20 June 2016 10:16 am
Government actions with regard to investments and public private partnerships (PPPs) are hampering possible investment opportunities, an economist said at the Fitch Ratings Sovereign and Corporate Forum held last week in Colombo. F i t c h Ratings APAC Corporate Ratings Head/ Managing Director Andrew Steel noted that the Public Enterprise Development Ministry and the Megapolis project are initial steps in the right direction. “But the one big risk is that politicians tend to want to run ahead of that framework and want to start things rolling before the framework is properly there,” he said.
He noted that frameworks are essential in the current global economic environment, as investors are becoming interested in investing in high-yield emerging markets, but that they are cautious, and are thoroughly evaluating the technical aspects of investments due to lack of information. “(This) should be very good news for people like yourselves, if you can get the framework right,” Steel said. However, he noted that in order to get the framework right, there needs to be more collaboration within the government.
“A number of people in the last few days have been visiting companies and ministries in Sri Lanka have made a point that there are different views in different people in different places in government,” he said. The government seems to be creating a number of different committees, task forces and agencies which can accomplish the same job, likely creating competition and a lack of coherency within the public sector. Steel said that while the level of collaboration between the public and private sector seen in Sri Lanka is commendable, he noted that it would be crucial for the government to fix the inconsistencies in policies between different government bodies over the next few months. Meanwhile, he added that the current ‘buildoperate- transfer’ and ‘build-operate-own’ frameworks of PPPs being promoted by the Sri Lankan government are not the sort of PPPs that investors seek. “The defining factor of public private partnerships is that usually there is very, very, little volume or price risk involved to the person who is undertaking the project that is issued by the government. That is the partnership aspect of this,” he said.
He added that the government should take risk such as how many vehicles use the highways, or how many travel through light rail, and instead lease the infrastructure from the private sector for longer periods such as 20-25 years. “Having PPPs is not an activity that is simple or easy. A lot of people think of it as a sort of magic cure. If you get it right, then investors want to repeat it. If you get it wrong, you will really, really, struggle to get investors back to the country,” Steel said. He added that countries such as Sri Lanka have attempted to cover up weaknesses in its PPP frameworks by providing help or concessions on feasibility studies and documentation costs. (CW)