The Public-Private Partnership Law Review: Pakistan
Since the 1990s, the federal and provincial governments in Pakistan have sought to encourage private sector participation in development projects and in the provision of public infrastructure and related services in Pakistan. Beginning in the 2000s, several legal and regulatory changes have been made to expand the use of public-private partnerships (PPPs).
As of 2020, the federal government and all four provincial governments have passed PPP-specific legislation, formalising and enabling the regime, including by creating independent statutory bodies to facilitate, support and promote PPPs. At the federal level, the Public Private Partnership Authority (PPP Authority) was set up in 2017 under the Public Private Partnership Authority Act, No. VIII of 2017 (2017 PPP Act). The PPP Authority replaced the Infrastructure Project Development Facility (IPDF), formed by the federal government in 2006 to facilitate PPPs. On 7 July 2020, the President issued the Public Private Partnership Authority (Amendment) Ordinance, 2020 (2020 Ordinance), amending the federal PPP Act to create a more facilitative PPP regulatory framework and make it more amenable to private investment in development projects. The 2020 Ordinance was placed before the Parliament in accordance with the provisions of the Constitution and was passed by the National Assembly on 1 February 2021 (and is now before the Senate). The discussion below will focus on the 2017 PPP Act as amended by the 2020 Ordinance (federal PPP Act).2
Traditionally, PPPs in Pakistan have been particularly common in the energy, power generation and transportation sectors. In fiscal year 2019–2020, 17 infrastructure projects involving private investment reached financial closure.3 The power sector made up the largest investment share with a total investment amount of US$5 billion.4 In recent years, though, the government has expressed a commitment to using PPPs in many more sectors including aviation, technology, healthcare, tourism and others. In late 2019, the Prime Minister approved a development plan, expected to run from fiscal year 2020–2023, termed the Public Sector Development Programme Plus (PSDP+) initiative, firmly orienting the government towards PPPs across sectors.5
In addition to the federal initiative, each of the four provinces – Sindh, Punjab, Balochistan and Khyber Pakhtunkhwa – has its own specific roster of projects and policies to promote PPPs. In accordance with the Constitution, PPPs in the areas enumerated in the Federal Legislative List fall within the domain of the federal government, while other areas generally fall under the domain of the provinces. This note generally focuses on the federal regime as exemplary of other models, but where relevant, also references the provincial regimes.
The year in review
According to information available on the PPP Authority's official website, at the federal level, 47 PPP projects are in the pipeline across sectors out of the 105 PSDP+ portfolio federal projects.6 Additionally, the PPP Authority lists a number of 'early harvest' projects that it is assisting with, including:
- the construction of the Sukkur Hyderabad Motorway (expected cost around US$1.2 billion);
- the construction of the Sialkot Kharian Motorway (expected cost around US$225 million);
- the construction of a teaching and research hospital;
- the construction of an innovations ecosystem (science and technology park);
- the conversion of a guesthouse located in Lahore (the provincial capital of Punjab province) into a hotel;
- the creation of a mass transit facility in a major city, the Karachi Circular Railway; and
- the modernisation of the current Karachi–Pipri Rail Track.7
Previous projects finalised by the IPDF include:
- the overlay and modernisation of the Lahore Islamabad Motorway (investment of US$460 million), which has been in operation since 2016;
- the construction of the Lahore Sialkot Motorway (investment of US$438 million), which is in operation now;
- the conversion of an existing four-lane super highway into a six-lane Karachi Hyderabad highway (investment of US$430 million), which has been in operation since 2017; and
- the construction of the Habibabad Flyover (investment of US$8 million), which has been in operation since 2014.8
PPPs are also increasingly common at the provincial level. The Chief Minister of Punjab announced in July 2020 that several new PPPs would be initiated, including a clean drinking water project in the capital city Lahore, a vehicle fitness testing systems project and a zero waste material recovery project.9 By the end of the year, the Asian Development Bank and the government of Punjab had signed a memorandum of understanding to jointly promote PPPs in the healthcare sector.10 Sindh has multiple ongoing projects, including the Dhabeji special economic zone project and the education management organisations (EMO) project.11 The latter aims to outsource the management of public schools to credible organisations in the education sector and the former fosters the economic development of land in a rural part of the province.12 The provinces of Balochistan and Khyber Pakhtunkhwa have recently reformulated their respective PPP regimes. In 2018, Balochistan passed the Balochistan Public Private Partnership Act, 2018 (Balochistan PPP Act), and last year introduced an amendment bill to reduce legal ambiguities in the legislation.13 The Khyber Pakhtunkhwa Public Private Partnership Act, 2020 (KP PPP Act), passed just at the end of 2020, is currently in the process of being implemented.
At the federal level, the 2020 Ordinance amending the 2017 PPP Act made several noteworthy changes to the law aimed at creating a more facilitative regulatory regime for PPPs. Some key developments include:
- lowering regulatory approval requirements for certain categories of projects that do not require governmental support;
- integration of unsolicited proposals (USPs) by private parties in the PPP regime;
- creation of the project development facility (PDF), a new pool of funds to support the preparation of project proposals;
- inclusion of the possibility of mediation for purposes of settlement of disputes between the private party and the relevant government agency;
- creation of a new Public Private Partnership Working Party (P3WP) to review and approve PPP proposals;14 and
- formation of a risk management unit (RMU) to ensure fiscal oversight of all PPP projects.15
i Types of public-private partnership
The federal PPP Act defines a PPP as a commercial transaction between a public agency and a private party where the private party:
- performs part of the public agency's functions on behalf of it;
- assumes the responsible use of public property for a project;
- assumes substantial financial, technical and operational risks connected with a public function or the use of public property; and/or
- receives benefits for performing the public agency's functions or from the use of public property, or both, in certain enumerated ways.16
The most common types of PPPs have been either build-own-operate (BOO) or build-operate-transfer (BOT)-style concession agreements. BOOs have been prevalent in the energy and power sector while BOTs have typically been used for toll roads, highways and real estate constructions with a concession period normally of 20 to 25 years. Certain other arrangements involving private sector investment in public projects include lease agreements and joint ventures, which may or may not qualify as a PPP transaction in terms of the aforementioned definition.
Some provincial level legislation has specific provisions related to potential PPP arrangements. For example, the Punjab Public Private Partnership Act, 2019 (Punjab PPP Act)17 describes PPP arrangements as projects where the private party:
- constructs the infrastructure;
- provides services related to a project;
- manages a project;
- designs and constructs a project;
- designs and operates a project; or
- performs one or more of these functions.18
The Sindh Public-Private Partnership Act, 2010 (as last amended by the Sindh Public Private Partnership Amendment Act, 2018) (Sindh PPP Act) in its definition of a concession specifically lists BOTs and design-build-finance-operate agreements but leaves it to the parties to specify the arrangement, including any variation, in the PPP agreement.19
ii The authorities
The primary regulatory body for PPPs at the federal level is the PPP Authority. Its enumerated functions range from identifying, developing, structuring and procuring projects to standardising contractual agreements and working with international partners.20 The PPP Authority also approves project proposals for certain categories of projects and administers funds for facilitating PPPs, including the viability gap fund (VGF) and project development fund (PDF). The VGF is provided to projects that are economically or socially justified but not financially viable without government support and the PDF provides government agencies assistance with the preparation of project proposals.
Provincial regulatory bodies perform similar functions concerning matters that constitutionally fall within the domain of the provinces. Sindh has established a PPP Unit to assist the PPP Policy Board under the Sindh PPP Act. Punjab has set up a Punjab Public-Private Partnership Authority under the Punjab PPP Act and a separate Public-Private Partnership Cell within its Planning and Development Department. Khyber Pakhtunkhwa has created a Public-Private Partnership Unit under its Planning and Development Department to assist the related Public-Private Partnership Node set up in each government agency as per the KP PPP Act. The Balochistan PPP Act established a Public-Private Partnership Unit also in its Planning and Development Department with a PPP Board to approve projects.
The public agency directly involved with the PPP transaction is the implementing agency, defined in the federal PPP Act as any public entity including ministries, body corporate or autonomous bodies of the government or any government agency that undertakes a PPP project.21 Examples include the National Highways Authority, Pakistan Railways, the Pakistan Tourism Development Corporation and federally chartered universities such as, inter alia, the National University of Science and Technology. The implementing agency typically conceives of the project, creates a project proposal, applies for approvals, enters into the PPP contract with the private party and monitors the project's implementation. A similar concept exists at the provincial level. In the Punjab and Balochistan PPP Acts, this entity is termed the government agency, in Sindh simply the agency and in Khyber Pakhtunkhwa, the contracting authority.22
Another key regulator is the Finance Division of the government, which monitors risk and provides general fiscal oversight. The federal PPP Act contemplates the setting up of an RMU for PPPs within the Finance Division, approval of which is required before the execution of certain categories of projects.
Additionally, certain sectors have special sector-specific regulators and approval mechanisms, such as low-cost housing and power projects regulated by the Naya Pakistan Housing and Development Authority (NAPHDA) under the NAPHDA Act, 2020 and the Private Power and Infrastructure Board (PPIB) as per the PPIB Act, 2012, respectively.
iii General requirements for PPP contracts
The federal PPP Act creates an enabling regulatory framework for implementing agencies to enter into PPP arrangements. For non-qualified projects, which do not require the PPP Authority's approval, the implementing agency and private party may enter into any PPP agreement that can provide value for money and affordability to project users and the government. In cases where the project requires certain types of governmental support and is deemed to be a qualified project under the legislation, it requires certain approvals before it can be implemented.
There are two noteworthy restrictions on PPP arrangements under the federal PPP Act. First, while an implementing agency is generally permitted to transfer assets to the private party to carry out the project, the law prohibits the agency from transferring the title of immovable property to the private party. Second, while the private party may create a lien, charge or encumbrance over immovable property, it cannot do so without the approval of the implementing agency and the PPP Authority. It is expected that the PPP Authority will prescribe further regulations under the federal PPP Act, which may specify further requirements for PPP projects.
Provincial legislation has similar requirements. The Punjab PPP Act, the Sindh PPP Act and the Balochistan PPP Act list specific provisions that PPP contracts must have where applicable, including, inter alia, the general terms and conditions of the contract, environment and safety requirements, minimum insurance coverage and risk sharing.23 Subject to certain restrictions in the legislation, parties are generally free to negotiate the specific terms provided in the PPP agreement.24
In both the federal and the provincial regimes, before a PPP contract can be entered into, the implementing agency must go through special government approval processes.
As mentioned above, the federal PPP Act only requires approvals for qualified projects. The Act defines qualified projects as those undertaken on a PPP basis that require funding from the VGF or PDF; that require a sovereign guarantee; or that are determined to be qualified by the P3WP for reasons stated in writing.25 Non-qualified projects do not require the PPP Authority's approval and can be undertaken by the implementing agency by obtaining any routine approvals that would otherwise be necessary under the applicable law.
For qualified projects, approval of the project qualification proposal is required from the P3WP. Once pre-qualified, the implementing agency prepares a more thorough project proposal that involves more extensive documentation, which must be approved by the RMU, the PPP Authority's Board and, if it meets certain criteria, the Executive Committee of the National Economic Council.
There may be certain additional requirements to be met before project execution. Under the federal PPP Act, for example, the private party must also typically incorporate a special purpose vehicle with or without the involvement of the implementing agency. In Punjab and Sindh, for projects requiring construction works, the private party must submit a detailed engineering design and implementation plan to the implementing agency for approval prior to beginning construction.26
In addition to approval from the PPP Authority (or the provincial regulator, as applicable) there may be other regulatory approvals required. For instance, if the private party is a foreign investor, the project will also have to undergo a separate approval process under the investment regime.
Bidding and award procedure
At the federal level, the bidding and award procedure is generally regulated under the Public Procurement Rules, 2004 (last amended in May 2020) (Procurement Rules) made under the Public Procurement Regulatory Authority Ordinance, 2002.
The federal PPP Act allows the PPP Authority to modify the procurement regime to make it more suitable for PPP transactions. However, until the PPP Authority specifies such regulations, the Procurement Rules will continue to govern procurement of PPPs. Under the Procurement Rules, procurement must generally be transparent, efficient, focus on value for money and use open competitive bidding. Nevertheless, in a few exceptional cases, both the federal PPP Act and the Procurement Rules allow the implementing or procuring agency to enter into direct or negotiated procurement.
Provinces have their own procurement regimes, similar to those provided in the Procurement Rules, and in some cases, special provisions for PPPs as well. The Punjab PPP Act specifies its own mechanism for the selection of a private party, whereas the Sindh PPP Act refers to the public procurement rules developed by the government of Sindh, which has a special section for PPPs.
i Expressions of interest
The process for invitations for expressions of interest begins with the advertising of the project. This may include a process of pre-qualification to ensure that potential bidders possess the requisite technical, financial and managerial capabilities for the project.27 For procurements valued above a threshold of 500,000 Pakistani rupees up to a maximum of 3 million Pakistani rupees, the implementing agency must publish its advertisements electronically on the website of the Public Procurement Regulatory Authority (PPRA) as well as through print media, if deemed necessary. In the event that the procurement in question exceeds 3 million Pakistani rupees in value, it must be advertised on PPRA's website and through newspapers having wide circulation in both English and Urdu.28
In the advertisement, the implementing agency must provide the timeline for receipt of bids and expressions of interest. This deadline must be at least 15 days from the date of publication for national bidding and 30 days in the case of international bidding. Requests for clarification and responses to requests may be made but must be in writing.29
Once applications for pre-qualification have been submitted, where applicable, the implementing agency assesses the documents provided and notifies the applicants of its decision, which includes reasons for why particular applicants did not qualify.30 If requested, the implementing agency must also disclose a list of all applicants who have pre-qualified. If an applicant repeatedly proves unsatisfactory or engages in corruption or fraud, the implementing agency may choose to publicly blacklist the applicant (while providing it with an adequate opportunity to be heard).31
Provinces sometimes impose specific guidelines for procurement with respect to PPPs. Punjab, for instance, requires that for sufficiently large projects, pre-qualification notice be published in international newspapers and consortiums follow specific rules such as in the event of changes to members of the consortium.32
ii Requests for proposals and unsolicited proposals
Under the federal Procurement Rules, after pre-qualification, successful applicants submit bids in sealed packages and the implementing agency assesses these for a set bid validity period. Bidding documents may include, inter alia:
- an invitation to bid;
- instructions to bidders;
- a form of bid;
- a draft contract;
- general or special conditions of contract;
- delivery time or completion schedule;
- qualification criteria;
- bid evaluation criteria;
- format of all securities required; and
- details of standards that are to be used in assessing the quality of goods, works or services specified.33
The implementing agency may also require bid security, but this cannot be more than 5 per cent of the price.34
The Procurement Rules outline several bidding procedures, which involve the submission of a financial proposal and, typically, a technical proposal to be provided and evaluated in the manner specified in the bidding documents. These procedures are broadly categorised as single-stage and two-stage procedures, with the salient difference between the two being that the latter allows a procuring agency to provide feedback to the bidders so they may revise and resubmit their technical proposals.35
Bids are opened publicly and read aloud on the date of the deadline of submission.36 At least 10 days before the award of the contract, the implementing agency must announce the results of the bidding process.37
Rules differ in some provinces, including for PPPs. For example, in Punjab, bid documents include a draft PPP agreement, and a single-stage, three-envelope bidding process may be adopted combining the pre-qualification and bidding.38 In the event that a bidder fails to pre-qualify, its second and third envelopes shall be returned unopened.39
Some PPPs begin with a USP, which is submitted by a private party on its own initiative. As per the federal PPP Act, the private party may submit a USP either directly to the PPP Authority or through the implementing agency. While it is expected that the PPP Authority will make specific regulations for USPs under the enabling provisions of the federal PPP Act, until then, the relevant provisions under the Procurement Rules will be applicable. Under the Procurement Rules, if the procuring agency finds the USP viable, it must advertise the proposal for open competitive bidding without disclosing the name of the initiator of the proposal. This party automatically prequalifies and is awarded a 5 per cent additional weightage in bidding.40 If the private party is not successful in its bid, it is also given a final opportunity to match the winning proposal.
Provinces may have additional requirements for USPs. For instance, in Punjab, a USP must include a feasibility study; an environmental impact statement; a draft PPP agreement; a statement describing the need for government support; and a determination of the PPP modalities to use for the project.41
iii Evaluation and grant
Selection of the successful bidder and, consequently, the award of the contract will take place in accordance with the procurement regime, reflected in the bidding documents.42 However, PPP authorities, at the federal and provincial levels, may, in accordance with enabling legislation, make regulations for the procurement, selection and award of PPP projects. Under the present regime, a successful bidder must provide a performance guarantee at a level set by the implementing agency, but the guarantee may not exceed 10 per cent of the contract amount.43
Prior to selection and after the implementing agency has obtained all required approvals, there is a period of negotiation of the agreement in accordance with the guidelines set forth by the PPP Authority.
The form of compensation mechanism depends on the nature of the PPP project. In one model, the private party derives revenue solely from user charges. Estimates from feasibility studies are used to determine whether users will contribute sufficient funds to make the project sustainable and bankable. Examples include large-scale physical infrastructure projects (e.g., motorways, bridges), that can self-generate revenues on account of user fees, tolls or other forms of charges taken from consumers. In some recent PPPs, a hybrid model providing both user-fee and availability-based payments has also been used to better allocate risks associated with revenue streams. In the Malir Expressway project, according to the publicly available draft concession agreement, the government of Sindh agreed to provide availability-based payments to the concessionaire in the shape of a minimum revenue guarantee, and the following arrangement was made: service charges were benchmarked and reflected in the financial model under the PPP agreement; and revenues exceeding or falling short of the benchmark levels were to be equally shared between the concessionaire and the government of Sindh.44 In another model, the government may make annuity-based payments to the private party based on specific outputs or key performance indicators. In such cases, project milestones and tests may be used to assess the project's progress from time to time. One recent use of this payment model has been for the English medium schools and EMO projects contracted for the management of public schools in Sindh. Finally, some projects may involve a government subsidy to make them bankable. Here, payments, including through facilities such as the VGF, may take the form of equity with the government agreeing to purchase a certain number of a special class of shares in the project and receiving dividends in exchange for its contribution. Recently, as per the draft concession agreement of a mango processing facility project, the government of Sindh has agreed to inject equity into the project at a rate of 20 per cent of the total project cost.45
ii State guarantees
Under the federal regime, the government of Pakistan may provide sovereign guarantees to a private party undertaking a qualified project,46 which will generally be subject to obtaining all applicable approvals under the administrative rules of the federal government.47 Payment guarantees may also be provided by way of contractual commitments, such as through the minimum revenue guarantee mechanism. In some cases, the federal or provincial governments may offer to support a PPP through a debt repayment mechanism. Recently, for a PPP project initiated to establish and operate a mango processing facility, the government of Sindh has proposed to repay debt for up to 70 per cent of the principal loan amount if the concessionaire is unable to make repayments through its sources.48
iii Distribution of risk
The private party and implementing agency allocate risks in the PPP agreement. The particular risks borne differ depending on the type and nature of the project and the stage the project is at. As per Section 22 of the federal PPP Act, the PPP Authority, its Board and the federal government will not be liable for risks not specified in the agreement.
While every PPP agreement differs, they have similarities and showcase general patterns of risk allocation in the country. The Punjab PPP Cell has published a model agreement on its website.49 Sindh has also made available draft concession agreements for projects in the pipeline in the province.50 Based on these, in a common BOT agreement, at financial close, the government bears the risk of land acquisition and resettlement while the private party has the burden of arranging finances, including debt and equity, and, after investigation of the project site, for project site conditions. At the time of construction, the private party is responsible for the time and cost overruns as well as design of the project including addressing physical or legal impediments to project completion while the government may make capital contributions. The concessionaire is also generally responsible for internal infrastructure linkages such as waste and stormwater discharge and management. At the time of operations, most of the risks of operation and management, performance, updates, technology and revenue are borne by the private party, although the government contributes a portion to operations and to offset demand risk for some user charge-based BOTs.
The Punjab PPP model contract and the samples from Sindh illustrate that risks that can restrict a concessionaire's access to the project site (such as intervention caused by geological or archaeological finds) and risks that are political in nature are commonly allocated to the government. In fact, both the Punjab PPP Act and Sindh PPP Act mandate that the government guarantee against political risks in all PPPs.51
iv Adjustment and revision
Generally, any term of the contract may be amended if both parties agree to the change in writing through a signed and executed instrument. However, in some cases, the government may, at its discretion, extend concession periods on request even without such a written instrument.
The Punjab PPP model contract and the concession agreements from Sindh present a common framework for adjustments and revisions. Herein, the private party may request a change in the contract in the form of an extension of the time set for completion of the project or compensation for additional costs incurred. The private party may do so when facing:
- a material adverse impediment;
- a political event;
- geological or archaeological finds that cause a delay in performance;
- takeover by the government of the project in the case of a national emergency;
- a force majeure or other non-political event delaying the project;
- a postponement caused by the government in granting possession of the assets and the project site; or
- any other similar incident specified in the agreement.
The government may also request changes to the terms of the concession, commonly a change of scope, by submitting a written notice within a specified time. Some contracts limit changes of scope, permitting them only when a change does not exceed a certain percentage of estimated project costs. After the government submits its request, the concessionaire generally has time to submit documentation, detailing the impact of the change and additional cost and time extensions needed. Once independent consultants have reviewed this, the government may pay a portion of the additional costs in advance.
A change in law is another common listed ground for adjustment in the above-mentioned sample PPP contracts. Under such contracts, when there is a change in law that increases the concessionaire's cost over a certain threshold specified in the agreement, the concessionaire may request compensation for the increase. If there is a change in law that substantially decreases the concessionaire's costs below a specified threshold, the government, in turn, may propose amendments to the agreement to prevent unjust enrichment.
v Ownership of underlying assets
In accordance with the submitted project proposal and Section 17 of the federal PPP Act, the implementing agency may transfer an interest in a current or future asset in the project to the private party but cannot transfer title to immovable property. The implementing agency may also grant the private party the right to receive revenue from the project and permit it to create security interests on the asset, revenue or receivable to obtain loans for the project. However, to put a security interest on immovable property, the private party must seek special approval from either the implementing agency or the PPP Authority's Board.
The model Punjab PPP agreement and other agreements from Sindh typically specify that for BOTs, mining, geological or archaeological rights are not part of the concession. Trees on the property are also typically owned by the government. Moreover, the model and sample contracts permit the private party to create encumbrances on project assets arising by operation of law, during the ordinary course of business, or as a result of the financing of the project. Upon transfer of the project assets, the concessionaire undertakes, inter alia, to:
- handover possession of the assets free of encumbrances;
- complete all formalities required under the applicable law to give effect to the transfer;
- deliver all relevant records pertaining to the assets;
- deliver all permits held by the concessionaire, if permissible under applicable law; and
- compensate for any defects and deficiencies in the assets until one year from the expiry date of the PPP agreement.
vi Early termination
Early termination may occur for several reasons. The Punjab PPP model contract and the sample agreements from Sindh list similar reasons for and consequences of early termination. In these, in the event of default or material breach, the party not at fault may terminate the agreement. If the termination is due to a default or a 'corrupt' act by the concessionaire, the government will only pay the debt due to project financiers. If the termination is due to default by the government or a change in law, the government will compensate the private party for the debts due, lost profits and investments made. If termination occurs due to a force majeure event, its effects vary depending on if the event is political or nonpolitical. If the event is nonpolitical, the government will not cover lost profits, compensating only for investments made and the debt due. If the event is political, the government compensates for lost profits, investments made and debt due.
In some cases, legislation lays out early termination scenarios. While the federal PPP Act does not specify the terms and consequences of early termination, the Sindh PPP Act lists some.52 This includes termination by the government in the public interest; termination by the government due to a default by the private party; termination by the private party for default by the government; and termination due to a force majeure event. The implementing agency may have the option to take over and continue the project itself; allow lenders to collect on their rights and security interests; take over and initiate open competitive bidding to complete the remainder of the project; or invoke the liquidated damages clause in the contract.
PPP projects are typically financed by the private party involved in the transaction including through raising debt and equity finance. Typically, the private party finances a majority of the project costs by raising funds from institutions and equity injections at agreed-upon amounts. The government may provide guarantees, or some support from designated funds including the VGF, where appropriate, and financing may in addition be available through multilateral institutions and international development banks.
While there were no reported judgments specifically on PPPs in Pakistan within the past year, a few judicial decisions have been passed in support of such arrangements since 2018. In 2019, for instance, the High Court of Sindh upheld a PPP agreement, refuting arguments that allowing the process to move forward would amount to the privatisation of the Pakistan Post and result in the private party monopolising the industry.53 The same Court, while hearing a matter concerning a highway constructed in the province of Sindh on a PPP basis, also advocated in favour of a balanced approach with respect to the fixation of the toll rate, highlighting that it should not prejudice the interests of the concessionaire and must adhere to the terms of the agreement.54
In the coming year (and decade ahead), PPPs are likely to become increasingly common in Pakistan. The government has created new enabling frameworks and structures to promote PPPs, which are now in use not only in traditional sectors such as power and transportation sectors, but also in health, tourism, housing, education and a number of other areas.
In fact, the PSDP+ initiative envisages 53 mega projects across sectors from real estate and aviation to logistics and technology and a total investment of 5.2 trillion Pakistan rupees.55 For fiscal year 2020–2021 alone, under PSDP+, the government plans for 50 billion Pakistan rupees in private investment in four large PPP projects.56
In addition to strengthening the PPP regime, the federal government has also taken steps to bolster sectors where PPPs are in use. For example, in April 2020, the Prime Minister introduced a comprehensive relief and stimulus package for the construction sector.57 The package includes both general tax amnesties and other incentives for the construction industry generally, and certain special incentives for builders and developers taking part in the Naya Pakistan Housing scheme under the NAPHDA Act. The stimulus package is likely to produce positive externalities for a number of sectors linked with the construction industry.58
As the PPP regime continues to grow and the PPP authorities in Pakistan build a more facilitative environment for private investment in public projects, there is great scope and desire for more PPPs in the country.
1 Daud Munir is a partner at Axis Law Chambers.
2 The 2017 PPP Act as amended by the 2020 Ordinance (i.e., federal PPP Act) was the applicable legal regime at the federal level at the time of the writing of this chapter. The Public Private Partnership (Amendment) Bill, 2021, approved by the National Assembly and before the Senate at the time of writing, is substantially similar to the 2020 Ordinance. After the lapsing of the 2020 Ordinance in accordance with the provisions of the Constitution, the 2017 PPP Act will become applicable until amendments are passed by the Parliament.
3 World Bank, PPI Snapshot: Pakistan, https://ppi.worldbank.org/en/snapshots/country/pakistan.
5 Mubarak Zeb Khan, 'Govt envisages 'robust' PSDP plus to stimulate growth', DAWN, 15 December 2019, https://www.dawn.com/news/1522352/govt-envisages-robust-psdp-plus-to-stimulate-growth. This follows an earlier 2014 strategy document, Vision 2025, issued by the Planning Commission of Pakistan with one of its main pillars being private sector-led growth and the creation of an enabling environment for PPPs. Planning Commission of Pakistan, Pakistan Vision 2025, https://www.pc.gov.pk/uploads/vision2025/Pakistan-Vision-2025.pdf.
6 Public Private Partnership Authority, PDSP+ Portfolio Projects, https://www.pppa.gov.pk/index.php?cmd=nocompl#popup1 (last accessed 13 February 2021).
9 APP, 'New infrastructure projects to be completed under public-private partnership: Punjab CM', The News, 5 July 2020, https://www.thenews.com.pk/print/682328-new-infrastructure-projects-to-be-completed-under-public-private-partnership-punjab-cm. The project proposal for the installation, operation and maintenance of water meters in Lahore was approved in 2020. This will be followed by the installation of water meters in other cities in Punjab. See PPP Public Private Partnership Cell, Procurement, Installation, and Operation & Maintenance of Water Meters in Lahore, https://ppp.punjab.gov.pk/water-meters (last accessed 22 February 2021).
10 Asian Development Bank, ADB Partners with Government of Punjab to Support Health Care PPPs In Pakistan, https://www.adb.org/news/adb-partners-government-punjab-support-health-care-ppps-pakistan (published on 1 December 2020).
11 Public Private Partnership Unit Finance Department Government of Sindh, Dhabeji Industrial Park – DIP, https://www.pppunitsindh.gov.pk/projects_new.php?pid=31&pstatus=Current (last accessed 22 February 2021).
12 Public Private Partnership Unit Finance Department Government of Sindh, Education Management Organizations – EMOs, https://www.pppunitsindh.gov.pk/projects_new.php?pid=7&pstatus=Current (last accessed 22 February 2021).
13 Government of Balochistan, Review Meeting of Public Private Partnership Amendment Bill 2020, http://balochistan.gov.pk/review-meeting-of-public-private-partnership-amendment-bill-2020/ (last accessed 22 February 2021).
14 Section 13A of the federal PPP Act details what the P3WP looks like.
15 Section 12A of the federal PPP Act details what the RMU is and Section 18 covers the settlement of disputes.
16 Section 2(t) of the federal PPP Act.
17 Replacing the Punjab Public-Private Partnership for Infrastructure Act, Act IX of 2014.
18 Section 14 of the Punjab PPP Act.
19 Section 2(f) of the Sindh PPP Act.
20 For a full list of the functions and powers of the PPP Authority see Section 4 of the federal PPP Act.
21 An implementing agency is defined in Section 2(g) of the federal PPP Act.
22 For definitions see Section 3(n) of the Punjab PPP Act, Section 2(n) of the Balochistan PPP Act, Section 2(b) of the Sindh PPP Act and Section 2(c) of the KP PPP Act.
23 See e.g., Section 28 of the Punjab PPP Act.
24 Section 16 of the Sindh PPP Act and Section 28 of the Punjab PPP Act.
25 Qualified projects are defined in Section 2(v) of the federal PPP Act.
26 Section 17 of the Sindh PPP Act and Section 29 of the Punjab PPP Act.
27 Rule 15, Procurement Rules.
28 Rule 12, Procurement Rules.
29 Rule 13, Procurement Rules.
30 Rule 16, Procurement Rules.
31 Rule 19, Procurement Rules.
32 Section 20, Punjab PPP Act.
33 Rule 23, Procurement Rules.
34 Rule 25, Procurement Rules.
35 Rule 36, Procurement Rules.
36 Rule 28, Procurement Rules.
37 Rule 35, Procurement Rules.
38 Section 21 and 22, Punjab PPP Act.
39 Section 22, Punjab PPP Act.
40 Rule 37A, Procurement Rules.
41 Section 26, Punjab PPP Act.
42 Rule 29, Procurement Rules.
43 Rule 39, Procurement Rules.
45 Draft Concession Agreement (Mango Processing Facility Project), https://www.pppunitsindh.gov.pk/downloads/active_tenders/CA%20Mango%20Processing%20Project.pdf).
46 See 'General Requirements of PPP Contracts' for an explanation of qualified projects.
47 For instance, under Rule 12 of the federal Rules of Business, 1973, guarantees that will affect, directly or indirectly, the revenues of the federation require prior consultation with the Finance Division.
48 Draft Concession Agreement (Mango Processing Facility Project), https://www.pppunitsindh.gov.pk/downloads/active_tenders/CA%20Mango%20Processing%20Project.pdf).
49 Public Private Partnership Cell, Model PPP Agreement, https://ppp.punjab.gov.pk/mca (last accessed 14 February 2021). Note that while it is recommended that implementing agencies use model PPP agreements, there is no rule mandating this.
50 Draft Concession Agreement (Khairpur Wholesale Dates Market), https://www.pppunitsindh.gov.pk/downloads/projects/khajoor/khajoor_ca.pdf (last accessed 14 February 2021); Draft Concession Agreement (School Education and Literacy Department), https://www.pppunitsindh.gov.pk/downloads/projects/emo/emo_dca.pdf (last accessed 14 February 2021); and the draft agreement for the Malir Expressway Project, see footnote 44.
51 Section 15 of the Sindh PPP Act and Section 25 of the Punjab PPP Act.
52 See Section 28, Sindh PPP Act.
53 PLD 2019 Sindh 69.
54 2018 YLR Note 117.
56 Planning Commission Ministry of Planning Development & Special Initiatives, Public Sector Development Programme 2020–21 (June 2020), https://www.pc.gov.pk/uploads/archives/PSDP_2020-21.pdf.
57 Dr Ikramul Haq and Huzaima Bukhari, 'Incentive-package for construction industry: Amnesty, tax breaks & multiple reliefs', Business Recorder, 10 April 2020, https://www.brecorder.com/2020/04/10/588179/incentive-package-for-construction-industry-amnesty-tax-breaks-multiple-reliefs/; Aurora, 'Will The Construction Industry Revive Pakistan's Economy?', DAWN, https://aurora.dawn.com/news/1143877; Rizwan Shehzad, 'Construction industry gets incentive package', The Express Tribune, 17 April 2020, https://tribune.com.pk/story/2200369/1-federal-cabinet-approves-ordinance-provide-relief-construction-sector. In 2021, the Prime Minister renewed a portion of this tax amnesty scheme for another six months and set up a fixed tax regime until the end of the calendar year.' Amnesty extension', DAWN, 2 January 2021, https://www.dawn.com/news/1599214.