Pakistan: Supporting Public-Private Partnership Investments in Sindh Province

Sovereign Project | 46538-002 Status: Proposed

Summary

The proposed project will support the development policies of GoS for sustainable infrastructure provision through PPPs. It is aligned with Midterm Review of Strategy 2020, in which PPPs are a key driver of change, and the Country Partnership Strategy 2015-2019. The project builds on ADBs partnership with GoS to develop the PPP framework under a program cluster in 2009, using lessons learned from this program and the Country Assistance Program Evaluation for Pakistan.

The expected impact of the project is aligned with the number of infrastructure investments and services in Sindh improved. The expected outcome is fiscally-responsible private sector participation and investment in infrastructure increased in Sindh.

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Procurement Documents

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Project Name Supporting Public-Private Partnership Investments in Sindh Province
Project Number 46538-002
Country Pakistan
Project Status Proposed
Project Type / Modality of Assistance Grant
Loan
Technical Assistance
Source of Funding / Amount
Grant: Supporting Public-Private Partnership Investments in Sindh Province
Department for International Development US$ 19.23 million
Loan: Supporting Public-Private Partnership Investments in Sindh Province
Ordinary capital resources US$ 100.00 million
TA: Supporting Public-Private Partnership Investments in Sindh Province
Department for International Development US$ 4.75 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Partnerships
Sector / Subsector

Energy - Energy sector development and institutional reform

Public sector management - Public administration - Public expenditure and fiscal management

Transport - Transport policies and institutional development

Gender Equity and Mainstreaming No gender elements
Description

The proposed project will support the development policies of GoS for sustainable infrastructure provision through PPPs. It is aligned with Midterm Review of Strategy 2020, in which PPPs are a key driver of change, and the Country Partnership Strategy 2015-2019. The project builds on ADBs partnership with GoS to develop the PPP framework under a program cluster in 2009, using lessons learned from this program and the Country Assistance Program Evaluation for Pakistan.

The expected impact of the project is aligned with the number of infrastructure investments and services in Sindh improved. The expected outcome is fiscally-responsible private sector participation and investment in infrastructure increased in Sindh.

The outputs are (i) GoS capacity to select and develop PPP projects strengthened; (ii) PPP project-related fiscal risk effectively managed by the PPP Support Facility (PSF); and (iii) PPP project selection and subsequent management capacity of line departments, finance, and planning and development departments strengthened.

Project Rationale and Linkage to Country/Regional Strategy

With 44 million inhabitants representing 23% of Pakistan's population and a GDP share of 32%, Sindh has large infrastructure and social service needs, which exceed the provincial public resources available. With limited sources of revenue, federal transfers constituted 79% of Sindh's budget in 2016. Only PRs 225 billion or 25% of Sindh's annual budget was allocated to the Annual Development Plan (ADP) in FY2017, which funds infrastructure development among other initiatives. The World Bank estimates that Sindh's annual infrastructure investments only represent 3% to 4% of estimated requirements in transport, electricity, water supply and sanitation, solid waste, telecom, and irrigation. In addition Sindh requires investments in health, and education This also highlights GoS inability to fully utilize the development budget for meeting its infrastructure needs under the traditional public procurement mechanism. To meet the pressing needs of infrastructure in the province, public sector investments must be augmented by stronger private sector participation. In addition to bridging the funding gap for infrastructure investments, PPPs may also help in accelerating completion and enhancing the efficiency of operations of infrastructure projects. However, PPPs also carry significant fiscal risks that need to be managed and mitigated.

To close the significant infrastructure demand supply gap in the context of extremely limited fiscal resources, GoS began reforms to facilitate the use of PPP investments by promulgating the Sindh PPP Act 2010, as well as legal guidelines and procurement rules, institutional arrangements for PPPs and providing public resources through its financing. A PPP Policy Board, led by the Chief Minister, was established to approve PPPs. A PPP Unit within the Sindh Finance Department (SFD) helps relevant government departments to identify and develop suitable PPP projects within Sindh's ADP. A project development facility (PDF) and a viability gap fund (VGF) were established in 2010 to support the use of transaction advisory services and fund the public financing portion of PPPs. So far Sindh has funded five (5) PPP investments that commenced operation in 2013-2015. Sindh has so far identified a pipeline of projects, of which 36 have passed concept approval, with an estimated cost of PRs 240 billion.

However, the experience of the first years demonstrates that considerable efforts are required to improve the leverage of public financing through private capital and adjust financing policies and modalities to reach that objective and minimize fiscal risks related to PPPs. As PPP investments and contingent liabilities grow, it is essential to better prioritize project selection followed by proper structuring to minimize fiscal risks. As a first step PPP project identification should be reflected in Sindh's ADP and carefully consider project revenue generation and identify potential risks and its mitigation.

The structure of Sindh's PPPs must be significantly improved through: (i) robust policy that guides the selection of eligible viable PPP projects (including the treatment of non-solicited proposals) based on Sindh's ADPs; (ii) equitable risk participation from investors and lenders; (iii) rigorous risk management policies and supporting systems that entail project and related fiscal risks; and (iv) sound policies that guide the proper use of public funding through the VGF and otherwise.

Impact Infrastructure investments and services in Sindh improved
Outcome Fiscally-responsible private sector participation and investment in infrastructure increased in Sindh.
Outputs

GoS capacity to select and develop PPP projects strengthened

PPP project-related fiscal risk effectively managed by PSF

PPP project selection and subsequent management capacity of line departments, finance, and planning and development departments strengthened

Geographical Location Sindh

Safeguard Categories

Environment FI
Involuntary Resettlement FI
Indigenous Peoples FI-C

Summary of Environmental and Social Aspects

Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design GoS Finance Department, Planning and Development Department, sector departments with PPP portfolios, commercial banks and other private sector entities are the main stakeholders. The project incorporates the findings of and agreements reached during extensive consultations with the stakeholders.
During Project Implementation The consultative will continue during project implementation. The project will use and build on the tested consultative approach that was previously and successfully implemented for PPPs in Sindh, including the use of resources from the attached capacity development technical assistance project to engage in consultations with civil society organizations.

Business Opportunities

Consulting Services

An estimated 102 person-months (national) of consulting services are required under the loan to (i) facilitate project management and implementation, and (ii) strengthen the institutional and operational capacity of the implementing agency. The experts will be engaged using individual consultant selection. The related expertise are (i) PPP Specialists (2, national, 30 person-months each, intermittent), (ii) PPP Advisor (1, national, 10 person-months, intermittent), (iii) PPP Legal Advisor (1, national, 22 person-months, intermittent), and (iv) Environment Specialist (1, national, 10 person-months, intermittent).

The TA will require 20 person months of international and 73 person-months of national consulting services for technical, advisory, and capacity development support through short-term and full-time engagement with the project counterparts and stakeholders. ADB will engage the services of a consulting firm to provide the international consultants. The firm will be recruited in accordance with quality- and cost-based selection using simplified technical proposals and a quality-cost ratio of 90:10. National consultants will be hired using individual consultant selection. The required expertise are as follows (a) international: (i) PPP Specialist (Project and structured finance), 7 person-months, (ii) Structured Finance and Risk Management Specialist, 10 person-months, (iii) Procurement and Contract Management Specialist, 3 person-months; (b) national: (i) PPP, Structured Finance and Contract Management Specialist, 16 person-months, (ii) PPP Analyst, 57 person-months.

Responsible Staff

Responsible ADB Officer Shauzab Ali
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, CWRD
Executing Agencies
Finance Department,GOS
Sindh Provincial Government
Karachi, Pakistan

Timetable

Concept Clearance 25 Jun 2014
Fact Finding 06 Nov 2014 to 18 Nov 2014
MRM 17 Jul 2015
Approval -
Last Review Mission -
Last PDS Update 23 Sep 2015

Safeguard Documents See also: Safeguards

Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

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Evaluation Documents See also: Independent Evaluation

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Related Publications

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