Challenges of Transport PPPs in Low-Income Developing

Countries: the case of Bangladesh

Dr. Cameron GordonSenior Lecturer in Finance

University of Canberra

Principal InvestigatorUniversity Transportation Research Center Region 2

City University of New York

TRB 2009 ANNUAL MEETING

Basic issues

•PPPs in developing countries -- 'low-income' versus middle-income. •Low-income countries can benefit more from the access to new capital and technical expertise that a PPP can bring. •But there can be significant barriers to implementation of PPP's in low-income nations and equity issues can loom especially large there.

Income definitions

World Bank: “Based on its GNI per capita... The groups are: •low income, $935 or less; •lower middle income, $936 - $3,705; •upper middle income, $3,706 - $11,455; and high income, $11,456 or more.”.

Basic approach•Low-income countries both suffer more stresses of poverty and have fewer resources to shepherd than middle-income and, obviously, high-incomecountries. •PPP’s in low-income countries thus might be a sort of special case for this reason.•The case study of Bangladesh will explore some of these issues in more detail.

•2007 – Bangladesh had the world's 59th largest economy (nominal GDP of 67,694 million US dollars.)•Population of 158.7 million•GDP per capita of $US426.6 per person Gross National Income per capita in 2006 of $US490 compares to a South Asian average of $766 and an overall low-income average of $650. 50% of the country's population lived below the poverty line.

Bangladesh’s transport system

Growth in traffic• According to the ADB, transport

demand for all modes in Bangladesh (1971-2001) grew at:

• 6% p.a. for passenger traffic• 5% p.a. for freight trafficThe road network growth during the

country's history: 600 km roads in 1947; 4,265 km in 1973; 21,000 km in 2001.

The significance of water• About 7% if the surface of the country is covered by a

24,000 km long network of inland waterways.

• There are also 9,000 square km of territorial waters along 720 km long coastline.

• 13,000 km of rivers exist of which 8,433 km are navigable to larger vessels in the rainy season (5,968 km of which are classified for navigation). During the dry season these figures shrink to 4,800 km with 3,865 km classified for navigation).

• In 2005 the network generated 1.57 million passenger-km per route-km of waterway. In terms of inland ports and terminals there were 3.7 berthing facilities per 100 route-km and 40 passenger facilities per 100 route-km. 90% of the vessels are privately owned.

Issues: congestion

• One big problem for Bangladesh across all modes is that the population and economic growth is taxing the network.

• This is true in both the urban areas, especially Dhaka, but also in wider freight and passenger segments connecting internal Bangladesh markets and localities.

Dhaka Urban Transit• Dhaka is a city of 13-14 million people,

projected to grow to 22-24 million.• Its congestion is already severe.• There has been some tinkering with the urban

transit system but this has consisted so far of either ‘soft’ approaches (e.g. stricter enforcement of traffic rules) or very modest ‘hard’ investments (e.g. pedestrian footbridges and lanes).

• Large scale new infrastructure has not yet been forthcoming and would require substantial amounts of capital.

Issue: Road Safety• Statistics reveal that the fatality rate is more

than 100 deaths per 10,000 registered motor vehicles each year.

• This is a major focus of Bangladesh policy.• Strategies to address this problem are not

limited to infrastructure investments, but do include them (e.g. highway geometrics and design).

Waterway Safety• There is a similar issue with respect to

waterways.• With increasing congestion along these

routes, accidents have increased. The total number from 1995-99 was 52, from 2000-2005, 125 according to one study.

• Note the link between congestion and safety.

A unique intermodal issue• Note that there are intermodal

implications of the extensive water network in Bangladesh.

• Not only does the network carry a lot of traffic itself but significant numbers of bridges are required to allow the road network to function properly.

• Bridges are expensive to build and maintain and significant gaps still exist.

Issue: Bangladesh and its trade corridors

• Could better transport improve the trade picture?

ADB financed study of potential trade corridors

• The following transport corridors and facilities will be studied:

• (i) the road from the Bangladesh-India border crossing point of Petrapole/Benapole on to Jessore, Khulna, and Dhaka, with branches to Mongla and Chittagong ports;

• (ii) the road from Mogulghat to Bulibari, facilitating movement to Bhutan;

• (iii) the road from Chittagong to Akhaura and Comilla;

• (iv) the road from Akhaura to Sylhet and Tamavil;

• (v) the road along the Fulbari corridor in the north leading to Nepal, to Dhaka and

• Chittagong, and with a branch to Mongla port;• (vi) all the border-crossing facilities along the

road links (i)–(iv) mentioned above;• (vii) the approach roads to all existing and

planned land ports (Benapole, Teknaf, Banglabandh, Sonamosjid, Hili, Bibirbazar, Dorshona, Birol, Burimari, Tamabil, Haluaghat, Akhaura, and Bhomra);

• (viii) the facilities including customs facilities at the Benapole land port and the other land ports mentioned in (vii) above;

• (ix) the inland water transport route through the Sunderbans (Raimongal–Chalna– Khulna–Mongla–Kaukhali–Barisal–Hizla–Chandpur–Narayanganj–Aricha–Sirajganj–Bahadurabad–Chilmari);

• (x) the inland water transport route through the Sunderbans (Raimongal–Mongla– Barisal/Kaukhali–Hizla–Chandpur–Narayanganj–Bhairab Bazar–Ajmiriganj–Markuli– Sherpur–Fenchuganj–Zakiganj–Karimganj);

• (xi) the inland water transport route Dhurlian–Godagari–Rajshahi–Aricha–Chilmari;

• (xii) the rail link from Dorsona to Ishawardi and to Jamuna bridge;

• (xiii) the rail link to Benapole;• (xiv) the rail link to Birol;• (xv) the rail link to Rohanpur;• (xvi) the rail link to Mogulghat;• (xvii) a possible rail link from Kalaura to

Shahabazput; and• (xviii) port facilities at Mongla Por

Issue: Sustainable transport

Transport imposes a heavy load on the environment. The government has taken some actions here, especially in Dhaka where 2 stroke 3 wheelers were phased out in 2002 and CNG was introduced the same year. All 3-wheelers and 4-stroke vehicles now use CNG, and nearly all taxis, a portion of buses and many cars and jeeps use the same. Nonetheless, because of increases in VMT, particulates in Dhaka City increased from 320 tons in 1990 to 731 tons in 2004.Infrastructure investments such as an MRT can help this situation.

What is a “PPP”?

• A public-private partnership (PPP) can be defined as a “contractual agreement between a public agency (federal, state or local) and a private sector entity….In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility.”[i] This obviously covers a wide range of arrangements.

•(1) The National Council for Public-Private Partnerships, “How Partnerships Work,” http://ncppp.org/howpart/ppptypes.html, accessed 2/1/06.

Bangladesh and PPP’s: overview

• Source for this and following: PPI Database, World Bank

• Bangladesh has PPP’s in place but primarily in sectors other than transport.

• The PPP’s that Bangladesh has had in transport have consisted entirely of management contracts.

• These were spread across different modes -- roads, airports and seaports -- though the airport contract was cancelled.

• Bangladesh’s lack of PPP’s in transport makes it different from the South Asia region where, in terms of value, there have been substantial investments from 1990-2007, roughly 20% of total value, closer to 40% in terms of total number of projects.

• The transport PPP’s for Bangladesh have also really been Multilateral governmental projects rather than ‘true’ PPP’s.

• The largest project was the The Jamuna Bridge over the Jamuna River that splits Bangladesh in half in terms of both areas and population.

• The project constructed a 4.8 km long bridge for a four-lane road, a railway line, an electric power inter-connector, a gas pipeline and telecommunication facilities with two end viaducts (128 m each), two guide bunds (2.2 km each) and two approach roads on the embankments at each end of the bridge.

• Technical assistance was provided by IDA for project management, construction supervision, and establishment of the Jamuna Multipurpose Bridge Authority (JMBA).

Bangladesh modes of PPP’s

• In transport Bangladesh has opted for management and lease contracts as the way to structure PPPs.

• This is in contrast with the rest of South Asia transport PPP’s which have been in the form of greenfield investments and concessions for the most part.

Why so few PPPs in Bangladesh?

• The evidence shows that transport PPP's have not taken root yet in Bangladesh, though a substantial number have occurred elsewhere in the region.

• What makes Bangladesh so different?

1. Income constraints• Bangladesh's per capita income is the third

lowest in the area at $430. • Only Afghanistan ($200) and Nepal ($260)

were lower while other countries started at $600 and above.

• Poverty can limit some of the economics that private transport partners typically look for, namely stable cash flows from project revenues (typically tolls, farebox collections and other passenger or freight movement fees).

2. Network underinvestment• Many PPP's are attractive to private

investors when they represent additions to a fundamentally well-functioning though congested network in which there is substantial latent demand and a good chance to meet that demand reliably.

• Bangladesh is estimated to currently fund only about half of its estimated necessary maintenance expenditure for its existing network, itself incomplete.

3. Difficult geography

• As already noted, Bangladesh is not especially easy terrain to work with.

• There are multiple waterways subject to substantial flow variations which require large capital outlays for facilities serving waterborne commerce and for crossings for surface transport.

4. Population density

• Density provides a market for a transport facility but in the building of the project it can vastly increase the construction and start-up costs.

• Bangladesh isa country that, with a population density over 800 per km², has the highest population density of any country except the Asian city-states.

5. Political barriers• Bangladesh's official transport policy

provides explicit endorsement for PPPs.• However the country has suffered from two

political and institutional problems: political instability and a record of governmental malfeasance and corruption.

• Average ROE on SOEs in Bangladesh = 2%• This obviously is a disincentive to private

transport investment.

Conclusions• What the Bangladesh case illustrates is

that low-income environments do provide special but not insurmountable challenges to transport PPP’s.

• If strong governance, an open policy stance, and transparent and sound analysis prevail, then private participation in transport investment can be one of a number of tools for providing projects that meet very definite needs.

• More public participation is likely to be necessary, both in terms of initial capital and ongoing support and oversight, than might be the case in middle-income or high-income environments.

• Also substantial government investments in existing networks in low-income environments may be necessary, to make privately financed additions to the network economically and financially viable.

• In general some projects in low-income countries will not be suitable for private investment until income levels grow and others might be suitable but not until there are network improvements.