Viability gap funding‚ land acquisition fund in offing
KATHMANDU: The government is mulling over institutionalising the practice of providing viability gap funding and creating a revolving fund for land acquisition to encourage the private sector to invest in development, reconstruction and operation of public infrastructure, like roads, hydro plants and bridges.
These provisions will be included in the Public Private Partnership (PPP) Policy, which the Ministry of Finance (MoF) and the National Planning Commission (NPC) are jointly framing at the moment.
“We are planning to table the draft of the policy at the Cabinet for approval by mid-March,” Surya Prasad Acharya, chief of the Economic Policy Analysis Division at the MoF, told The Himalayan Times. “Once the policy is endorsed, we will start drafting the PPP Act.”
One of the aims of the PPP Policy is to ensure ‘maximum utilisation of entrepreneurship, capacity, efficiency, technology and effectiveness of the private sector for development, reconstruction, operation and management of public infrastructure and services’ in the country, says the draft policy.
To engage the private sector in the nation building process, the government will extend every support and make necessary contribution to make sure implementation of PPP projects is successful, adds the draft, which also calls for ‘balanced distribution of risk and rewards among public and private entities’ executing PPP projects.
PPP has long been identified as one of the best means to execute development works in countries like Nepal, where the government cannot mobilise adequate financial resources and expertise to meet every infrastructure need of the country.
This concept is also popular in many developed and developing countries, where the government only plays the role of the facilitator, while the private sector raises funds to build projects like roads and railway networks.
Once completed, these projects are used by private developers for certain years, during which they recoup investment and generate some profit, before handing them over to the government for free and in good working condition.
To encourage the private sector to build projects under PPP modality, the policy envisages providing viability gap funding to project developers.
Viability gap is the difference between revenue required to make a project commercially viable and revenue that is expected to be generated after project’s completion.
In simple words, if the cost of building a toll road stands at Rs five billion and toll collection after a certain period is expected to hover around Rs 3.5 billion, the viability gap is Rs 1.5 billion.
Since the private sector does not want to invest in development of such loss-making projects, the policy draft has proposed extending financial support, or viability gap funding, to developers so that projects considered crucial for the country’s development could be built.
Also, the government is mulling over creating a revolving fund for land acquisition to facilitate project developers.
The money in this fund would be used to acquire necessary land prior to awarding the contract to the private sector. “The private developer will then have to recompense the amount after it bags the project,” Acharya said.
To ensure successful implementation of PPP projects, the draft policy envisages formation of the PPP Centre at the NPC which will coordinate with line ministries to lay the groundwork for implementation of various projects.
Also, a PPP Approval Committee would be formed, comprising secretaries of different ministries, which would endorse projects to be implemented under PPP model.
“We will now float the document for consultation among different stakeholders, including the private sector and non-resident Nepalis,” Acharya said.
Highlights of draft PPP Policy
• Viability gap funding for projects
• Creation of a revolving fund for land acquisition
• Establishment of PPP Approval Committee
• Formation of PPP Centre at NPC
• Balanced distribution of risk and rewards among public and private entities
