Nepalese Experience:

Public Private Partnership Policy (draft)

Surya Prasad Acharya

Joint Secretary,

Economic Policy Analysis Division

Ministry of Finance,
Government of Nepal
[email protected]

September 22, 2015

 1. Background

PPP Policy of the Government of Nepal provides a framework

to enable the private sector participation in the development
and improvement of public infrastructure and services at
national and local level.

It is essential to create a conducive policy environment for the

participation of private sector in development,
implementation, and operation of public infrastructure and
services.

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 2. Past Attempts on PPP
Public Infrastructure Build, Operation and Transfer Policy -
2000, is in operation.

Private Financing in Build and Operation of Infrastructure Act

2006 has been enacted.

Some projects have been implemented at local level based on

the concept of PPP.

Despite of attempts of reforms, significant progress is yet to

be achieved at National Level.

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 3. Present Situation
Thirteenth Plan (2015-17) has envisioned Nepal to graduate
from a least developed nation to a developing nation by
2022.
For this purpose indicators, have already been
identified
Per-capita Income US$ 1190
Human Assets Index 66
Economic Vulnerability Index - <32

Current policy and statutory provisions have not fully covered

the international concept and values of PPP

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 4. Problems and Challenges

Problems
Limited resources
Lack of professional efficiency, Innovation &
technology
Challenges
Capacity enhancement for PPPs
Adopt appropriate policy regarding allocation of risks
and benefits
land acquisition
Establishment and operationalize VGF
Independent appraisal of projects
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 5. Necessity of a New Policy

To create enabling environment for the attraction of private

resources, skills, entrepreneurship and innovative approaches

To supplement investment in infrastructure development to

attain an annual growth rate as expected.

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 Statements
6. Vision Ensure qualitative access to sustainable Public
Infrastructure and Services.

7. Goal Enhance investment of private sector through PPP in

the preparation, development and operation of
public infrastructure and services.

8. Objectives Create an Enabling Environment to Attract

Private Sector Investment in the development of
public infrastructure and services.
Maximize Utility of Private Sector and their
Capabilities - professionalism, efficiency,
entrepreneurship, and technical know how for
the quality infrastructure and services
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 9. PPP Policy

9.1 Promotion 9.3 Creation of

of Principles 9.2 Maximize the Conducive
and Values of use of Private Environment for
PPP Sector expertise Investment
of private sector

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 9. PPP Policy

9.1 Promotion of Principles and Values of PPP

9.1.1 Embrace values 9.1.2 Identify

and prepare 9.1.3 Execute
and concepts of PPP in implementable
all organs and entities of infrastructure
projects through
services in
state. all organs and
priority sectors.
entities of state.
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 9. PPP Policy

9.2 Maximize the use of Private Sector expertise

9.2.3 Ensure private

9.2.1 Encourage 9.2.2 Utilize
sectors
private sector professional efficiency, responsibility in
participation in entrepreneurship and sustainable
identification, effectiveness of private
operation and
feasibility study and sector to build and maintenance
designing of projects manage of projects.
(O&M) of projects.
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 9. PPP Policy

9.3 Creation of Conducive Environment

9.3.3 Ensure
9.3.2 Allocate government
9.3.1 Simplify and
rationally the risks investment, support /
make transparent
and benefits cooperation, and
the procurement
between public and commitment to keep
and award process
private sector high morale of private
sector
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 11. Working Policy
11.1 Definition

What PPP is: What PPP is not:

a partnership contract between A Simple outsourcing of
the Government or a statutory functions where sufficient
entity on one side and a private financial, technical and/or
party on the other side, operational risk retained
Wherein the private party by PIA
assumes substantial financial, Privatization/Divesture of
technical and/or operational public assets/liabilities
risk in some or all aspects of Commercialization of
the design, financing, building public function
and operation and Donation by private entity
maintenance of a project for a public goods
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 11. Working Policy
11.2 Attributes of Projects Under PPP
Defined Concession Period
Capital investment by the Private entities (in const/
rehab/modern/of infrastructure assets)
O&M of assets and provision of services by the private entity
Performance linked Payments to the private entity
Revenue risks borne by the Private
Concession Agreement signed by the public and private
parties
Policies and user fees are fixed and clear
Clear role and responsibilities between private and public are
defined
Allocation of risks to the party - based able to managed it,
Payment, incentives and penalties are clear for the services in
the agreement
Clear provision on ownership of assets
Monitoring mechanism
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 11. Working Policy
11.3 Identification of Priority Infrastructure
PIA to prioritize the PPP Projects time to time
Access to service and quality enhancement related projects.
Output oriented projects related to improvement to current
service delivery, insure economic benefit, maximal mobilization of
government fund, use of innovative and latest technology.
Prioritization based on report of pre feasibility and appraisal
Project are prioritized in the following areas (National level)
Physical infrastructure and transport( road ,bridge, airport, railways, cable car,
and ports)
Electricity (Generation ,transmission and distribution) and other energy related
sector
Information and communication sector
Rural and urban environment: solid waste, water supply and sewerage
Education, Health and tourism infrastructure excepts hotel and residents
Service related urban infrastructure

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 11. Working Policy
11.4 Implementation of Partnership Concept
Consultative meeting with private sectors in the priority
projects for their selection, design and suitability study
PIA itself or It can be call to the Interested private sector for
designing the project
NPC to identify the project for its PPP Model in advance, and
PIA to call for its preparation
< NRs 50 Million Estimated Outlay Project are subject to
implement, operation, handover directly by the Chief of the
public entities themselves.

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 11. Working Policy
11.5 Utilization of Private Sector in Project
Design and Preparation

Public entity can engage private sector for project

development in the priority sector,
PIA to provide project related information to private sector,
Special priority to be given to the private sector for innovative
and/or newly introduced project,
Private sector to clarify and get approval related to the EIA
and other related tests.

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 11. Working Policy
11.6 Project Appraisal and Approval
Procurement process can commence only after project selection,
RFP and model project agreement are appraised, approved, and
granted.
All types of PPP project needs feasibility study and bid document to
be prepare from the PIA,
> NRs 100 Million projects (VGF or Gov. support needed) needs to
submitted to the PPP center for its appraisal,
< NRs 100 Million projects can be appraised from the PIA,
Local bodies can appraised the PPP project value <NRs 50 Million,
PSC approves the project based on the appraisal report and permits
for the procurement,
PIA (National level entities) can approve the project valued < NRs
500 Million (incase of no need of VGF)
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 11. Working Policy
11.7 PPP Project Procurement Process steps to
follow
Request for Expression of Interest, REOI optional stage
Request for Qualification, RFQ first stage of a two stage bidding
Shortlisting of pre-qualified bidders -
Request for Proposal, RFP second stage of a two stage bidding
Appraisal of the proposal and selection of Suitable proposal
bid to be assessed on the specific compliance and selection criteria.
Use of Model Document PPP center to issue model doc
Approval of the Proposal - PIA to Issue a letter of Award
Project Agreement Concession Agreement provided at RFP stage to be
finalized & signed with the successful bidder; and no modification at these stage.
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 11. Working Policy
11.8 Unsolicited Projects

Project implementing agencies may consider proposals from

interested private entities, which have not been solicited by
the PIA,
It should be considered under following circumstances:
Projects where competitive bid process has been tried earlier and
such process failed to identify a successful bidder, or
Projects that involve proprietary technology or franchise, especially if
it is exclusively available with the entity proposing the project , or
Project that may be considered strategically important by the cabinet
of the Government of Nepal
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 11. Working Policy
11.9 Land Acquisition

In general, GON provides the land to the PPP project (for

both central , local)
Existing land acquisition law, Policy -2014, and directives
from the GON prevails in acquiring the land
GON acquires Private land on the basis of involuntary
settlement, and contracting party reimburse or pay the
royalty to PIA as per the agreement
No PPP project agreement shall be made until 80 percent
of the land are acquired
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 11. Working Policy
11.10 Risks Sharing
Risk sharing framework shall be based on the risk profile created
during the options analysis and feasibility study
Project related foreseeable risks, specific risks (force majeure,
termination payments, change in law, etc.) shall be compiled together
and be addressed in the concession / PPP agreement,

Risks to be assigned to Public

Risk to be assigned to Private
Market risks (relating to demand
Design, construction, project
build up)
management, compliance,
Relating to general permits and
environmental regulations, quality,
approvals, land acquisition,
technical standards and efficiency,
political force majeure, inter
Demand of services, cost of
governmental co-ordinations and
project and cost of finances
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 11. Working Policy
11.11 Policy Implementation Plan

PPP related Guidelines and directives shall be formulated

based on these policy
GON to formulate guidelines on Project preparatory fund, and
Viability Gap funding within one year
PPP Center to prepare a Model Document within One year,
and to develop an action plan

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 11. Working Policy

11.12 Equity Participation

There can be equity stake of PIA in the PPP project (on case to
case basis based on clear and documented justification)
Other financial support with due approval of competent
authority of the GON may consider for PPP project such as
taxation rebate and provision of subordinate debt agreement.

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 11. Working Policy

11.13 Dispute Resolution

Project agreement shall be made based on the Nepalese law

Dispute related to interpretation and implementation of
agreement shall be mitigate based on mutual consensus
through dialogue
Provision for dispute resolution mechanism in the model
agreement or draft concession of PPP agreement shall be
based on Arbitration act of Nepal, 1999.
For foreign investors ICC rules or UNCITRAL procedure can
be followed by provisioning in the agreement.
However, it may be modified as per the specific requirement
of the project with approval
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 12. Institutional Framework
12.1 PPP Steering Committee (SC)
Comprise of Secretaries from various Ministries and
NPC; and Chair by the Finance Secretary.
Be Single window for approval of Projects , over all
Policy Coordination, Guidance, and sectoral
Identification of the projects and work as a oversight
agency.

12.2 PPP Regulatory Committee (PPPRC)

Comprise of Joint Secretaries from various key
Ministries and Chair by the NPC Secretary.
Work and facilitate
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 12. Institutional Framework
12.3 PPP Center - to be Established under NPC
Comprises of Executive Director (Equi. to JS) with various
group of experts from Public and Private Sector
Appraise PPP projects, Assist and facilitate PIA, and build
capacity
Study the best Practices, institutionalize and promote them in
the national context
Develop model documents and guidelines, manuals
Bring together various stakeholders and provide forum for
discussion to the developer, investors and bankers
12.4 Project Implementation Unit
To be establish under every potential Public entities
Preparation of PPP project, manage the Study and
Procurement related tasks, and Support, Coordinate and
Agreement related activities with private sector.
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 13. Financial Arrangement
13.1 Budget from Central and Local Bodies
for capacity building, Consultation, experts hiring, and fund
establishment; and budget for the PPP Center.
13.2 Project Preparation Facilitation Fund
For project feasibility study, financial support to the PIA for
the successful completion of Options analysis and feasibility
study, consulting services, hiring of Advisors for PPP projects,
and opportunity analysis
13.3 Land Acquisition Revolving fund
To be revolved from the project cost
13.4 Viability Gap Funding (VGF)-
This fund shall be utilized as a capital grant to make project
financially viable.
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 13. Financial Arrangement

13.5 Project Preparatory Provision and Financing

Project selection, detailed feasibility study, project
supervision, and private sector selection related expenses
to be financed by GON
Land acquisition cost to be financed from GON to be
reimbursed from private sector or royalty;
Project implementation cost to be borne by the private
sector
13.6 Account Management & Auditing
based on the provision of national law, private developer
should submit the annual report to the government.

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 14. Legal Framework

Necessary statutory provisions to be made inline with these

policy, For this purpose, within one year of its approval:

A suitable PPP Act to be enacted, to replace existing BOOT

Act,
MOF to setup and develop guidelines for project
Preparation, facilitation Fund, Viability Gap Fund, and
land acquisition revolving fund
PPP Center to develop guideline for PPP procurement / Bid
document, appraisal and approval,

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 15. Monitoring & Evaluation

M &E process and regulatory provisions shall be

simple, clear and effective.

Process - PPP center submits the annual report to GON

through PPPSC , sole responsibility remains on PIA to
monitor PPP project

Regulatory Provision - Separate sectorial regulatory unit

to be formed by GON on the basis of neutral
,independent, transparent and accountable manner.

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 16. Risks in Policy Execution

Public sector may face the following potential risks

during the implementation of this Policy :
If Insufficiently prepared the project that may lead to
failure of project and conflict creation,
If Complexity arose in involuntary re-settlement of land-
that may lead to time overrun, and additional
compensation to private sector.
If insufficient provision of project and Contract
management are made- that may lead towards non
completion of project, and problem in hand over process.
If Political instability remained - it may lead towards the
time and cost overrun

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 17. Project Handover

After completion of the tenure of the

agreement private sector shall handover the
project in running condition to the
implementing agencies as per agreement.

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 Thank You

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