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Public-Private Partnership in Pakistan – The Legal Framework

Introduction

Infrastructure is the backbone for any country’s economic and social sustenance and development. Fiscal constraints however force every country to adopt supplementary and innovative approaches to overcome such problems in the way of infrastructure growth. PPP is one such approach where the public sector encourages and facilitates the private sector to provide its expertise, innovative skills and fiscal clout for the development of infrastructure. At the same time, the private sector is given a mechanism to recoup its investment and a get a reasonable return on capital.

Pakistan launched its PPP policy in 2010 and for that purpose Ministry of Finance (MoF) was made the focal institution in order to approve, appraise, develop, execute and monitor the projects of infrastructure development. The MoF incorporated the Infrastructure Project Development Facility (IPDF) which acted as a regulator for all sorts of PPP projects. IPDF however was dissolved in 2017 and Public Private Partnership Authority (the Authority) was statutorily established as a regulator through the enactment of the Public Private Partnership Act 2017 (the Act). Under section 25 of the Act, the Federal Government has been authorized to make Rules for carrying out the purposes of the Act. However, due to the change of Government in 2018 after the general elections the Rules are yet to be framed; until the framing of the Rules under the Act, the rules and procedures followed by IPDF continue to remain in force.

The Act provides a detailed legal framework that covers the activities of both the public sector (governmental) and private sector (national or international or a mix of both) for a successful PPP project. The framework provided for PPP under the Act allows each partner to concentrate on activities that best suit its skills. Under the provisions of the Act, it is for the public sector to plan and identify infrastructure service needs, focus on developing national, provincial and local sector-specific policies and to oversee these and to enforce the PPP agenda. For the private sector, the key is to deliver effectively the infrastructure and facilities required by the public sector and consumers at the project level. Lastly, it is for both the parties to chalk out a satisfactory program that provides for the recovery of the investment with a suitable return thereon for the private party.

The four Provincial governments in Pakistan have their own laws and mechanisms in force for the purposes of PPP. However the federal and provincial mechanism are harmonious and in line with each other in order to provide national and international investors an enabling and uniform environment for PPP throughout the country.

Legal Framework for PPP

The general direction and superintendence of the Authority and its affairs has been vested in the Board of Directors of the Authority (the Board) established under section 6 of the Act which may exercise all powers, perform all functions and do all acts which may be exercised, performed or done by the Authority under the Act. The Board consists of 8 members five of which are ex-officio and other three, including two from private sector, appointed by the Federal Government. The quorum for the purposes of making decisions by the Board is set on three members.

It is the responsibility of an Implementing agency to “identify, conceptualize, appraise and develop the project” (Section 13 (2) (a) of the Act), to “submit the bid documents and the project proposal for the approval of the Board” (s. 13 (3)) and to “procure a project only through a competitive bidding process as prescribed” (s. 13 (2) (d)). After approval of the Board, the Implementing agency shall procure the project. The project shall be executed, after approval of the Board of the PPP Agreement, (and in case of any financial support required for the project, by the Federal Government also) only in terms of the PPP Agreement entered into between the Implementing Agency and the private party pursuant to the provisions of Chapter IV of the Act. The PPP Agreement requires clear indication of the:

  1. scope of activities of the parties to the agreement
  2. duration of the agreement
  3. payment arrangements for the private party
  4. rights and obligation of the parties and clear and exhaustive allocation of specific risks to be borne by each party
  5. penalties for noncompliance with the provisions of the public private partnership agreement; exit clauses specifying procedure of early termination of the agreement; termination payments and compensations, if agreed and provided in the agreement
  6. dispute resolution mechanisms
  7. reversion, transfer or handing back of the project, wherever applicable and all the associated assets to the implementing agency upon expiry or termination of the public private partnership agreement.

The project and its assets except immovable properties vest in the private party after coming into force of the PPP Agreement. The private party is entitled to create security interest on the assets, present or future, of the project and, only with the prior approval of the Board, over the immovable properties of the project also. Subject to any provision made in this behalf in the PPP Agreement, the private party is also entitled to assign, transfer, sublet or part with its possession either in whole or in part of the project or its related services to any third party.

The Board and the implementing agency are responsible for the post-PPP Agreement implementation and monitoring of the project. Section 18 is an important section which relates to settlement of disputes under the PPP Agreement. Such disputes are to be settled under terms mutually agreed upon in terms of the Agreement. This affords greater flexibility. The time frame provided for dispute settlement probably would be specified and it is provided that during pendency of dispute, the private party shall not delay or stop or cause to delay or stop the carrying out of its obligations under the Agreement.

Important Definitions

(PPP)”Agreement” means a written agreement between an implementing agency and a private party for implementation of a project and any other agreement subsidiary or incidental to it”

“Project” means an infrastructure project, provision of infrastructure related services or both, under a public private partnership”

“Private Party” means a Peron who is eligible to bid for a public private partnership project with an implementing agency”

“Person” includes an individual, a company, a statutory body corporation, an association of persons whether incorporated or not, a trust and a Partnership”

‘Implementing Agency” means any of the line Ministries, attached departments, body corporate, autonomous body of the Federal government or any organization or corporation owned or controlled by the Federal Government”

“Public Private Partnership” means a commercial transaction between an implementing agency and a private party in terms of which the private party –

 (i) Performs an implementing agency’s functions on behalf of it:

(ii) Assumes the use of public property for a project:

(iii) Assumes substantial financial, technical and operational risks in connection with performance of the implementing agency’s functions or use of the public property; or

(iv) Receives a benefit for performing the implementing agency’s functions or from utilizing the public property, either by way of,-

(A) Consideration to be paid by the implementing agency from its budget or revenue; or

(B) Charges or fees to be collected by the private party from users or customers of a service provided to them; or

(C) A combination of such consideration and such charges or fees”.

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