Govt to compensate private sector infra developers for losses

KATHMANDU, NOV 17 -

The government will compensate private sector developers in the infrastructure sector in case of losses under the new public private partnership (PPP) policy.

The guarantee is a bid to rev up private sector investment in the country’s infrastructure sector which has remained poor. This is a global practice and exists in India too.

However, the country’s law does not have any legal provision regarding “viability gap funding”. The Act on Private Financing in Build and Operation of Infrastructure 2006, also known as Build Own Operate and Transfer (BOOT) Act, which governs financing by the private sector in the infrastructure  sector, does not provide compensation guarantees enabling investors to recover their investment. The government has assured compensation to the developer of the Kathmandu -Tarai Fast Track project through a government decision.

“We will insert a provision in the new policy regarding creation of a fund which will be used for viability gap funding,” said Sishir Dhungana, joint secretary at the Finance Ministry who is also involved in PPP policy making. “The government will first inject a certain amount of resources in the fund which will have to be self-sustaining later.”

With local and international investors showing greater interest to become involved in the country’s infrastructure sector, National Planning Commission (NPC) Vice-Chairman Govinda Raj Pokharel announced at the Nepal Infrastructure Summit last week that the PPP policy would be enforced within the next one and a half months.

Dhungana also said that a draft of the policy was in the process of being finalized. Besides creating a fund for viability gap funding, the new policy will have a provision regarding the establishment of a PPP centre at the NPC.  

The PPP centre will conduct feasibility studies of potential projects and bank them for possible investment from the private sector. It will also have the right to hire experts from outside the government service to prepare the project bank.

Due to the absence of well-developed project banks, the government has a difficult time when it has to suggest projects to potential investors. The government took more than three months to decide where it would spend the $1 billion line of credit extended by India.

Dhungana said that the proposed policy would also broaden the range of PPP modalities. The current act allows modalities including build and operate; build, operate and transfer; build own operate and transfer; lease operate and transfer; lease, build, operate and transfer; and develop, operate and transfer.

Source: The Kathmandu Post