The country requires a huge infrastructure investment of above $60 billion in next 10-15 years and there is no alternative to PPP to develop infrastructure. But the PPP Act and Regulations have many constriants making private sector hesitant to invest on it.
The government has targetted 10,000 MW electricity generation in the next 10 years time, which alone will require an investment of $20 billion at current prices apart from an additional investment of $40 billion by the year 2025 in infrastructure, "That is, if our GDP grows consistently at seven per cent," experts opined.
"The problem is that the size of our economy is too small," said Maheshwor Prakash Shrestha, co-ordinator of Infrastructure Bank (proposed) while presenting his paper on Challenges and Constraints in PPP Financing - Bankers' Perspective, at an interaction on 'Private Financing in Building and Operation of Infrastructure Act 2063 and Regulations 2064', organised by the Ministry of Physical Planning and Works (MPPW), Public Private Partnership for Urban Environment (PPPUE), Ministry of Local Development and UNDP jointly here today.
Nepal's total GDP as of this mid-January was Rs 71,9480 million ($8.993 billion) and the total deposit base of the banking sector as a whole including development banks and finance companies is just a meagre $4.689 billion (Rs 37,5040 million).
"On the top of that, most of the deposits have maturity period of less than a year," Shrestha said adding that it was a challenge for the sector to book assets for a longer period, say of ten years or more. Infrastructure projects take a long time to complete and returns rolls in only after 10 to 12 years. PPP projects generally carry a stable lower rate of return. "Generally, they carry a return of 10 to 15 per cent," he said adding that in many cases the return does not justify comparatively higher rate of investment. Though, there are specific incentives by Nepal Rastra Bank to finance PPPs, banks finance PPPs on a basis similar to deprived sector lending," he informed.
However, the basic theme of PPP is joint resource sharing between the government and private sector for mutual benefit. But the PPP Act and rules there under does not treat the private sector and government at par, complained Shrestha adding that the government acts as a regulator and the private sector as a follower.
South Asia's infrastructure investment need is estimated at $94 billion per annum, according to Asian Development Bank. Infrastructure investments are nearly half the estimated need and are done predominantly by governments.
Nepal is very poor in terms of providing basic infrastructure facilities like energy, transportation, water and sanitation, pushing the country towards more poverty. World Bank says that infrastructure can deliver major benefits in economic growth, poverty alleviation, and environmental sustainability. Infrastructure represents, if not the engine, then the wheels of economic activity.Sukunta Lal Hirachan, immediate past president of the Federation of Contractors' Association of Nepal (FCAN) and Kamal Raj Pande, joint secretary at the MoPPW, also presented their papers at the programme where private developers, banks, project developers (consultants) took part. The programme has been organised to disseminate information, sensitise and obtain feedback on the PPP Act and Regulation.