Bangladesh paves way for infrastructure law

The government is asking parliament to put private-public partnerships on more solid legal footing to encourage infrastructure finance.

Bangladesh’s prime minister, Sheikh Hasina, has approved a proposed law to streamline the legal status of private-public partnerships (PPP) for financing infrastructure. The law has been sent to the country’s parliament and government officials hope it is passed this month.

“We have been working on the PPP law for the past three years,” said Syed Afsor Uddin, CEO of the PPP Office, which reports to the prime minister’s cabinet. He made his remarks speaking at FinanceAsia’s Bangladesh Investment Summit, held in Singapore on 1 September. “Inshallah, in the next 10 days it will go to Parliament and be implemented.”

The technicals of the law are mundane: it will expand the definition and process of government procurement to include concessions. Currently the only legal basis for procurement exists for goods and services, which has proven insufficient for developing infrastructure using private capital and business acumen.

Getting the country’s PPP programme up and running is vital, however, not just for growth but also for political stability.

Long haul

Abrar Anwar, country CEO at Standard Chartered, said infrastructure bottlenecks remain a serious impediment. “We can’t keep up with growth,” he said, adding that the energy and power sectors will require $25 billion to $30 billion over the next five-to-seven years. The small size of the country’s capital markets – a $36 billion stock market and a $18 billion bond market – make Bangladesh reliant upon global investors to help finance its needs.

Gowher Rizvi, international affairs advisor to the prime minister, said the country has made progress on this front. Since Hasina took power in 2009, the country’s total electrical generating capacity has grown from 4,200MW to 13,000MW, and is expected to reach 20,000MW within five years. The country is also trying to improve transport, with slated projects including a light railway system to ease Dhaka’s miserable traffic.

Indeed, there are now 42 PPP projects at some stage of development, with a total value of $15 billion, Rizvi said.

Power play

The country will need to see most of these plans realised. Improving power and transport are among the biggest constraints on growth, said Ahsan Mansur, executive director at the Policy Research Institute of Bangladesh. He added to Rizvi’s numbers by saying the country will need $60 billion to invest in power generation and distribution by 2030, and urged the government to move faster on transport-related work.

Company executives agree: Pal Stette, director of project and corporate finance at Telenor, the Norwegian telecom operator which is a major multinational active in Bangladesh, said the old, existing laws make it unclear whether foreign companies can finance such projects. “There is still uncertainty,” he said.

Syed Farhad Ahmed, managing director and CEO at Aamra Companies, a holding company investing in technology and other businesses, was more upbeat. “We have seen a fast track in terms of infrastructure, communication links and policymaking, which is a pleasant surprise.”

He said power outages in the cities are no longer frequent. Now companies need better digital connectivity; for example, electronic payments will be necessary to boost the rapidly growing smartphone industry.

Indeed, Ahmed outlined big investment requirements for many sectors. He predicted the country will require a total of $100 billion in the next five years, of which around $40 billion would go to communication networks, $13 billion or so to power, $14 billion for water supply and sanitation, $3 billion for solid waste management, $5 billion for telecommunications and $10 billion for irrigation.

Those are big numbers. The government is responding by opening up special economic zones, some dedicated to investors from specific countries, such as a pilot one for Korea and planned ones for India, China and Japan.

Steady course

Nabhash Chandra Mandal, executive member of the Board of Investment, a government agency, said foreign borrowing for infrastructure will increase, especially from investment banks and multilateral organizations; his office has approved $7.6 trillion worth of deals among 432 projects since being set up in 2009.

But Uddin, heading the PPP Office, said things have been slow because he wants to ensure the process is transparent and effective, not rushed and sloppy. “PPP projects fail when there isn’t a proper feasibility report,” he said. This applies to all the details of a project, from surveys and environmental concerns to land acquisition and commercial delivery models. “The last thing I want to do is issue a tender that is not thoroughly prepared,” he said. “If I do, it will fail. Maybe it will fail in year 15, or maybe it will fail in year 1.”

Naser Ezez Bijoy, managing director at Standard Chartered, said the country has had mixed results with financing projects. But the government and the private sector are gaining experience on PPPs, and he predicted projects will grow bigger, more complex, and be approved more quickly. This will above all require a long-term political commitment, including sovereign guarantees at the early stages and an understanding that private investors must be allowed to sell receivables at any time if they wish to exit.

To date, Standard Chartered has supported Bangladeshi infrastructure projects with hedging and cash management services. He said the bank wants to lend its balance sheet to future projects.

 

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