Public Private Partnerships – Developing a workable model for Sri Lanka.

Public Private Partnerships – Developing a workable model for Sri Lanka.


Compiled by BOI and the Research Intelligence Unit – www.riunit.com


Power, ports, highways and the road sector have been listed as key priority sectors for development. Delays in kick-starting vital projects in recent years have in many instances stymied development of the economy and will continue to do so unless urgent action is taken.

Under the emerging environment of accelerated economic growth, any further failures to expedite the infrastructure development effort could prove detrimental to the Sri Lankan economy. In a timely and fitting gathering of experts from around the globe, the challenges faced the country and the appropriate action needed was discussed at length.

The High Level Workshop on Public Private Partnerships (PPP) to build Infrastructure was held in Colombo from 14 to 16 August, 2006. The inaugural sessions were held at the BMICH while the workshop was held at the Cinnamon Grand Hotel. Funded by the Commonwealth Secretariat in London and organized by the Board of Investment of Sri Lanka, the three day event is set to play a significant role in heightening knowledge on projects that will utilize a PPP framework.

Amongst the important guests gracing the occasion were the Minister of Enterprise Development and Investment Promotion Hon. Rohitha Bogallagama, Secretary, Ministry of Finance, Dr. P.B Jayasundara, Governor of the Central Bank Mr. Ajith Nivard Cabraal and the Chairman of the BOI, Prof. Lakshman R Watawala.

Expressing his support for the push to implement long stalled projects and pipelined initiatives, Dr. P.B Jayasundara said the government was committed to fast-tracking projects and plans are afoot to build 17 fly-overs in the Western Province as part of a strategy to resolve growing traffic congestion. In his address he expressed an equal level of concern to fast-track rural infrastructure development as the benefits of private sector participation should also benefit the marginalized citizens of the island. Dr. Srinivas Sampath Advisor & Head of PPP, Commonwealth Secretariat and the other experts associated with him in conducting the workshop were encouraged by the remarks but cautioned that due to the high cost of implementing PPP type projects, its viability in rural development will hinge on the financial values involved. In the UK, the threshold for a PPP is UKP 25 million.

The Finance Ministry Secretary said that despite the Sri Lankan economy’s resilience and ability to grow at five per cent even during turbulent times, the development of infrastructure had not taken-off. Delays at the early stages of project conceptualization and development may have contributed to the failures. Dr. Jayasundara further went on to add that with looming power crisis faced by the CEB by the forthcoming year, an urgent need has risen in the sector for Private Public Partnerships in order to avoid any further power crisis, again.

Concurrent to these PPP initiatives, a significant increase of overall development investment would also need to be raised from its current levels by up to ten per cent. These additional funds are needed from the government, private sector, foreign direct investment and from key donors. Existing institutions such as JBIC, the ADB and the World Bank will also need to play a greater role in supporting the drive.


Workshops of this nature to strengthen the capacity of institutions such as the Finance Ministry, BOI and other public agencies are addressed will serve act as an impetus towards the initiation and development of PPP projects which in turn will strengthen growth and development rates. Another critical element which emerged was the need to address the growing number of unsolicited proposals received, with transparency whilst fostering competition and paying due regard to the intellectual property inputs within the proposals.

The Secretary also noted that in the recent past, Sri Lanka successfully completed large infrastructure ventures like the Mahaweli project despite considerable funding constraints. He therefore claimed that there is a need to revisit the old models and take heed of the lessons.

PPP for peace

Sustained government support for PPP’s with a strong private sector can also contribute towards winning peace in the country by taking prosperity to the north of the island. Whilst initiatives to start PPP type projects in the north were considered, this urgency would need to be balanced by the need to focus on a few viable projects in which all stakeholders participate, from the inception. It was thus felt that a dedicated PPP unit within the Ministry of Enterprise Development & Investment Promotion be established drawing from multi-sectoral public and private sector expertise.

In a recent statement, the Ministry of Plan Implementation affirmed that all major development projects listed under the governments ‘Mahinda Chinthanaya’ will be completed within the coming three years. Estimated to cost a total of US$ 1 billion, it was announced that $ 350m has already been received by the government from foreign donors in connection with the development projects. It was also stated that ‘the government’s top priority will be to end the ongoing civil war and bring the most vital power sector into a strong position, so that these two sectors can make a solid contribution to the country’s economy.’

Roads

A rising phenomenon of recent times across all developing countries has been the pandemic of road accidents that accounts for more fatalities and injuries than wars and conflicts in most cases. Sri Lanka’s record is worse than its neighbours including India, Bangladesh Pakistan and Nepal. According to the latest data, the consequence of failing to supply roadways to meet the rising demand is 14,000 injuries and 2,000 deaths per year. The figure continues to rise by the day.

On most long stretches in Sri Lanka, slow moving hand tractor pulled trailers travelling less than a kilometre within a village share a single lane with fast moving traffic travelling over a hundreds of kilometres. Overtaking has become an integral part of driving and overtaking against incoming traffic is the number one causes of fatalities in the island according to leading analysts (LBO).

Costs of constructing new highways are way beyond the budget of the government that is grappling with a rising budget deficit fuelled by an increased petroleum import bill. The first four months of 2006 has witnessed a rise of up to 3.2 per cent of GDP, compared with 2.9 per cent during the same period in 2005. To give a perspective, the entire annual budget of the Ministry of Highways in Sri Lanka falls short of the cost of constructing the 131 km southern Highway.

Power

Hydropower has long been a favoured option in the island that is blessed with an abundance of water resources. However, the 1996 drought and the resulting power-cuts that disrupted all aspects of life and productivity in the economy exposed the vulnerability of this strategy. Since then, dependency on hydro-power has been reduced though droughts still continue to have a major impact on the grid output. A drought during the first quarter of 2006 has checked the min-hydro power capacity in the island by around 50 per cent. (Financial Times)

Analysts have raised an alarm that the warning signals on a looming energy crisis in Sri Lanka are already here. According to data, the CEB has lost Rs.5 billion during the first four month of 2006 as a consequence of the fuel price hike, raising generation costs from Rs.12.50 per to Rs.15 per unit. Consequently, the CEB is loosing Rs.6 per unit.

The government appears to have taken heed and recently announced measures that will include a proposed tariff hike, a fuel surcharge, energy conservation plans and self generation for some sectors. Already it has raised the rates on electricity consumption on a progressive basis that is designed to reward lower consumption. The public and private sectors have been urged to curb their consumption by 20 per cent. The efforts are designed to reduce total consumption, currently estimated at 6186, by 20 per cent.

Electricity Consumption Breakdown (2005)
SECTOR CONSUMPTION – million KWh
Domestic 2403m KWh
Industrial 2446m KWh
General (Commercial) 1254m KWh
Street Lamps 83m KWh
TOTAL 6186m KWh
Source: Financial Times

Tourism, a sector that continues to contribute significantly to the island’s economy is also being targeted by the new initiatives. Hoteliers and other sector operatives are being asked to generate their own power. Some have already received free generators during the previous power crisis but they are rarely used as it is cheaper to tap into the national grid. Also in the frontline are advertisers and their neon light boards that may be switched off after 10pm as part of the conservation effort.

Pipeline projects

According to data from the Department of Foreign Aid and Budget Monitoring, there are currently 94 foreign funded project that are either on-schedule or behind schedule and a further 239 locally funded projects. Of the locally funded ongoing projects, six are in infrastructure, three in ports and shipping, two in roads and 24 in the transport sector. Of the foreign funded projects, one is in infrastructure, one in ports and shipping and twelve are in the roads sector. Eight locally funded new projects are set to start in the near future and 11 foreign funded projects are also ear-marked to start work.

It is hoped that with the new support mobilized from the local and international sector specialists, Sri Lanka can once again regain lost ground in its drive to have world-class infrastructure. Making important contributions to the event, experts from the Commonwealth Secretariat, The World Bank, ADB, Public-Private Infrastructure Advisory Faculty, Feedback Ventures (India), local and foreign private and public sector specialists as well as free-lance experts, gave their backing to the renewed initiative.


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