10 Minutes To Read

Public Private Partnerships: The Need to Develop a Sound Legal Framework

10 Minutes To Read

Htet Aung Shine discusses how a PPP framework should balance economic interest with environmental and social safeguarding.

The recent debate on Public Private Partnerships (PPPs) in Myanmar in the Myanmar Times shows the disconnect between financing infrastructure and social and environmental rights safeguarding. Both arguments are needed to alleviate the infrastructure gap through different means and the importance of social and environmental rights integration in the execution of infrastructure projects is becoming more and more significant. The timing of the debate arises while the government is trying to improve the environment to implement PPPs by developing a legal framework and facilities. The government expects to address the questions and concerns of the private sector and development partners on unclear procedures and the role of government in PPPs. With an increase in the number of PPP projects in the pipeline, challenging PPPs will not serve the best interest. There is a need to balance economic interests with mitigation of adverse environmental and social impacts in PPP projects. The legal framework could be the answer to respond to the calls from all stakeholders. This piece of work intends to illustrate the best practices and values that should be embedded in the legal framework to mitigate unintended consequences of PPP projects. The article discusses how drafting a PPP framework could balance economic interests and create social and environmental capital based on local and international research and experiences. The World Bank’s recent Myanmar Economic Monitor: Building Reform Momentum estimates that Myanmar needs to invest up to $2 billion in its electricity sector to maintain its economic progress momentum. In 2017, the Asian Development Bank (ADB) expected the Asian financial gap in economic infrastructure to be $459 billion per year. The required infrastructure investment to sustain an average of 8% annual economic growth up to 2030 was estimated at $320 billion. The infrastructure financial gap is a global issue with more implications for developing countries like Myanmar and countries in East Asia and the Pacific region. In response to the severity of the problem, the institutional financers came up with an alternative instrument and approach to mobilize the private sector in financing public infrastructure: namely co-financing and public private partnerships (PPPs). PPPs are at the top of government and development institutions’ agendas and are increasingly being promoted as a way to finance development projects. Myanmar is quite familiar with both co-financing instruments and PPPs. In the past, PPPs were largely realized as B.O.T.’s (Build – Operate – Transfer) and most of the projects were on an unsolicited basis. According to the Public Private Partnership as a Path to Development for Myanmar report by Neealm Bhusal, 14 percent of paved roads in Myanmar are implemented through different forms of PPPs in collaboration with 28 different companies on 64 road projects. Projects in various sectors have been implemented through public-private partnerships, including in power, energy, road building and water. The first thermal plant is being built through a PPP between SembCorp Utilities and the Ministry of Electricity and Energy and is the first solicited project. The NLD government believes that PPPs could leverage the implementation of the Myanmar Sustainable Development Plan (MSDP) which is Myanmar’s version of the United Nations’ Sustainable Development Goals (SDGs) and was adopted by the NLD government in 2018. The NLD-led government anticipates that the implementation of the MSDP will “develop a ‘light’ in the peace process” and in Myanmar’s economic development, which are the NLD’s primary election campaign promises and are on the top of the NLD government’s agenda. The MSDP recognizes the role of the private sector as the primary engine of economic growth and job creation and it prioritizes market-based solutions. The implementation of the MSDP is politically important for the NLD government and motivates the development partners who have been advocating for the government to allow greater participation of the private sector in development financing. However, the challenges for businesses to participate in PPPs still remain due to unclear procedures and policies, bureaucracy and corruption from government officials and long-standing resentment from citizens due to environmental and social negligence in large scale projects; this latter factor has put PPPs under strict scrutiny from civil society. According to the Ministry of Planning and Finance (MOPF) official website, the government is committed to creating an enabling environment for the private sector to conduct PPPs and to establish public-private partnerships as an approach which will deliver infrastructure and services in the future. The Government of Myanmar (GOM) is implementing PPPs in three main areas: power, telecommunications and transport. Currently MOPF, with the support of the ADB, the Japan International Cooperation Agency (JICA) and other institutions, is preparing a framework which will govern public-private partnerships in Myanmar. Myanmar is taking Indonesia and the Philippines as examples in using the PPP approach in reducing the infrastructure gaps. Sometimes being a latecomer in development can be an advantage as one tends not to repeat the same mistakes of those who came before. Thus, Myanmar should also learn from these countries’ struggles with negative environmental and social impacts experienced as unintended consequences of the PPPs. The Government has acted quickly to show its strong commitment to developing PPPs. The Directorate of Investment and Company Administration (DICA) under the Ministry of Finance and Planning introduced the Public-Private Partnership Framework with a 50-page policy document in early 2016 with the technical support of JICA and the Economic and Social Commission for Asia and the Pacific (ESCAP), and launched a portal named Myanmar Public-Private Partnerships (PPP) to facilitate information and provide guidelines for stakeholders. The draft framework includes a number of sections for environmental and social safeguarding. However, it should be assessed to check the sufficiency of legal and policy measures. Moreover, the President’s Office approved a Project Bank notification in November 2018 to create clearer and more transparent pathways for investors interested in PPPs. The government has also established a PPP Center within MOPF to facilitate and implement PPP projects, and to enhance the capacity of the line ministries and implementing government agencies. Despite the lack of a sound policy framework on PPPs and limitations in terms of guidelines, information constraints, capacity to manage the process and a dedicated team, Myanmar has developed a handful of PPPs with the support of multilateral and bilateral partners. The most visible public-private partnership carried out with an international co-financing scheme is Myingyan Independent power producer project (M-CCGT). The project is operated by the Sembcorp-Myingyan Power Company which was created by Sembcorp Utilities (80%) and  MMID Utilities (20%), a Myanmar national-owned company registered in Singapore (later MMID Utilities was removed from contracts and MMID lodged a case against SembCorp Utilities in the Yangon Regional High Court). The project receives loans and enjoys a political risk guarantee from the World Bank Group, the ADB and the Asian Infrastructure Investment Bank (AIIB), and receives commercial loans from lenders including Clifford Capital and OCBC Bank (Singapore). The project is the first private sector project in electricity production and the first of its kind as a multi-financing project perhaps even the first in the region. In addition to the loans given to the private sector, the International Finance Corporation (IFC) provides advisory services to the Ministry of Electricity and Energy to structure and implement tender processes for the selection of an independent power producer (IPP) that will construct and operate the power plant under a 22-year BOT agreement. The plant is to be operated on gas supplied by the Myanmar Oil & Gas Enterprise (MOGE). Myanmar Electric Power Enterprise (MEPE, now EPGE) signed a power purchase agreement (PPA) with SMPC to buy the electricity produced by the M-CCGT in March, 2016. The project is located on land owned by the Ministry of Industry in Taungtha township of Myingyan, Mandalay; which was confiscated by the ministry during 1998-2000 for the purpose of the Myingyan Steel Mill expansion. As the project received loans from development banks, it outlines the development objectives to meet the mandates of the banks. Based on a generic analysis of the public documents from different banks, addressing the country’s severe electricity shortage and creating job opportunities are the top development objectives. The banks expect that the success of the project will demonstrate the benefits of improving power supply through low-cost PPP arrangements. The message will also inform the government and other international financiers that private sector-led infrastructure investments can be undertaken successfully within sectors with sound legal and regulatory frameworks. Being the first flagship project of AIIB, and the first private investment and co-financed project in Myanmar, the project is popular among business sector experts and subjected to the close monitoring of human rights organizations. To date, there are two studies, one conducted by a local organization called IFI Watch Myanmar and the other conducted by Bank Information Center Europe. The studies claim that the project didn’t take into account affected people’s concerns in both project design and construction. The main issues are that the community’s environmental and social concerns remain unaddressed, consultations are not comprehensive, local recruitment targets set up by the ADB were missed and the resettlement plan implementation was not conclusive. Since the project is obligated to comply with the safeguards and standards from institutional lenders which are usually more comprehensive in environmental and social protection measures for the local community, civic groups claim that the lenders failed to work with their clients in raising the standards of citizen engagement, bringing them in line with lenders’ standards for such projects. These include environmental protection, applying safeguarding policies and maximizing the development outcomes beneficial to both host community and investors along with making their clients accountable. The above scenario shows that the government and multilateral partners are politically motivated to conduct PPPs to implement large scale infrastructure projects despite the lack of proper legal framework which will address the questions and concerns from all stakeholders. In October 2018, a coalition comprised of 17 international human rights organizations published a case study report on 10 PPP projects from 9 countries (a mix of developed and developing countries). The report picks up two cases from Asia: Tata Mundra of India and Jakarta’s Water Supply project from Indonesia. These two countries are considered leading countries in Asia which show the potential of PPPs in bridging the infrastructure financing gap. However, in both cases, project arrangements posed excessive risk levels to the public sector, demonstrated a lack of transparency and accountability and posed environmental and social risks to the community. I would argue that we cannot conclude that the PPP model is not working based only on this report. PPPs work when the project is transparent, accountable and integrates environmental and social safeguarding in different levels of the project development. However, governments in developing countries ignore the importance of meaningful stakeholder consultations which leads to project failure. The development of PPPs also largely relies on having strong legal frameworks which will balance the interest of both the private sector and the public.  The legal framework should provide answers on the clear procedures, policies, and process of conducting PPPs, including transparency, accountability and policies for environmental and social due diligence. The legal framework must be followed by implementation, oversight, and monitoring of relevant agencies and parliament during different phases of the project. Since MOPF is working to develop a legal framework, the legal framework must institutionalize government and private sector responsibility to protect and respect human rights and promote local development. There are several documents from development partners, institutions and human rights groups which develop “best practices” which have been drawn up based on experiences from around the world. Transparency, accountability and commitment to promote local development must be institutionalized as core values in the legal framework and must be recognized as shared responsibilities from all actors. Based on the existing guidelines from different institutions[1], these values are listed in detail below: Promoting transparency: Stakeholders have the right to information about the purpose and potential impacts of the project, and to effective communication channels which will provide regular and transparent information flows. The communication channel has to allow the stakeholders to access project information, provide feedback and complain. Promoting accountability: The creation of effective monitoring and complaint mechanisms and disclosure of potential environmental and social impacts shall be placed under the legal framework. Access to the formal legal system shall be in place for the potential project-affected community. Participation: Stakeholder consultations must be institutionalized as part of the legal framework and monitoring and complaint mechanisms should place public participation at the core of the framework. Space for women, children and other vulnerable groups shall be created under the stakeholder consultations, monitoring and complaint mechanisms. Especially when the project is implemented in ethnic areas, these mechanisms have to be localized to maximize the participation of indigenous groups and avoid potential conflicts. Stakeholder consultations should be in place throughout the project lifetime and best practices for stakeholder consultations should be developed. Environmental and social safeguarding: The legal framework shall grant a mechanism to monitor and disclose social and environmental impacts according to international standards and national laws, and monitor and disclose the impacts of the project regularly. Stakeholder’s right to challenge decisions or actions that may negatively affect them shall be ensured through a complaint mechanism and stakeholder consultation. Apart from these core values, the actors participating in the development of the PPPs must play their roles. Government’s role is to strengthen law and policies, not just to attract investors, but also to protect its people and the environment. Enacted legal frameworks shall be translated into actions and implemented by the relevant agencies. Inclusive dialogue for the building of a sound policy environment for PPPs shall be initiated by the government, allowing meaningful participation for all stakeholders. Development partners and multilateral partners can play a key role by building the capacity of both public and private sector in terms of both technical capacity and enhancing the capacity of partners to protect, respect and remedy human rights to ensure better compliance. Second is monitoring that the partners fulfil their obligations in accordance with laws, principles and agreements. Business can develop company policies and procedures related to human rights issues, engage proactively with affected communities, government and stakeholders, and promote local development through CSR initiatives. Given the facts on the needs of infrastructure financing, PPPs are one of the potential solutions to address the issue. As mentioned, PPPs might fail when a project is not properly implemented in transparent ways. However, we can learn from the success stories from South Korea and the United Kingdom where the public enjoys the positive impacts of the PPP approach. Though there are common problems to be named, the examples from these two countries show that PPPs can deliver projects effectively, improve operational performance and deliver tangible improvement in public services. For example, PPPs have played a significant role in South Korea to provide infrastructure in a timely manner, expanding fiscal space since the financial crisis in the late 1990s. This article hopes to send the message that “challenging PPPs is not the solution to address the adverse impacts of PPP projects.” Challenging PPPs will not bring development and infrastructure which are the citizens’ basic expectations from a democratically elected government. This is the time to send a message to the government to develop a sound legal framework on PPPs. Current debates on PPPs could be the very first step on how to approach development in an environment based on evidence and to explore the voices of stakeholders. The next step would be future studies to build evidence and catch up with the development of a PPP framework to make evidence-based engagements.

Htet Aung Shine is a freelance researcher focusing on development financing in Myanmar. This post is part of a series of articles produced in the context of a fellowship program developed by the Norwegian Institute of International Affairs (NUPI) in partnership with Urbanize: Policy Institute for Urban and Regional Planning. The author wishes to thank Matthew Mullen at Article 30 for his help in developing this paper.

Notes

[1] UN/Department of Economic and Social Affairs, European Commission and Swedish International Development Cooperation Agency