Public-Private Partnership
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What is Public- Private Partnership?
Public-Private Partnership is a contractual agreement between a public agency and a private sector entity. With Public-Private Partnership, the public agency and the private sector entity share assets, skills, risks and rewards and set up one project. Public- Private Partnerships combine the public sector capital and private sector capital to improve public services or the management of public sector assets. Public-Private Partnership contributes more advantages to the government than privatization form due to the fact that PPPs emphasizes the role of the government whereas in privatization form, the whole business needs to be transferred to the private sector.
Why developing countries need Public-Private Partnership?
Developing countries usually have a budget deficit based upon low tax base, weak tax administration, and poor business environment. With budget deficit shown, adopting PPPs enables the government to be able to afford to deliver good public services. PPPs are being widely used among governments when it comes to procurement processes when public funding is inadequate. PPPs is also a reliable form of investment from the perspective of private investors as it guarantees the long-term delivery of public services.
The origin of Public-Private Partnership in world countries
The history of Public-Private Partnership dated back to the eighteenth and nineteenth centuries, when countries focused on developing public infrastructure in the form of joint financing and operation of infrastructure. In Britain and the United States around eighteenth centuries, over 2500 companies were chartered and incorporated to develop private turnpikes. In France, around the seventeenth century, the government used concessions to finance its infrastructure development, which means its private enterprises and banks are granted to design, construct, finance and operate infrastructures such as railways, roads, electricity and tramways. In the later decades, PPPs are commonly used by most countries as it proves easy procurement and construction method and financing model.
Common types of PPPs
Basic PPPs contract types vary in terms of levels of responsibility and risk to be taken by the private operator so that different countries adopt a particular PPP contract type that meet the local requirements on a country-to country basis. According to Asian Development Bank (ADB), PPPs are commonly used in most countries as follows-
Service Contract
Management Contract
Lease Contract
Concession
Build- Operate- Transfer (BOT)
Joint Venture
Service Contract: This is a model which the government partners with a private entity to perform one or more services for 1 to 3 year limited period. In this model, the government funds capital investment and a private partner performs the service at the agreed cost and in line with the performance standards set by the public sector. The public authority takes operation and management responsibility and commercial risk whereas the risk taken by the private entity is minimal.
Management Contract: In management contract, daily operation and management responsibility is assumed by the private entity with its own working capital whereas the public authority finances capital investment with asset ownership. The contract generally lasts for 2 to 5 years.
(3) Lease Contract: In lease contract, the initial establishment of the system is financed by the public authority and contracted to a private company for operation and maintenance. The contract usually lasts for 10 to 15 years. The private sector has to take responsibility for service provision and financial risk for operation.
(4) Concession: In concession model, the private sector needs to provide all capital investment (assets) and these assets belong to both the public authority and a private company. In this model, the public authority just needs to take the role of regulating the price and quality of service while the private partner takes full responsibility for funding, management, operation and maintenance.
(5) Build Operate Transfer (BOT): There may be various forms of BOT-type contracts such as Build-Operate Transfer, Build-Own-Operate, Design-Bid-Build, Design-Build and Design-Build-Finance-Operate.
(6) Joint Venture: Joint Venture is a model in which the infrastructure is co-owned and operated by the public sector and private partner. In this model, both the public sector and private partner are shareholders so that both parties have to invest in the project and share risks.
How did PPPs evolve in Myanmar?
From 1962 to 1988, Myanmar practiced the "Burmese Way to Socialism" under the leadership of the Burma Socialist Programme Party (BSPP) as a one-party system and in economy, it practiced centrally planned economy. In 1988, after the Burmese Way to Socialism, in the aftermath of tremendous uprising due to the inflation and demonetization of Myanmar kyats, the State Law and Order Restoration Council took office for the period of 1988-1997. In 1997, the State Law and Order Restoration Council was reformed as State Peace and Development Council from the period of 1997 until 2011. In 1997, State Peace and Development Council announced the transition into a market-oriented economy. With this transition, the government started to pave the way for Public- Private Partnerships and privatization. In 1997, PPPs started in Myanmar to fulfill the infrastructure needs of the country. However, the projects during those days were based upon unsolicited proposal (a proposal made by a private party to undertake a PPP project, submitted at the initiative of the private party, rather than in response to a request from the relevant government agency) under Build-Operate-Transfer form. In 2011, President U Thein Sein government took the state of duties and some reforms were made significantly. In October 2011, 11 private banks were allowed to trade foreign currency. In November 2012, the new Foreign Investment Law (2012) was enacted and special economic zones started in Thilawa and Dhawei. In 2016 and 2017, Myanmar Investment Law (2016) and Myanmar Companies Law (2017) were enacted. In April 2015, to improve the reliability and stability of Myanmar’s power supply and to prevent the power shortage problem, Myingyan Natural Gas Power Project was initiated. This is the first PPP project that was adopted through solicited proposal (solicited bid received from private parties via a competitive tender process for PPP Projects under the purview of an Implementing Government Agency) between Singapore-based Sembcorp Utilities and Ministry of Electricity and Energy. This project is located in Myingyan Township of Mandalay Region and this project was governed by a 22-year Build-Operate-Transfer (BOT) agreement and a Power Purchase Agreement (PPA).
When PPPs are widely used in Myanmar, the government has started using Swiss challenge (a public procurement process designed to encourage private sector initiatives to engage in PPP Projects. Under the Swiss Challenge tender process, if a relevant government agency wishes to proceed with a project that was received as an unsolicited proposal, the agency is required to publish a bid and invite third parties to exceed it) to welcome private sector involvement in the tender processes recently. With regard to Public Private Partnership implementation, the Project Bank Notification was one of the greatest achievements. It was issued on 30th November 2018 by Office of the President after Public Private Partnership Center was established through Notification No. (24 /2021) of Union Minister’s Office of the Ministry of Planning and Finance.
Public-Private Partnership in Myanmar
Myanmar government budget is shown as deficit as the country is one of the countries with the lowest tax-to- GDP ratio. As Myanmar's tax to GDP ratio is very low, the government cannot afford to make sufficient investment in infrastructure. Although Myanmar, being a recipient of Official Development Assistance (ODA), a kind of aid given by developed countries to assist the development of developing countries, the fund from public capital and ODA is insufficient to meet the infrastructure gap. In Myanmar, PPPs has been practiced in the form of Build Operate and Transfer mostly in road, power sectors and some projects in hotels. Some forms of PPPs in Myanmar are categorized as Greenfield projects (any investment in a structure or an area where no previous facilities exist and without constraints imposed by prior works), Brownfield projects (any investment that uses previously constructed facilities that were once in use for other purposes), Production Sharing Contracts and Joint Venture Agreements between ministries/ government organizations and private companies. In Project Bank Directive issued by the government, common types of PPPs which have been practiced in Myanmar are categorized as Build-Own-Operate (BOO), Build-Operate-Transfer (BOT), Build- Transfer-Lease (BTL), Build-Transfer-Operate (BTO), Operation and Management (O & M) and other forms of PPPs.
Legal framework governing Public Private Partnerships
In Myanmar, Ministry of Planning and Finance, Myanmar Investment Commission and Directorate of Investment and Company Administration are government agencies that regulate PPPs projects. The laws governing Public Private Partnerships before and after the issuance of Project Bank Notification are mentioned as follows-
Myanmar Companies Law (2017)
Myanmar Investment Law (2016)
Permanent Residence of a Foreigner Rules (2014)
Myanmar Special Economic Zones Law (2014)
Securities and Exchange Law (2013)
Myanmar Citizens Investment Law (2013)
Central Bank Law (2013)
Foreign Investment Rules (2013)
Foreign Investment Law (2012)
Law Amending the Commercial Tax Law (2011)
Private Industrial Enterprises Law (1990)
Financial Institutions of Myanmar Law (1990)
State-Owned Economic Enterprises Law (1989)
Special Company Act (1950)
In Myanmar, apart from these laws, for the commonly used Build Operate Transfer project form, general tendering processes have been widely practiced under Directive No. 1/2017 (Tender Rules), which is widely used as PPP manual in Myanmar. In addition to that, State Administration Council issued the tender notifications (1/2022). In PPP, if the private party is involved in international connection, the project is liable to Myanmar Investment Law (2016) and some restricted business activities are outlined in the notification 15/2017 of the Myanmar Investment Commission.
Public-Private Partnerships in the form of Production Sharing Contract in Myanmar
Production Sharing Contract is used in Myanmar’s Oil and Gas sector and it is a contract signed between a government entity and private companies. In Myanmar, under Production Sharing Contract, Myanmar Oil and Gas Enterprise acts a body for the state and invites oil companies as contractors to make financial and technical investment in the oil and gas extraction. According to MOGE data, over 150 oil companies were registered as local partners with MOGE. According to terms and conditions of model production sharing contract set up by MOGE, there are two periods listed as the exploration period (an initial term of up to three years) and development and production period (commenced on notice of commercial discovery and continues for at least twenty years from the date of completion of the development phase) in the oil and gas operation.
State Administration Council highlighting the role of Public Private Partnership in Special Economic Zones
Three currently established Special Economic Zones are Thilawa SEZ, Dawei SEZ and Kyauk Phyu SEZ, but this article wants to highlight on two of these. The incumbent government, State Administration Council is attempting to develop Kyauk Phyu Special Economic Zones (SEZs) in the form of PPPs for economic development. In Kyauk Phyu Special Economic Zone Project, the China International Trust and Investment Corporation Consortium contributes 70 % and Myanmar side contributes 30 % when implementing the Kyauk Phyu Deep Seaport project. It is a four-phase project building ten jetties where the ships can berth. After this project, the livelihood of people in Rakhine State particularly those in Kyauk Phyu district will become better and Myanmar can directly transport goods to countries in African, South Asian, and Europe. In responding media, Union Minister U Aung Naing Oo and Mr Liang Chuanxin told that “the deep-sea port is a four-phase project containing ten jetties and it can accommodate about seven million 20-foot containers per year once completed. The consortium of this project will be incorporated by both domestically owned private or public companies registered under the Myanmar Companies Law 2017.” What’s more beneficial about the project is that State Administration Council has already planned to prioritize the investment of ethnic businessmen in the consortium.
Thilawa Special Economic Zone is another successful example of PPPs project in Myanmar which has been carrying out by Myanmar government and Japanese government. Myanmar Japan Thilawa Development Limited has acted as a developer. Myanmar Japan Thilawa Development Limited was formed in January 2014, as a joint venture between MMS Thilawa Development Company, Thilawa SEZ Management Committee, and Myanmar Thilawa SEZ Holdings Public Limited. In Thilawa SEZ, in Zone A, a Residential and Commercial Area was firstly established covering offices, residences, restaurants, hotels, international schools and hospitals and it has begun operation since September 2015 whereas in Zone B, 3 types of land are categorized as industrial land, logistical land, residential or commercial land.
To sum up, State Administration Council is currently putting an emphasis on Public –Private Partnership and Small and Medium Enterprises for boosting economy in the aftermath of the Covid-19 implications. The actions of State Administration Council such as developing Special Economic Zones, encouraging SMEs to produce value-added goods to penetrate into export market, providing tax exemptions and incentives in the existing tax laws prove that State Administration Council is making an earnest effort to keep the existing economic infrastructure and projects working. The implementation of Public Private Partnership can pave the way for infrastructure development in Myanmar and the opportunities can be seen under this initiative.
References
- Asian Development Bank’s PPP Handbook
- The establishment of PPP center
- Project Bank Notification
- Myanmar Companies Law (2017)
- Myanmar Investment Law (2016)
- Ministry of Information’s press release
- Special Economic Zone Law (2014)
