Introduction and Background
The progression of Bangladesh to a middle-income country requires an increase of investments in infrastructure from around 2% to 6% of its GDP, which is one of the key requirements for the achievement of the Government of Bangladesh’s Vision 2021 Policy. Therefore, the government has identified and prioritized Public-Private Partnerships (PPPs) as one of the key initiatives to meet this investment priority and close the infrastructure gap. There have been remarkable changes regarding the PPP framework and regulation to encourage private partners to invest in the mega projects of the Government of Bangladesh (GOB).
The regulatory framework for PPP projects in Bangladesh was first introduced in 1990 via the Private Sector Power Generation Policy. Two successful power projects resulted from this, the 450 MW Meghnaghat and the 360 MW Haripur combined cycle gas turbine power plants. Subsequently, the GOB passed several laws, rules, regulations, guidelines and directives providing a legal and procedural framework for procuring a project to be implemented on a PPP basis. While there are a number of practical issues affecting the viability of PPP projects in Bangladesh, the regulatory framework is relatively well-developed and the GOB has introduced a number of incentives with a view to attracting foreign investors, which signals the GOB’s ongoing commitment to improve the investment environment for international players.
Legal and Regulatory Framework
The principal laws and regulations regarding PPP projects are as follows:
- Public Private Partnership Law, 2015 (PPP Act);
- Procurement Guideline for PPP Projects, 2018 (PPP Guidelines);
- Guideline for Unsolicited Proposals, 2018;
- Policy for Implementing PPP Projects through Government to Government (G2G) Partnership, 2017; and
- National Priority Project Rules, 2018.
The PPP Act and PPP Guidelines prescribe a step-by-step process for selecting projects to be implemented on a PPP basis. The GOB procuring entity needs to propose a project to the PPP Authority (PPPA) to be undertaken on a PPP basis. The PPPA considers various factors of the project, and if satisfied may send the proposal to the Cabinet Committee on Economic Affairs (CCEA) for an in-principle approval. Once the project gets the in-principle from the CCEA, other stages including the bidding phase, development phase and others are undertaken. A brief overview of these stages is as follows:
Procurement phases:
The procurement process for selecting a private partner for PPP projects broadly falls under four categories, as follows:
a. Identification Phase: The project proposal is submitted by the relevant line ministry to the PPPA for screening and endorsement. The PPPA then sends the proposal to the CCEA for further review/comment.
b. Development Phase: During this phase, the relevant government procuring authority with the support from the PPPA and relevant expert(s) consider the feasibility of implementing the project on a PPP basis i.e., technical issues, commercial and financial considerations, environmental factors, social issues, linked projects etc.
The PPPA communicates with the relevant government procuring authority to form a project delivery team led by a project director to ensure the smooth development and delivery of the PPP Project. For example, the project director ensures that the feasibility study is prepared in accordance with the PPP Guidelines and is completed within the agreed timescale with the transaction adviser or consultant. The PPPA also establishes a project assessment committee for each project, which reviews the draft feasibility report and provides feedback. The procuring authority finalizes and approves the feasibility report after considering comments received from the PPPA.
c. Bidding Phase: At this stage, the relevant governmental procuring entity processes and approves proposals by bidders in response to the bid documents i.e., request for qualification (RFQ), request for proposal (RFP), information for bid (IFB).
The procuring authority advertises the RFQ or IFB in a national newspaper, its own websites, and the website of the PPPA. The procuring authority also advertises the invitation on the Development Gateway Market (dgMarket) and may consider any other similar publications or sites, as appropriate. The authority usually requires interested bidders to register online to access the bid documents and other relevant information. Also, the authority maintains an online data room to share documents and communicate with the bidders. During the bidding phase, only registered entities are given access to this data room.
There are two types of bidding process - single-stage bidding process or two-stage bidding process. Under the single-stage bidding process, an IFB is issued to the registered bidders. The bidders submit their technical bids and financial bids. After completion of the evaluation, the preferred bidder is selected for the award of the PPP contract. Under the two-stage bidding process, an RFQ is issued to the registered bidders first which contains certain qualifying and shortlisting criteria. Only the shortlisted bidders are eligible to submit their technical proposals and financial proposals during the RFP stage. After completion of the evaluation, the preferred bidder is selected for the award of the PPP contract.
Upon completion of the evaluation of the proposals or bids, the evaluation committee invites the preferred bidder for negotiations and sets a date for the commencement of PPP contract negotiations.
d. Approval and Award Phase: Upon completion of the negotiation, the procuring authority submits a legally vetted PPP contract to the CCEA for final approval. Once the approval is received, the procuring authority issues a ‘Letter of Award’ to the preferred bidder while inviting the preferred bidder or the project company to sign the CCEA-approved PPP contract for the implementation of the project.
Types of PPP projects:
There are mainly four avenues through which PPP projects can be undertaken, namely:
- SOLICITED PROJECTS: A PPP project can be undertaken through solicitation e.g., issuing the tender, bidding, and others. Under the PPP laws, government authorities are required to follow the above-mentioned four phases when undertaking solicited projects.
- UNSOLICITED PROJECTS: A PPP project can also be undertaken through unsolicited bids. Under this category, a private sector entity can make a written proposal to any government authority showing their interest in undertaking a particular project on a PPP basis which is necessary for the socio-economic development of Bangladesh, and they have exclusive skills in relation to the same. However, this proposal needs to be on the private entity’s own initiative, and not in response to any formal government request. If both the procuring entity and the PPPA are satisfied with the proposal, the relevant line ministry submits the proposal to the CCEA for in-principle approval. Afterwards, the proposal is put through a competitive bid process which substantially involves the same four phases as discussed above (i.e. development phase, bidding phase, approval, and award phase). During the competitive bidding process, the unsolicited bidder will automatically be considered a short-listed bidder or may benefit from a bonus point which will give them an extra advantage over other bidders.
- G2G PROJECTS: Pursuant to the G2G Partnership Policy, the mechanism for delivering projects under G2G will be governed by the bilateral G2G Framework Agreement or Memorandum of Understanding (MOU) executed between the GOB and the other relevant foreign government. On a practical note, we have seen the PPP Authority (representing the GOB) enter into an MOU with a state-owned organization of a foreign state. However, the MOU does not cover any specific project rather it covers an overview of the understanding between the two states regarding the development of specific sectors e.g., the development of - roads & highways, ports, bridges, power & energy, and others.
The development of a PPP project on a G2G basis typically would also involve the above-discussed four phases. Under the G2G Partnership Policy, the PPP Authority can directly select any entity (which is recommended based on a G2G MOU) for a PPP project on a G2G basis without going through the bidding stage. However, if a bidding phase has already commenced for the project, a bidder cannot be directly selected until the bidding is unsuccessful.
- NATIONAL PRIORITY PROJECTS: Under this category, the government undertakes national priority projects on an urgent basis. The procurement process of these projects is substantially different from the above-discussed other three types of PPP projects i.e., the government needs not go through the tendering process and can reach out to local or international investors to implement the project. However, a project needs to be assessed by the PPP Authority and Cabinet Division for it to be declared as a National Priority Project. Further, an inter-ministerial committee of five members, comprising at least one member from each of the following authorities - finance division, internal resources division, PPP Authority, and procuring authority, will be formed to select the private partner, conducting negotiation meetings and finalizing the draft PPP Contract. The draft contract will be vetted by the Ministry of Law and sent to the Cabinet Division for final approval. Once the Cabinet Division approves, the procuring authority will issue the ‘Letter of Award' to the private partner.
Regulatory Authority - PPPA:
The PPPA is the principal government authority, established under the PPP Act 2015, supporting government authorities in identifying, developing and procuring PPP projects in Bangladesh. It is responsible for monitoring the compliance and non-compliance of the PPP project requirements, and also has the mandate to develop or recommend PPP guidance, regulations, procedures, and model documents which are subsequently approved by the CCEA. The overall management and administration of the PPPA are done by its board of governors, which consists of the following members:
a. The Prime Minister (Chairperson);
b. Minister, Ministry of Finance (Vice-Chairperson);
c. A Minister nominated by the Prime Minister (Member);
d. Minister or State Minister of the relevant Ministry concerned with the PPP Project (Member); and
e. The Principal Secretary to the Prime Minister and Chairman, PPP Authority (Member-Secretary).
The PPPA may, upon the approval of the Chairperson, invite any minister who is not related to the project or any individual who has experience in the relevant matter, to any meeting of the Board of Governors, if necessary.
Market Snapshot
PPP Projects in Bangladesh:
According to the Annual Report 2020 – 21 of the PPPA,[1] there are 79 projects under implementation in the PPP pipeline with a total estimated investment value of USD 29.23 billion. Contract signing has been completed for 16 projects with an expected investment value of USD 4 billion. Among them, one project is operational, and 8 projects are under construction. There are 12 projects at the procurement stage and 27 projects are at the detailed feasibility study stage.
World Bank’s report on PPP projects in Bangladesh[2] :
According to the World Bank’s database for Bangladesh, to meet the United Nations Sustainable Development Goals (SDGs), an estimated USD 928.48 billion in additional funding is required by 2030 for Bangladesh, an amount which cannot be funded from the government budget alone and requires private sector participation. The World Bank regularly provides funds to enhance the progress and stability of PPP projects in Bangladesh. Recently, the World Bank approved USD 600 million for two projects in Bangladesh to increase the employability and livelihood opportunities of more than 1.75 million poor and vulnerable people—including youth, women, disadvantaged groups, and returnee migrant workers—and build their resilience to future shocks like the COVID-19 pandemic.
Incentives for International Investors
The GOB made various initiatives by introducing significant changes to the PPP regulations to attract foreign investors to PPP projects.
(a) Viability gap funding (VGF)
Under the Viability Gap Financing Rules 2018, the GOB can provide VGF to PPP projects where financial viability is not ensured but their economic and social viability is high. Alternatively, the GOB may also provide VGF to PPP projects to maximize their Value for Money. VGF can be made in the form of capital grant disbursed during the construction phase of PPP projects or VGF funds can be contributed in the form of annuity disbursed on a periodic basis during the period when the relevant project company provides services to the PPP project after commencement of operations.
There are certain legal and regulatory requirements which must be fulfilled before obtaining the final approval from the CCEA for obtaining VGF. For example, VGF is only applicable to BOT (build, operate and transfer) projects with a limit of 30 percent of the project costs. However, there are no restrictions regarding the type or nature of PPP projects that may obtain VGF funding. For the GOB to meet its important policy objectives and strategies, the VGF Rules allow VGF to be applied to all kinds of PPP projects.
(b) PPP technical assistance financing (PPPTAF)
The PPPTAF is a scheme by the GOB for technical support to develop infrastructure projects that are to be undertaken on a PPP basis. The PPPTAF would provide a strong instrument to improve the quality and development impact of the project. Like VGF, there are certain legal and regulatory requirements which must be fulfilled to receive this support.
(c) VAT exemptions
Pursuant to an order of the National Board of Revenue dated 16 February 2016, project companies involved in PPP projects are entitled to full VAT exemptions for availing services from construction organizations, consultancy firms, supervisory firms, suppliers (except petroleum goods) and legal advisors.
(d) Tax exemptions
Under Bangladesh laws, PPP projects are related to the following sectors: a) national highways or expressways, b) flyovers, c) elevated expressways, d) bridges, e) tunnels, f) river ports, g) seaports, h) airports, i) subways, j) monorails, k) railways, l) bus terminals, m) bus depots, and n) elderly care homes, are eligible for the following tax exemptions:
- Full exemption from capital gains tax arising from a transfer of shares of a PPP project company for a period of ten years from the date of commercial operation of the project company;
- Full exemption on tax applicable on fees related to payment of royalty, technical knowhow and technical assistance for a period of ten years from the date of commercial operation of the project company;
- Full exemption on tax applicable on the income of the PPP project company for a period of ten years from the date of commercial operation of the project company; and
- 50% exemption on tax applicable on the income of foreign expatriates who are employed by the PPP project company for a period of three years from the date of their appointment
The Way Forward
Although the PPPA and the GOB have been relentlessly trying to promote and undertake government projects on a PPP basis, the success rate is still very low, and a very small number of PPP projects are operational. Most infrastructure projects are still funded by government allocations or through bilateral or multilateral loans. Based on our experience in working on PPP projects, we understand that there are a number of reasons behind this outcome i.e., lack of government expertise in the PPP sector, land acquisition-related issues, and availability of finance for PPP projects, among others. The PPPA and the GOB need to address these issues to improve the success rate of PPP projects in Bangladesh.
Further Reading
- Public Private Partnership Authority, Prime Minister’s Office
- The World Bank, Infrastructure Finance, PPPs & Guarantees Official Website
- The World Bank, Public-Private Partnership Legal Resource Center
This publication is intended to provide a high level overview of PPPs in Bangladesh. It is provided for general informational purposes only and should not be construed as legal advice. King & Wood Mallesons does not practice Bangladesh law, and works closely with local lawyers to support our clients' needs in Bangladesh. We are grateful to DFDL for their co-operation on this publication.