financed and/or developed by private investors. The 1998 PSIP Guidelines are common to all these different types of PPP contracts.

    • National Framework for Enabling PPPs

      Eligible Sectors for PPPs

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      Transportation Infrastructure

      Road Infrastructure

      Rail and Mass Transit Infrastructure

      Waterways Infrastructure

      Seaport Infrastructure

      Airport Infrastructure

      Logistics Infrastructure

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      Water, Wastewater, and Solid Waste Management Infrastructure

      Water Resources and Irrigation Infrastructure

      Water Supply Infrastructure

      Wastewater Infrastructure

      Solid Waste Management Infrastructure

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      ICT Infrastructure

      Telecommunication Infrastructure

      IT and Informatics Infrastructure

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      Energy and Electricity Infrastructure

      Power Generation

      Power Transmission and Sub-Transmission

      Power Distribution

      Energy Conservation Infrastructure

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      Other Infrastructure

      Zone Infrastructure

      Oil and gas infrastructure, including bio-energy

      Tourism Infrastructure

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      National Framework for Enabling PPPs

      Eligible Sectors for PPPs

      According to the 1998 PSIP Guidelines, the eligible sectors for PPP are given below. However, the guidelines are not limited to these sectors.1

      • Power plants
      • Highways
      • Ports
      • Airports
      • Telecommunications
      • Railways
      • Transport systems
      • Industrial parks
      • Housing
      • Solid waste management
      • Water supply and drainage
      • Warehouses, housing, and markets
      • Land reclamation
      • Other economic infrastructure (not further defined)
      • 1MOF. 1998. Guidelines on Government Tender Procedure—Part II.
      SectorsSub-sectors
      Transportation infrastructureRoads
      Railway
      Ports
      Airports
      Water, Waste Water, and Solid Waste Management InfrastructureSolid Waste Management
      Water
      ICT InfrastructureICT
      Energy and Electricity InfrastructurePower
      Social InfrastructureSocial Housing
      Healthcare
      Education
      Other InfrastructureMSME
      Agribusiness
      Tourism

    • National Framework for Enabling PPPs

      PPP Institutional Framework

      Parameters

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      Does the country have a national PPP unit?
      What are the functions of the national PPP unit?

      • Supporting the design and operationalization of the national PPP-enabling framework?

      • Helping develop a national PPP pipeline?

      • Supporting the arrangement of funding for project preparation (budgetary allocations, technical assistance funding from multilateral development agencies, operating a dedicated project preparation/project development fund)?

      • Guidance for project preparation to and coordination with the government agencies responsible for sponsoring the projects?

      • Making recommendations to the PPP Committee and/or other approving authorities to provide approvals associated with various stages of PPP process?
      • Yes
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      National Framework for Enabling PPPs

      PPP Institutional Framework

      Entities Responsible for Public–Private Partnership Project Identification, Approval, and Oversight

      Historically, various institutions and entities have been responsible for PPPs in various capacities. According to the 1998 PSIP Guidelines, the institutions associated with the PPP Program in Sri Lanka include the following:1

      • Ministry of Finance, Economic Stabilization and National Policies (previously known as the MOF).
      • Attorney General’s Department.
      • Central Environmental Authority (CEA).
      • Relevant line ministries and state agencies.
      • Any other ministry/ department/ agency as appropriate.

      The re-established NAPPP (in Q4 2022) will act as the central agency to support all PPP projects in the country. Delivery of PPP projects will rest within the line ministries, and it is intended that the NAPPP will coordinate the implementation of these projects across all government agencies and work closely with the PPP units within each government agency to ensure that they are effectively screened, prepared, tendered, and implemented. The NAPPP will play a governance role via the implementation of the PPP law, PPP operational guidelines, and other regulatory frameworks. The NAPPP is also expected to support the development of a national PPP pipeline and assist line agencies with screening mechanisms and capacity-building activities.

      • 1Government of Sri Lanka, Ministry of Finance, Economic Stabilization and National Policies. 2022. Private Sector Infrastructure Projects—Part II.

      Principal Public Agencies, Institutions, and Firms that Support Public–Private Partnerships in Sri Lanka

      Key Agencies/FacilitiesFunction(s)
      NAPPP
      • Act as a facilitator in implementing PPP projects under respective line ministries/agencies.
      • Identify and structure suitable PPP projects for line ministries/agencies.
      • Assist line ministries/agencies to invite bids, evaluate, negotiate, and select investors.
      • Assist line ministries/agencies to procure required local and international experts to carry out pre-feasibility studies and procurement of transactions advisors for PPPs.
      • To act as the central agency to support all PPP projects in the country.
      • Implementation of the PPP law, operational guidelines, and other regulatory frameworks.
      • Support the development of a national PPP pipeline and assist line agencies on screening mechanisms.
      • Collaborate with line ministries/agencies to ensure that PPP projects are effectively screened, prepared, tendered, and implemented.
      MOF
      • Oversee all ministerial agencies, approve grants for PPP projects prior to tendering, and formulate procurement guidelines.
      • The National Planning Department, which functions under the Ministry, generally approves all procurements by line ministries and agencies.
      National Procurement Commission
      • Preparing of necessary procurement guidelines and instructions.
      • Monitoring and regulating activities pertaining to the procurement of goods and services, works, consultancy services, and information systems by all government entities to ensure a fair and transparent process for all stakeholders involved.
      • Monitor and report to the appropriate authorities on whether all procurement of goods and services, works, consultancy services, and information systems by government institutions are based on procurement plans prepared in accordance with previously approved action plans.
      • Monitor and report to the appropriate authorities on whether all qualified bidders are afforded an equal opportunity to participate in the bidding process for the provision of those goods and services, works, consultancy services, and information systems.
      • Monitor and report whether the procedures for the selection of contractors, and the awarding of contracts for the provision of goods and services, works, consultancy services, and information systems to government institutions are fair and transparent.
      • Report on whether members of procurement committees and technical evaluation committees relating to the procurements, appointed by government institutions are suitably qualified.
      • Investigate reports of procurements made by government institutions outside established procedures and guidelines, and to report the officers responsible for such procurements to the relevant authorities for necessary action.
      Line ministry/agency (including state-owned enterprises)
      • Line ministries/agencies are responsible for identifying, selecting, and preparing candidate PPP projects.
      • Line ministries and public agencies are tasked to handle the PPP process, while NAPPP will play an oversight role.

      Sources: ADB. 2019. Public–Private Partnership Monitor, Second Edition; Government of Sri Lanka, Ministry of Finance, Economic Stabilization and National Policies—Sri Lanka. 2022. Private Sector Infrastructure Projects—Part II; Government of Sri Lanka, Ministry of Finance, Economic Stabilization and National Policies. 2019. Public Finance Circular No.02/2019; Government of Sri Lanka, Parliament of Sri Lanka. 2022. Constitution of the Democratic Socialist Republic of Sri Lanka.

      Entities Responsible for Public–Private Partnership Project Identification, Approval, and Oversight

      Parameter 
      Who is responsible for identifying, preparing, and procuring the PPP projects?
      • Respective line ministries and/or implementing agencies.
        Example: For a road PPP project, the line ministry is the Ministry of Transport and Highways, while the implementing agency is the Road Development Authority
      Is there a PPP committee for providing approvals at various stages of PPP projects?
      • Currently, a Project Committee and a Cabinet Appointed Negotiating Committee will be appointed for each PPP project as per procurement guidelines.2
      Who else has the authority to approve PPP projects aside from the PPP committee?
      • NAPPP, MOF, and the Attorney General’s Department must be consulted. Approval from Cabinet is mandatory.
      Does the country have an independent thinktank for various PPP planning, budgeting, and policy decisions?
      • The re-established NAPPP is expected to play this role among many other responsibilities.
      Is there a regulatory body for the PPP program oversight?
      • The re-established NAPPP is expected to play this role among many other responsibilities.
      • 2Roles of these committees are explained in detail under PPP procurement process

      Sources: ADB. 2019. Public–Private Partnership Monitor, Second Edition; Government of Sri Lanka, Ministry of Finance. 1998. Guidelines on Government Tender Procedure—Part II.

      Entities Responsible for Public–Private Partnership Project Monitoring

      The re-established NAPPP is expected to facilitate and provide advisory oversight for all PPP projects in the country. The NAPPP will facilitate the implementation of PPP projects across all government agencies and work closely with each line ministry and government agency.

      Currently, there is no dedicated entity for monitoring post commercial closure and management of fiscal risks from PPP projects. Monitoring activities are largely carried out by the respective line ministry and/or agency and the MOF. The new PPP law being drafted by the re-established NAPPP is expected to address these areas.

      Entities Responsible for Public–Private Partnership Project Monitoring

      Parameter 
      Is there an entity for monitoring of PPP projects post commercial close? 
      Is there an entity for monitoring and managing fiscal risks and liabilities from PPP projects for the MOF? 
      • No

      Sources: ADB. 2019. Public–Private Partnership Monitor, Second Edition; Government of Sri Lanka, Ministry of Finance. 1998. Guidelines on Government Tender Procedure—Part II.

      Sources: ADB. 2019. Public–Private Partnership Monitor, Second Edition; Government of Sri Lanka, Ministry of Finance. 1998. Guidelines on Government Tender Procedure—Part II.

    • National Framework for Enabling PPPs

      The PPP Process

      Parameters

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      Does the PPP legal and regulatory framework provide for a PPP implementation process covering the entire PPP life cycle?a
      Does the Feasibility Assessment Stage cover

      • Technical feasibility?

      • Socioeconomic feasibility?

      • Environmental sustainability?

      • Financial feasibility?

      • Fiscal affordability assessment?

      • Legal assessment?

      • Risk assessment and PPP project structuring?

      • Value for Money assessment?

      • Market sounding with stakeholders?
      Is the PPP procurement plan required?
      Is there a need to set up a separate PPP procurement committee?
      Is competitive bidding the only method for selection of PPP private developer?
      Is the prequalification stage necessary? Or does the PPP legal and regulatory framework allow flexibility to skip the prequalification stage?
      Does the PPP legal and regulatory process provide the option to the preferred bidder for contract negotiations?
      Does the PPP legal and regulatory framework allow unsuccessful bidders to challenge the award/submit complaints?
      What is the maximum time allowed for submitting a complaint/challenging the award by unsuccessful bidders from the announcement of the preferred bidder?b 14-28 days
      Does the PPP legal and regulatory framework provide for transparency?
      Which of the following are required to be published?

      • Findings from the feasibility assessment?

      • Procurement notice?

      • Outcome of stakeholder consultations from market sounding?

      • Clarifications to prequalification queries?

             		Only among bidders

      • Prequalification results?

      • Clarifications to pre-bid queries?

      • Results for the bid stage and selection of preferred bidder?

      • Final concession agreement to be entered between the government agency and the preferred bidder? And other PPP project agreements executed between government agency and preferred bidder?

      • Confidentiality
      • aProcurement Guidelines-Part II (1998) only captures up to project award stage.
      • bAs per National Procurement Guidelines Goods and Works 2006.
      • Yes
      • No
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      National Framework for Enabling PPPs

      The PPP Process

      Sri Lanka’s PPP process as outlined in the 1998 PSIP Guidelines only captures the process up to project award stage.

      Public–Private Partnership Procurement Process in Sri Lanka

      The 1998 PSIP Guidelines require the preparation of a “financial and technical viability report” on PPP projects before the launch of a request for proposals. The anticipated content of this report is not detailed in the guidelines.1

      The current PPP approval process is based on the 1998 PSIP Guidelines but modified to account for institutional changes that have taken place since (such as the dissolution of the BII). The table below presents a high-level process flow on the PPP project preparation and execution stages.

      Public–Private Partnership Project Preparation Process

      StepDescription
      1The line ministry or agency must submit the project pre-feasibility or concept to the Project Investment Committee of the Department of National Planning, a division within MOF.
      2If shortlisted by the Department of National Planning, the line ministry or agency must submit the Cabinet Memorandum to the Cabinet Office and, parallelly, forward copies to MOF and other relevant line ministries, departments, or agencies for their observations.
      3MOF and other relevant line ministries, departments, or agencies submit their observations to Cabinet for consideration.
      4Cabinet decides whether the project should proceed to the next stage of preparing feasibility studies and tender documents under the PPP route.
      5

      Cabinet will provide a decision on the following:

      • The quantum of funding for project preparation along with their source (i.e., External Resources Department, a department of MOF, which is responsible for mobilizing external financing on behalf of the GOSL).
      • If known at this stage, any government support such as government guarantees or public funding will also be approved.
      6
      • Cabinet will appoint a Negotiating Committee (CANC) to handle all matters pertaining to PPP projects and make recommendations on selection of the proponent. The Project Committee (PC) will be constituted once the project is approved by Cabinet in principle. The committee will be appointed by the Secretary to the Treasury at the request of the Secretary of the line ministry. The PC comprises members from the line ministry, MOF, Attorney General’s Department, NAPPP, CEA (if applicable), and representatives from other relevant ministries or agencies.
      • CANC is a project-specific committee appointed on behalf of Cabinet. The CANC would be chaired by the Secretary to the Treasury (or Deputy Secretary) and comprises secretaries of relevant line ministries or agencies. However, in the instance that the Chairperson is not the Secretary or the Deputy Secretary to the Treasury, a secretary to any other line ministry can be appointed as the Chairperson of CANC.
      7The PC, with the assistance of external consultants where necessary, undertakes feasibility studies and prepares project agreements. CANC provides inputs on the tender process and timelines which are reflected in the tender documents of the project.
      8Draft project agreements are submitted by the PC to the Attorney General’s Department via the line ministry, department, or agency.
      9The Attorney General’s Department reviews the draft project agreements and tender documents and provides inputs/comments to the line ministry, department, or agency originating the project.
      10The PC submits the updated draft project agreements and tender documents to CANC for its approval.
      11CANC reviews the feasibility study, draft project agreements, and the tender documents for approval.
      12Once CANC communicates its approval to PC and the originating line ministry, department, or agency, the project agreements and tender documents are issued by the line ministry, department, or agency to the private sector, thus initiating the procurement process.

      Sources: Government of Sri Lanka, Ministry of Finance. 1998. Guidelines on Government Tender Procedure—Part II; National Procurement Agency. 2006. National Procurement Guidelines Goods and Works; Industry research.

      The PPP project development and evaluation process includes prequalification steps such as the call for expressions of interest (EOIs) and an evaluation of the submitted EOIs. Once these reevaluation steps are completed, a bidder is selected, and the contract awarded post negotiation (following table).

      Public–Private Partnership Project Development and Evaluation Process

      Procurement Stage 
      Prequalification of proponents (optional)
      • CANC may decide to launch a prequalification of proponents. This is a mandatory requirement in large-scale projects (estimated cost exceeding $100 million) and in the case of technically complex projects.
      • The prequalification of proponents is initiated by an invitation for EOIs, that is given the widest publicity in international media. The EOIs will be prepared by the line ministry (and external transaction advisors, if applicable) under purview of the PC.
      • EOI responses will be evaluated by the PC, which will make its recommendations to CANC for approval.
      Selection of a bidder
      • Prequalified firms from the EOI stage will be eligible to receive the request for proposal (RFP). The RFP will also be prepared by the line ministry (and external transaction advisors, if applicable) under the purview of the PC.
      • RFP is given wide publicity through foreign and local print and electronic media, and through overseas Sri Lankan missions. The press notice may also be sent to all potentially interested companies that have been in contact with the relevant public authorities or have expressed an interest in the past.
      • The RFP should contain all relevant information on the project, specific information required from the bidders to evaluate the proposal, and a defined format for the bidders to follow when submitting their proposals. The RFP should include a draft of the contracts and agreements that will need to be concluded between the private and public parties involved.
      • The standardized period for submitting proposals is three months; this may be shortened following the norms of the general procurement guidelines or increased to six months depending on the project.
      • RFP responses are evaluated by the PC in three stages: assessment of the completeness of the proposal, assessment of its responsiveness to the requirements and disqualification of nonresponsive RFP documents, and evaluation of proposals to rank the competitive bids.
      • Evaluation of the proposals should strictly adhere to the criteria specified in the RFP.
      • The evaluation should be completed within three months from the date of receipt of the proposals.
      • The key factors in the comparative evaluation of different proposals should be the price offered, the duration of the operation period, and the tariff structure.
      • The PC should submit a final report to the CANC, including a summary of the evaluation and ranking of the proposals and recommendations.
      Negotiation and award of the contract
      • Negotiation should be conducted by the CANC, with assistance of the PC if needed.
        • At the end of the negotiations, a draft letter of intent (LOI) should be submitted by the procuring entity, with the inclusion of a financial clause to the Attorney General’s Department for concurrence.
        • Once the Attorney General’s Department approval is given, final approval should be sought from CANC and Cabinet respectively. The purpose of the LOI is to grant exclusivity to the preferred bidder for an agreed period to enable the sponsor to complete all tasks that are needed before the signature of the PPP contract. The LOI should include, among other things, a completion of all amendments to the proposal agreed through negotiation with the CANC.
      • The LOI is signed by the secretary of the line ministry and the head of the line agency involved and is countersigned by the bidder accepting the LOI.
      Project finalization
      • Agreements include the implementation agreement, a service or product purchase agreement, and several agreements that are listed in Section 285 of the Guidelines on Government Tender Procedure—Part II on Private Sector Infrastructure Projects (BOO/BOT/BOOT projects).
      • The Attorney General’s office and Cabinet should approve the final proposal with the agreed draft agreements before final signatures.
      • The agreements should be signed by the MOF, the line ministry, and the private partner.

      Government of Sri Lanka, Ministry of Finance. 1998. Guidelines on Government Tender Procedure—Part II; Government of Sri Lanka, National Procurement Agency. 2006. National Procurement Guidelines Goods and Works; ADB. 2019. Public–Private Partnership Monitor, Second Edition.

      Sources: National Agency for Public Private Partnerships. Government of Sri Lanka, Ministry of Finance. 1998. Guidelines on Government Tender Procedure—Part II; Government of Sri Lanka, National Procurement Agency. 2006. National Procurement Guidelines Goods and Works.

    • National Framework for Enabling PPPs

      Standard Operating Procedures, Tool Kits, Templates, and Model Bid Documents for PPPs

      Parameters

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      Does the country have PPP Guidelines/PPP Guidance Manual?a
      Does the PPP Guidelines/PPP Guidance Manual adequately cover the process, entities involved, roles and responsibilities of various entities, approvals required at various stages, and the timelines for the various stages of the PPP project life cycle?a
      What are the templates and checklists available in the PPP Guidelines/PPP Guidance Manual?b

      • Project Needs Assessment and Options Analysis checklist?

      • Project Due Diligence checklist?

      • Technical Assessment checklist?

      • Environmental Assessment checklist?

      • PPP Procurement Plan template?
      Does the country have standardized model bidding documents for PPPs?

      • Model Request for Qualification (RFQ) document?

      • Model Request for Proposal (RFP) document?

      • Model PPP/Concession Agreement?c

      • State Support Agreement?

      • VGF Agreement?

      • Guarantee Agreement?c

      • Power Purchase Agreement?c

      • Capacity Take-or-Pay Contract?c

      • Fuel Supply Agreement?c

      • Transmission and Use of System Agreement?c

      • Performance-Based Operations and Maintenance Contract?c

      • Engineering, Procurement and Construction Contract?
      Does the country have standardized PPP agreement terms?
      Does the country have standardized/ model tool kits to facilitate identification, preparation, procurement, and management of PPP projects?b

      • PPP Family Indicator?

      • PPP Mode Validity Indicator?

      • PPP Suitability Filter?

      • PPP Screening Tool?

             		Checklist only

      • Financial Viability Indicator Model?

      • Economic Viability Indicator Model?

      • VFM Indicator Tool?

      • Readiness Filter?
      Is there a framework for monitoring fiscal risks from PPPs including the following?b

      • Process for assessing fiscal commitments?

      • Process for approving fiscal commitments?

      • Process for monitoring fiscal commitments?

      • Process for reporting fiscal commitments?

      • Process for budgeting fiscal commitments?
      Are there fiscal prudence norms/thresholds to limit fiscal exposure to PPPs?
      Is there a process for assessing and budgeting contingent liabilities from PPPs?b
      • aRefers to the 1998 Guidelines on Government Tender Procedure-Part II on Private Sector Infrastructure Projects on Public-Private Partnership Basis).
      • bOnly an overall guidelines procedure available. No specific checklists or evaluation criteria outlined.
      • cStandard power purchase agreements in the power sector encompass some of the required criteria. The ports concession agreements also capture some of the outlined criteria. However, other sectors do not have standard documentation.
      • Yes
      • No
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      National Framework for Enabling PPPs

      Standard Operating Procedures, Tool Kits, Templates, and Model Bid Documents for PPPs

      Key Clauses Related to Public–Private Partnership Agreements

      Security over project assets, project land, shares of the project company, along with priority to lenders in the case of insolvency are some of the critical contractual provisions in PPP agreements so far. The PPP concession agreements developed in the past also contained specific criteria for senior lender participation, and execution of the financing agreement is considered as a condition precedent required to be satisfied by the concessionaire.

      Sources: Government of Sri Lanka, Ministry of Finance. 1998. Guidelines on Government Tender Procedure—Part II; Government of Sri Lanka, National Procurement Agency. 2006. National Procurement Guidelines Goods and Works; ADB. 2019. Public–Private Partnership Monitor, Second Edition.

      Parameters

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      Does the law specifically enable lenders the following rights:

      • Security over the project assets?

      • Security over the land on which they are built (land use right)?a

      • Security over the shares of a PPP project company?

      • Can there be a direct agreement between the government and lenders?

      • Do lenders get priority in the case of insolvency?

      • Can lenders be given step-in rights?
      Does the law specifically enable compensation payment to the private partner in case of early termination due to:b

      • Public sector default or termination for reasons of public interest?

      • Private sector default?

      • Force majeure?
      Does the law enable the concept of economic/financial equilibrium?
      Does the law enable compensation payment to the private partner due to:b

      • Material adverse government action?

      • Force majeure?

      • Change in law?
      • aSri Lankan financial institutions accept 35-year period government leased land as collateral-if government land is to be leased out for longer than this time period, Cabinet approval will be required. Private lease lands are generally not accepted as collateral.
      • bThese aspects are generally provided for in PPP contracts, and investors can enforce them through the dispute resolution mechanisms.
      • Yes
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      National Framework for Enabling PPPs

      Standard Operating Procedures, Tool Kits, Templates, and Model Bid Documents for PPPs

      The PPP guidelines do not address the security rights of the lender. However, the different types of rights outlined above have been granted to lenders in several PPP projects in Sri Lanka.1

      Sources: Government of Sri Lanka, Ministry of Finance. 1998. Guidelines on Government Tender Procedure—Part II; ADB. 2019. Public–Private Partnership Monitor, Second Edition; Government of Sri Lanka, Ministry of Finance, Economic Stabilization and National Policies. 2019. Public Finance Circular No.02/2019.

    • National Framework for Enabling PPPs

      Unsolicited PPP Proposals

      Parameters

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      Does the PPP legal and regulatory framework allow submission and acceptance of unsolicited proposals?
      What are the advantages provided to the project proponent for an unsolicited bid?

      • Competitive advantage at bid evaluation?a

      • Swiss Challenge?b

      • Compensation of the project development costs?c

      • Government support for land acquisition and resettlement cost?c

      • Government support in the form of viabiity gap funding and guarantees?c
      • aThe party that made the original offer will be given a chance to improve on their bid where the proposal has been significantly changed to suit the needs and objectives of the agency involved.
      • bCurrently inactive.
      • cGuidelines on Government Tender Procedure-Part II 1998 does not address specific compensation and government support for unsolicited proposals.
      • Yes
      • No
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      National Framework for Enabling PPPs

      Unsolicited PPP Proposals

      The 1998 PSIP Guidelines provide for unsolicited project proposals through supplements in 2011 and 2016. Supplement 30 (issued in 2016) introduced the Swiss challenge process for unsolicited project evaluation. However, a Cabinet decision was taken in 2018 to abolish the Supplement 30 issued to the Government Tender Procedure—Part II of 1998 on the introduction of Swiss challenge procedures (without prejudice to the ongoing procurement processes already commenced) and to introduce a new mechanism to deal with unsolicited project proposals. Until a new mechanism is introduced, however, the 1998 PSIP Guidelines apply.1

      The 1998 PSIP Guidelines states that an unsolicited proposal must contain all basic information required to ascertain the economic and financial viability of the project, including technical details of the project, financial details to demonstrate the justification of the total cost/premium requested, and letters from financial institutions and consortium members agreeing to commit funds. The party that designed the unsolicited proposal should be given a chance to improve its proposal, adapting it to the needs and objectives of the public authority in charge. The guidelines stipulate that decisions should not solely rely on unsolicited offers without public advertisement for proposals or bids. However, in cases of urgent and exceptional circumstances, deviation from this process is allowed, subject to specific Cabinet approval.2

      Sources: Government of Sri Lanka, Ministry of Finance. 1998. Guidelines on Government Tender Procedur-Part II; ADB. 2019. Public–Private Partnership Monitor, Second Edition; Industry research.

    • National Framework for Enabling PPPs

      Foreign Investor Participation Restrictions

      Parameters

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      Is there any restriction for foreign investors on:

      • Land use/ownership rights as opposed to similar rights of local investors?a

      • Currency conversion?
      PPP projects with foreign sponsor participation (number)b 34
      • aForeign investors can lease land, subject to a maximum tenure of 99 years. Outright transfer of ownership is permitted when the foreign shareholding of a company is less than 50%.
      • bPorts-4, Power-25, Water-1, Social housing-1, ICT-3; details under each respective write-up.
      • Yes
      • No
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      National Framework for Enabling PPPs

      Foreign Investor Participation Restrictions

      As per the Foreign Exchange Act, No. 12 of 2017, a person residing outside Sri Lanka is permitted to invest, acquire, or hold all classes of shares or an entitlement of shares issued by companies incorporated in Sri Lanka. A 40% foreign investment threshold is applicable in the business sectors mentioned below; this threshold can be relaxed through a special approval from the BOI.1

      • Production of goods where Sri Lanka’s exports are subject to internationally determined quota restrictions.
      • Growing and primary processing of tea, rubber, coconut, cocoa, rice, sugar, and spices.
      • Mining and primary processing of nonrenewable national resources.
      • Timber-based industries using local timber.
      • Deep-sea fishing (as defined by the ministry assigned to fisheries).
      • Mass communication.
      • Education.
      • Freight forwarding.
      • Travel agencies.
      • Shipping agencies.

      Foreign entities are not permitted to hold any investment in pawnbroking and coastal fishing. Also, retail sector investments less than $5 million are restricted for foreign ownership (foreign entities are allowed to invest in retail trade for amounts exceeding $5 million).

      To manage the country’s foreign currency shortage and economic crisis in 2021, several changes were made to the Foreign Exchange Act, No. 12 of 2017, in April 2021. These following amendments2 are expected to improve cross-border foreign exchange transactions and to help create a more enabling environment for foreign investor participation in PPPs:

      • Exclude the mandatory requirement of opening inward investment accounts when granting loans to persons residing in Sri Lanka—including GOSL and state-owned enterprises (SOEs).
      • General permission for companies registered in Sri Lanka (e.g., branch, liaison, and project offices) to borrow from their parent companies outside Sri Lanka.
      • General permission for nonresident investors to invest in shares or debt securities of companies not incorporated in Sri Lanka and listed on the Colombo Stock Exchange (CSE) by routing funds through accounts maintained in offshore banking units of licensed commercial banks in Sri Lanka instead of via inward investment accounts.
      • Permitting emigrants to invest in Sri Lanka out of the funds held in nonresident rupee accounts and capital transaction rupee accounts.

      A more enabling environment for foreign investor participation in PPPs is also expected via the Strategic Development Projects Act (SDPA), No. 14 of 2008. The Act was formulated to provide special tax holidays (up to 25 years) for projects of strategic importance and based on the contribution to the country’s economy. To obtain SDPA status, a project must first be identified by the BOI as a strategic development project in consultation with the relevant line ministry. Subsequently, the minister in charge of the subject of investment must publish a government gazette with relevant information relating to each proposed project. Cabinet must be informed on the rationale for considering a project as a strategic development project and the period of exemption proposed to be granted.3 During the 2016 government-imposed restrictions on the SDPA, limiting the law only to be applicable for projects that received approval prior to 2016, SDPA was not repealed but put to limited use administratively. In January 2020, however, Cabinet approval was granted once again to fully implement SDPA for new projects identified as strategic developments in the country.4

      Source: ADB. 2019. Public–Private Partnership Monitor, Second Edition.

    • National Framework for Enabling PPPs

      Dispute Resolution

      Parameters

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      Does the country have a Dispute Resolution Tribunal?
      Does the country have an Institutional Arbitration Mechanism?
      Can a foreign law be chosen to govern PPP contracts?a
      What dispute resolution mechanisms are available for PPP agreements?

      • Court litigation

      • Local arbitration

      • International arbitration
      Has the country signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards?
      • aWhere a project is controlled by foreign shareholders, the PPP concession agreement carries provisions to conduct international commercial arbitration.
      • Yes
      • No
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      National Framework for Enabling PPPs

      Dispute Resolution

      Despite not having a dispute resolution tribunal, Sri Lanka has in place an arbitration and dispute resolution mechanisms.

      The amended Arbitration Act, No. 11 of 1995, governs all disputes arising from legal contract agreements. The bidding documents must mention arbitration as a dispute resolution method, and the contract should incorporate a comprehensive arbitration clause accordingly. Dispute resolution provisions recommended by the foreign funding agency shall be complied with, in instances where the project concessionaire is being controlled by a shareholder incorporated outside Sri Lanka.1

      Arbitration for government-funded projects takes place within the jurisdiction of Sri Lanka. The venue of arbitration for foreign-funded projects would be determined following the requirements of the foreign funding agency. If the concessionaire is under the control of a shareholder incorporated outside of Sri Lanka, the PPP concession agreement includes clauses for arbitration through international commercial arbitration processes, administered by institutions such as the Singapore International Arbitration Centre. Sri Lanka signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1958, and the convention was ratified in 1962.2

      ADB. 2019. Public–Private Partnership Monitor, Second Edition; Convention on the Recognition and Enforcement of Foreign Arbitral Awards. 2012. Contracting States—List of Contracting States.

    • National Framework for Enabling PPPs

      Environmental and Social Issues

      Parameters

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      Is there a local regulation establishing a process for environmental impact assessment?
      Is there a legal mechanism for the private partner to limit environmental liability for what is outside of its control or caused by third parties?
      Is there a local regulation establishing a process for social impact assessment?
      Is there involuntary land clearance for PPP projects?
      • Yes
      • No
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      National Framework for Enabling PPPs

      Environmental and Social Issues

      All projects in the country (PPP and otherwise) are subject to the prevailing environmental laws in the country.

      The National Environmental Act, No. 47 of 1980 (as amended), governs general environmental regulations, while the Coast Conservation Act, No. 57 of 1981 (as amended), the Marine Pollution Prevention Act, No. 35 of 2008, and the Soil Conservation Act, No. 25 of 1951 (as amended), address specific areas of environmental protection.1

      The National Environmental Act, No. 47 of 1980 (as amended), provides for the submission of an Environmental Impact Assessment (EIA) report, which is a formal study used to predict the consequences of a proposed major development project. It outlines potential issues, conflicts, or natural resource constraints that could impact the feasibility of the project, offering a written analysis of anticipated environmental impacts, and may contain an environmental cost–benefit analysis.2

      The report encompasses details about the project, outlining both the preventable and inevitable adverse environmental impacts, including alternate approaches that could pose fewer environmental risks, and explains the rationale for rejecting those options. Furthermore, the report provides an account of any commitments of resources needed for the project that cannot be undone or recovered.

      An “initial environmental examination report” may also be required that entails a written report wherein possible impacts of the project on the environment are assessed with a view to determining whether such impacts are significant, and as such requires the preparation of an EIA report.3

      In terms of land clearance for PPP projects, the GOSL adopted the National Involuntary Resettlement Policy in 2001 to ensure the following:4

      • Persons affected by projects are fairly and adequately compensated, relocated, and rehabilitated.
      • Delays in project implementation and cost overruns are reduced.
      • Better community relations are established among persons affected by the project and host communities.

      To establish a uniform system of adequate compensation payment, based on the Land Acquisition Act, National Involuntary Resettlement Policy, and several other laws applicable to land acquisition and resettlement, Cabinet approved the National Policy on Payment of Compensation in November 2008. This also supersedes all other ad hoc and special compensation packages used by government agencies, such as that of the Road Development Authority (RDA).

      Source: ADB. 2019. Public–Private Partnership Monitor, Second Edition.

    • National Framework for Enabling PPPs

      Land Rights

      Parameters

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      Which of the following is permitted to the private partner:

      • Transfer land lease/use/ownership rights to third partya

      • Use leased/owned land as collateralb

      • Mortgage leased/owned landb
      Is there a legal mechanism for granting wayleave rights, for example, laying water pipes or fiber cables over land occupied by persons other than the government or the private partner?
      Is there a land registry/cadastre with public information on land plots?
      Which of the following information on land plots is available to the private partner?c

      • Appraisal of land value

      • Landowners

      • Land boundaries

      • Utility connections

      • Immovable property on land

      • Plots classification
      • aThird-party land transfer is permitted in certain projects with provisions for nondeviation from ultimate objective of the project (i.e., land ownership transfers in social housing projects).
      • bSri Lankan finance institutions accept owned land and government lease lands as collateral for project financing. Private leased lands are not accepted as collateral.
      • cAll information will not be in place in a common agency, but available in multiple agencies.
      • Yes
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      National Framework for Enabling PPPs

      Land Rights

      Sri Lanka’s land rights are broad-based and are applicable to PPP projects as well.

      The State Lands Ordinance, No. 8 of 1947 (as amended), regulates the grant and disposition of state land in Sri Lanka. It further regulates the management and control of state lands, and the regulation for the use of water of lakes and public streams.1

      Under the State Lands Ordinance, No. 8 of 1947 (as amended), the President of Sri Lanka may, in the name and on behalf of the Republic of Sri Lanka, make the following:2

      • Absolute or provisional grants of state land.
      • Sell, lease, or otherwise dispose of state land.
      • Enter into agreements for the sale, lease, or other disposition of state land.
      • Issue permits for the occupation of state land.
      • Issue licenses to take or obtain any substance or thing found in state land.
      • Sell or lease the right to mine or gem in any state land or in any land that has been disposed of by the state with a reservation of mining rights in favor of the state.

      However, no disposition of state land made under the ordinance deems to confer any right to any mineral, mineral product, or mineral oil in, under, or upon such state land unless otherwise expressly provided in the instrument of disposition, and, save as so expressly provided, all such minerals, mineral products, and mineral oils shall, notwithstanding any such disposition, be deemed to remain and shall remain the absolute property of the GOSL.3

      It is noted that Section 2 of the Land (Restrictions on Alienation) Act, No. 38 of 2014 (as amended), restricts the transfer of title of any land situated in Sri Lanka to a foreigner, a company incorporated in Sri Lanka with more than 50% foreign shareholding (direct or indirect), and a foreign company.4 The amendment was made to this act in 2018 allowing provisions for foreign ownership in any condominium property (which was only four floors and above previously) and land ownership for companies listed in the CSE with more than 50% foreign ownership.5

      The MOF may exempt any foreign entity engaged in infrastructure development project identified as a strategic development project under the Strategic Development Projects Act, No. 14 of 2008, from the application of the provisions of Section 2 of the Land Act.6

      Granting wayleave (right-of-way across land) rights are mandated by respective sector laws, such as the Electricity Act and the National Water Supply and Drainage Board Act.7

      Regarding available land information, there are cadastral surveys in some areas, while in other areas, a deed registration system is in place. These can be examined at land registries.9

      Sources: ADB. 2019. Public–Private Partnership Monitor, Second Edition; Industry research.

  • Government Support for PPP Projects

    Project Funding Support

    Parameters

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    Project Funding Support
    Is there a dedicated government financial support mechanism for PPP projects?
    What are the instruments of government financial support available under this government financial support mechanism?

    • Capital granta

    • Operations grant

    • Annuity/availability paymentsb

    • Guarantees to coverc

    • Currency inconvertibility and transfer risk

    • Foreign exchange risk

    • War and civil disturbance risk

    • Breach of contract risk

    • Regulatory risk

    • Expropriation risk

    • Government payment obligation risk

    • Credit risk

    • Minimum demand/revenue risk

    • Risk of making annuity/availability payments in a timely manner
    Are there minimum financial commitment requirements for the private developer equity before the government support could be drawn?
    Are unsolicited PPP proposals eligible to receive government financial support?
    Are there standard operating procedures for providing government financial support to PPP projects?d

    • Appraisal and approval process

    • Budgeting process

    • Disbursement process

    • Monitoring process

    • Accounting, auditing, and reporting process
    Who are the signatories to the government financial support agreement?
    Who is responsible for monitoring the performance of PPP projects availing government financial support?

    • Independent engineer?

    • Government agency?

    • Ministry of Finance?
    What are the other forms of government support available for PPP projects?

    • Land acquisition funding support?

    • Funding support for resettlement and rehabilitation of affected parties?

    • Tax holidays/exemptions?

    • Real estate development rights?

    • Advertising and marketing rights?
    • aAlthough not available for all PPP projects, certain projects in social housing, education, and solid waste management have received viability gap funding from the GOSL.
    • bRoad projects have been structured under the annuity payment method, but did not reach financial closure.
    • cSome of these guarantees are evident in certain power purchase agreements and ports PPP concessions, but not evident in all active PPP concession agreements.
    • d1998 PSIP Guidelines do not specify standard operating procedures for providing government financial support.
    • Yes
    • No
    • Not Applicable
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    Government Support for PPP Projects

    While Sri Lanka does not have a formalized and dedicated government financial support mechanism for PPP projects, the GOSL does provide project funding support in some instances.

    The Guidelines do not specify the type of government support that can be provided in PPP contracts. The state is required to pay resettlement and compensation costs to affected residents under the law. Although government guarantees or availability payments are provided for certain contracts, there is no specific law enabling them. Under Section 17 of the BOI law, government guarantees related to currency inconvertibility and transfer risk, foreign exchange risk, and expropriation risk may be provided through the agreement between the developer and BOI.1

    One popular government-backed incentive is attractive tax concessions provided via the SDPA, which allows special tax concessions (up to 25 years) for projects that are of strategic importance to the economy. Several projects in real estate development and port development have received benefits under the SDPA2. The Act aims to promote strategic development projects by providing tax exemptions for a stipulated period. The BOI, along with the relevant line ministries, will identify specific projects that will add value to the economy and grant certain tax exemptions for said projects. Since its enactment in 2011, in total of 18 hotel, real estate, manufacturing, and ports projects have received SDPA status.3

    Sources: ADB. 2019. Public–Private Partnership Monitor, Second Edition; Government of Sri Lanka, Ministry of Finance. 1998. Guidelines on Government Tender Procedure—Part II; Industry research.

    Project Development Funding

    Parameters

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    Project Development Funding
    What are the various sources of funds for PPP project preparation?

    • Budgetary allocations

    • Dedicated project preparation/project development fund

    • Technical assistance from multilateral/bilateral/and donor agencies

    • Recovery of project preparation funding from the preferred bidder
    At what stage of the PPP project, can the project preparation/development funding be availed by the government agency?a

    • Pre-feasibility stage

    • Detailed feasibility stage

    • Transaction stage
    Is there a list of project preparation/project development activities towards which the project development funding can be utilized?
    Can the project development funding be utilized to appoint transaction advisors for PPP projects?
    Is there a specific process to be followed by government agencies to appoint transaction advisors?
    What are the payment mechanisms for making payments to transaction advisors?

    • Timesheet-based

    • Milestone-based
    Are there standard agreements and documents to avail project development funding?
    • aProject funding support will be required throughout the project preparation which is largely funded by development financing institutions or government budgetary allocations.
    • Yes
    • No

    Sources: ADB. 2019. Public–Private Partnership Monitor, Second Edition; Industry research.

  • Maturity of the PPP Market

    Parameters

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    PPP Project Statistics

    • Is there a national PPP database for the country?a
    Is the distribution of PPP projects across infrastructure sectors available?
    Is the distribution of PPP projects across various stages of the PPP life cycle available?
    • aNAPPP maintained a list of PPP projects during its period of operation (2017-2019). However, since the discontinuation of the unit, no such database is being maintained. The re-established NAPPP is expected to reinitiate this process.
    • No
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    Maturity of the PPP Market

    Although no national database or national project pipeline for PPPs exists in Sri Lanka, there are multiple avenues available for project financing. The re-established NAPPP—in the fourth quarter (Q4) of 2022—is expected to act as the central agency to support all PPP projects in the country. The NAPPP will play a governance role via implementation of the PPP law, PPP operational guidelines, and other regulatory frameworks. The NAPPP is also expected to support with the development of a national PPP pipeline and assist line agencies on the screening mechanisms and capacity-building activities.

    Sources: ADB. 2019. Public–Private Partnership Monitor, Second Edition; Industry research.

    PPP Project Pipeline

    Parameters

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    Does the country publish a national PPP project pipeline?a
    At what frequency is the national PPP project pipeline published?
    Is the national PPP project pipeline based on the national infrastructure plan for the country?
    • aNAPPP maintained a list of PPP projects during its period of operation (2017-2019). However, since the discontinuation of the unit, no such database is being maintained. The re-established NAPPP is expected to reinitiate this process.
    • No
    • Not Applicable

    Sources of PPP Financing

    Parameters

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    Sources of PPP Financing
    Who are the typical entities financing PPP projects in the country?

    • Private developers

    • Construction contractors

    • Institutional/financial/private equity investors

    • Pension funds

    • Insurance companies

    • Banks

    • Nonbanking financial corporations/Financial institutions

    • Donor agencies

    • Government agencies and state-owned enterprises
    Does the country have the history/track record of issuing bonds by infrastructure projects?
    Does the country have a matured derivatives market to hedge certain risks associated with PPPs?
    Does the country have a national development bank?
    Does the country have credit rating agencies to rate infrastructure projects?
    Is there a threshold credit rating for infrastructure PPPs below which institutional investors, pension funds, and insurance companies would not invest in infrastructure PPPs?
    What is the typical funding model for infrastructure PPPs -- corporate finance or project finance?
    Are there regulatory limits/restrictions for the maximum exposure that can be taken by banks to infrastructure projects?
    • Yes
    • No
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    Maturity of the PPP Market

    Most infrastructure projects have been funded by loans obtained by the GOSL. Often these would be loans from bilateral or multilateral agencies, and to a lesser extent, loans from the local banking system. There have been either very few or no instances of infrastructure projects being financed through pension or insurance funds or by utilizing the capital markets. The following table depicts a high-level overview of project financing criteria in the Sri Lankan banking sector.

    Project Financing Criteria

    ParameterProject financing through local banks
    Maximum tenor (years)8–10
    Upfront arrangement fee, basis points (bps)100–150
    Floor rateAverage Weighted Prime Lending Rate
    Margin rate, bps200–400
    Percentage of foreign debt out of total debt for project financing>50%
    Typical debt:equity ratio80:20 to 60:40
    Timeline to financial close (months)>12
    Minimum debt service coverage ratio covenant levels1.2–1.5×
    Nominal interest rates~9% (Q1 2024)
    Real interest rates~7.3%
    Security packageProject assets, project cashflow, shares of the project company, corporate guarantees from the parent company

    Sources: CBSL. 2024. Sri Lanka: Macroeconomic Developments in Charts; ADB. 2019. Public–Private Partnership Monitor, Second Edition; Industry research.

    Usually, the MOF provides government guarantees for loans obtained by government agencies. Most private banks are cautious about accepting guarantees from government agencies if the project itself does not have a strong revenue-generation capacity. However, private banks lend to profitable state-owned entities that have an assurance of consistent cash flows and strong repayment ability.

    Lenders expect mortgage rights on the land and the machinery of the project company rather than a corporate guarantee issued by the promoter company (shareholder) to ensure the project developer remains committed to completing the project. Payments from government agencies are usually requested to be directed to an account maintained at the lending bank or maintained under escrow arrangements.

    While there is an appetite for PPPs by domestic investors, there are liquidity constraints in the domestic market (in terms of debt value and tenors available) mainly because of the crowding out by high public borrowing. In addition, commercial banks typically have limited capacity to hedge their interest rate risk, as swap markets in Sri Lanka are currently limited to a duration of less than 1 year. Given the limited amount of capital that many banks have in Sri Lanka, single-borrower limits could also prevent many domestic investors from raising the amounts of debt required to finance some of the larger PPPs.

    Sources: ADB. 2019. Public–Private Partnership Monitor, Second Edition; Industry research.

    Credit Rating Agencies in Sri Lanka

    The Securities and Exchange Commission of Sri Lanka is the main regulatory authority for credit rating agencies (CRAs) in the country with a recommended governance structure that follows the International Organization of Securities Commissions standards. The Securities and Exchange Commission of Sri Lanka Act, No. 19 of 2021, was introduced as a formal framework and process roadmap for new and existing CRA players to enter and exit the market.1

    According to the Companies Act, No. 7 of 2007,2 an independent credit risk rating is a mandatory requirement for corporate entities issuing debt instruments to be listed on the CSE and for all financial institutions that provide financial services to the public.

    At present, only two CRAs operate in the country: Fitch Ratings Lanka Ltd. and Lanka Rating Agency Limited. A longstanding player, ICRA Lanka, exited the market in 2022.3

    The Securities and Exchange Commission of Sri Lanka oversees the credit rating process, necessitating agencies to submit audited financial statements and undergo a systematic review for the renewal of their CRA licenses. The CRAs must also disclose the methodologies and criteria they employ for systematic reviews, demonstrating a transparent approach to assigning fair ratings.