Monday, August 24, 2009

Good governance

We have seen many write ups on the issue of good governance. Whilst I fully subscribe to the eight laid-down cardinal principles, of IGRD, viz., accountable, transparency, equitable and inclusive, responsiveness, effectiveness and efficiency, the rule of law, participatory and consensus-oriented, which are accepted universally in the civilised world, in accordance with the criteria laid-down by the institute of regional good governance, based in Djarkata Indonesia. 

I personally feel that good academics with professionalism is equally essential clubbed to execute a project under the PSDP-allocated funds, (basically tax payers) or the donors' money. The conditionalities of audit, by donors, must be accepted for the prudent distribution of funds to cater to the development of our poor infrastructure, poverty elevation, health and education. 

Indians have realised that and in spite of good academics the government has started refinement courses, in collaboration with Speakfast of UK, so that fresh graduates can be groomed and turned into productive human resources. There is a dire need to improve our human resource potential, as our median age is said to be 21 and we have a young pool available to utilise locally and fill the human resource slots abroad too. 

I fully subscribe to Colin Powell, who said that when you tolerate mediocrity in others, it increases your mediocrity. An important attribute in successful people is their impatience with negative-thinking and negative-acting people. Unfortunately, my experience, serving the government, was of its obsolete management and that the majority of human resource needed capacity building, redesigning of employment induction and market compatible remuneration. 

I learned, with experience, if you are going to achieve excellence in big things, you develop the habit in little matters. Excellence is not an exception, but a prevailing attitude. I subscribe to the wise words on media for Pakistan's civil service, by my intellectual friend Danishmand Ex. Director IBA and presently with Islamic University. His views were not critical, but productive recommendations for induction on the merits of the Pakistan's civil service. 

The present-day recession has taught us the necessity of an excellent regulatory regime in the public and private sector, but those in control of such institutions must be first-class professionals to keep a vigil on the fly-by, night operators and swindlers. Alan Greenspan, ex. Fed Chief, has publicly admitted that laxity in the regulatory regime has lead to the recession and failures. 

Accountability is a key requirement of good governance, be it government or private institutions and civil society organisations, must be made accountable to the public and to their institutional stake holders. In general, an organisation or an institution, is accountable to those who will be affected by its decision or actions. 

Accountability can only be enforced with transparency and rule of law. Transparency means that decisions and their enforcement are done as per rules and regulations. It also calls for freedom of information freely available and directly accessible to those who may be affected by decisions and enforcement. Enough information be provided, which is in easily understandable forms and media. 

A society's well-being depends largely on ensuring that its members feel that they have a stake in it and may not feel excluded from the mainstream. It requires all groups, particularly the most, vulnerable, have opportunities to their well-being, thus be equitable and inclusive both. Good governance needs that institution and process to try serve all stakeholders within a reasonable time frame, thus be responsive. 

It also calls on effectiveness and efficiency, which means that process and institutions produce results that meet the needs of society, whilst making the best use of resources at their disposal. The concept of efficiency in the context of good governance also covers the sustainable use of natural resources and the protection of environment. To follow the rule of law requires a fair legal framework that enforces impartiality, full protection of human rights, particularly those of minorities. Impartial enforcement of laws requires an independent judiciary and an impartial, incorruptible police force. 

Needless to mention that participation could be either direct, or through legitimate intermediate institutions or representatives. Representative democracy, traditionally, does not necessarily mean that the concerns of the most vulnerable in society are taken into consideration in decision-making. 

Ours is a living example. Participation needs to be informed and organised, which means freedom of association and expression on the one hand and an organised civil society on the other hand. We cannot rule out that good governance requires the mediation of the different interests in society, to reach a broad consensus on what is in the best interests of the whole community and how this can be achieved. 

You may plan a policy, guidelines, but if you do not have the right tools to execute, the ultimate result is bad and poor governance. The media is pinpointing to no avail, thus representative democracy is dysfunctional and not different from the past. It is humbly suggested that government and its institutions must induct people on strict merit and contracts should be performance-based to achieve the results. 

It is high time that the government takes note of poor governance and gives due credit to the print and electronic media is unbiased reporting, which are investigative and free of any vested interest. The performance of local government at the grass root level, in particular in Karachi, has yielded positive results, thus the process may be improved with more checks and balances. We may amend the shortcomings, but may not scrap the local government to please any vested interest. Let us develop a consensus, ensuring the participation of all vulnerable stakeholders for the sake of good governance at the grass root level, as our representatives in parliament have yet to perform. 

Friday, August 21, 2009

Regional perspective on public-private partnership

For years now, Western countries, through their institutional framework, have criticised South Asian countries for keeping governments in the driving seats of economies; their idea was that businesses are for the private sector. Today, both systems have failed and everyone is looking hither and thither for a solution. 

New economic realities have dawned, thus, the next obvious step is to try a combination - the viable common ground between these two - ie Public-Private-Partnership (PPP). It has been tried before, but never before has the need for it been more pressing as the base for our South Asian economies. There is an urgent need to find an effective formula to make this a reality. 

Pakistan has experimented successfully with the PPP, on the advice of the World Bank and other international agencies, to drive economic growth and bring about development and improved welfare for its people. The evidence is seen in the many infrastructure projects in ports, road, and power projects, South Asian countries have been dabbling in the mechanics of both the government and private run enterprises, so what better place and time to boldly embrace this economic blueprint. 

The main idea should be that they find the fundamental elements that make both the private sector and the government work and make PPP out of it; the bad parts of it must be jettisoned. What is the win-win answer for both? As the world becomes more competitive, there is a need for governments to improve the welfare of its people, using its limited resources, to build infrastructure. Resources are limited while demand is ever increasing. 

To bridge the gap, the trend would be to utilise resources and skills of the private sector to achieve public objectives. Public Private Partnerships (PPP), a contractual arrangement between governments and the private sector, involves the sharing of risk between public and private sectors. Infrastructure projects are characterised by high initial investments, and revenue flows occurring many years after the initial investment. 

Traditionally, it is believed that investment in infrastructure for public services, such as transport, telecommunications, due to the need for large sums of money, must be carried by the public sector. However, experience has shown that when implemented correctly, PPP is capable of providing services to the public at lower cost and spurs economic growth. It results in faster implementation of public works, better risk allocation and improves service quality. 

Implemented correctly, this means a proper balance of private investors' and public interest. Grand and visionary development plans could be wreaked by overzealous officials, in the name of protection of national and public interest, by imposing unrealistic and exacting commercial terms, due to callow faculty experience and lack of comprehension of port facility management science. 

In the area of container terminals, increase in global trade, increasing levels of containerisation, combined with an increase in container ship size, has resulted in more demanding investment in state-of-the-art cranes, systems, and civil works. The scale of investment in container terminals has increased exponentially, to a point where it is not meaningful to expect such infrastructure to be financed by solely public sources. 

Similar to other infrastructure projects, there is need for a delicate balance of the interest of the public and private sector. Most PPP projects for container terminals are granted on a model of Build-Operate-Transfer, which involves the investor transferring all its assets, as no cost, to the port authority. For a government and port authority or trust as the case may be, PPP is used to achieve the objectives of economic growth and job creation, ultimately transferring skills and technology. 

The use of a Build-Operate-Transfer (BOT) ensures that the operation of the facility reverts to the nation. For the investor, his objective is to build a business and make a profit. The period of any BOT is important and involves a delicate balance. The investors' asset will be transferred to the port authority at no costs, allowing the port authority to gain control. Overzealous port officials, keen to gain control of such assets, could set a short concession period destroying any hopes of attracting investors. 

Thus, professionalism and understanding of port management science has become imperative. Private sector companies exist to make a profit and are accountable to their shareholders. Private investors are unlikely to participate in PPP where they are asked to take a leap of faith. The quantum of investment is heavy and the time to recover the initial investment, usually referred to as the payback period, for container terminals is long. 

Weigmans, esq. (BW Weigmans, Investment in Container Terminals, 2002) estimates that it takes an average of 10-15 years to recover such investments. There are three main terms of critical importance to investors in container terminals. First, whether the period of the investment is adequate to allow them to recover their investment and make a reasonable return on their investment. 

Secondly, whether there is any protection against the indiscriminate issue of licences for new facilities by government and port officials, who may have their own personal interests. Thirdly, whether it has any control over the setting of tariffs in the event of changes in its cost of operation. It is interesting to compare the recent PPP projects in South Asia. Starting from the west, Pakistan has successfully used PPP to develop its container terminals. 

The efficient terminals at Karachi and Port Qasim were awarded on a Build-Operate Transfer (BOT) basis, except one on a build-operate-own basis, which may be transformed to a BOT basis as per new agreement. The port of Karachi, administered by the Karachi Port Trust (KPT), handled over 1.3 million teus (twenty-foot equivalent boxes) in 2008, with two privatised terminals. KPT had, in 2007, granted concession for the deepwater container terminal, for 25 years, for a terminal, which will handle 3.1 million teus. 

The project cost to be incurred by the private investors totalled US $500 million. The other major port in Pakistan, Port Qasim handled approximately 800,000 teus in 2008. Together, these two ports handled Pakistan's 2.2 million teus. An examination of concession agreements, which are public available documents, shows that they contain a mechanism, which allows the investors to recover his investment and make a reasonable return. 

At, or close to, the expiry of such a period or upon the agreed percentage of capacity being reached, the port authority has the right to grant new concessions, such a mechanism catering to the interests of the public. India has its share of success in attracting investment to privatise its ports. The Mumbai Port Trust granted a concession for the Offshore Container Terminal (OCT) in 2006, to build a container terminal with a capacity of 1.4 million teus. 

With a project cost of approximately US $350 million (INR1200 crore), the investor is granted a concession period of 30 years. The investor is given the assurance that a new terminal will be built only when his terminal reaches a capacity of 800,000 teus. In 2006, Chennai Port Trust was able to attract investors to build the second terminal to add 1.1 million teus to the port. 

The investor is required to spend US $150 million (INR492 crores) and operate the terminal for 29 years. In consideration of incurring such infrastructure costs, the investor has the assurance from the Chennai Port Trust that it will not grant licences for new facilities within 5 years, or when the investors' facility reaches 400,000 teus. 

Moving eastwards, there is the Colombo Port Expansion Project (CPEP), first tendered in 2007 and recently re-tendered in 2009. The concession has provided for an operation period of 35 years, a good period of time for the investor to recover their investment. There is a provision of guarantee by the port authority that no new concessions would be granted for 5 years, allowing the investor time to recover his investment. Bidders are requested to bid for the royalty per teu (twenty-foot equivalent boxes) and the minimum volume guaranteed. 

For a terminal designed to handle 2.4 million teus and an area of 58 hectares, bidders are required to pay rental of US $5 per annum from the first year of operation, escalating at 3% per annum. Most important, the operator has the flexibility in setting the tariffs. Overall, it is a reasonable proposition to potential investors. 

In 2007, the tender attracted a good number of internationally reputable bidders, although it is unfortunate that this has fizzled out in 2009, due to the untimely arrival of the global economic crisis.The most recent example is the tender issued in July 2009 for the New Mooring Container Terminal in Chittagong, Bangladesh. It is premature and would not be right to speculate on the level of investors' interest. 

It is noteworthy that the concession period is 15 years. The major commercial terms require the investor to install equipment estimated at over US $100 million, and pay annual fixed fees totalling US $110 million over 15 years, making the total investment of close to US250 million. 

It is also reported, by those who attended the pre-Application (pre-Request For Qualification (RFQ) meeting in October 2008, and enquired about the matter that there is no assurance that new facilities would not be built in the immediate future, thereby opening the possibility of uncontrolled supply and jeopardising their investors' money. 

Indeed, plans are already afoot to convert publicly-owned general cargo berths to container terminals. The response from the officials provides little assurance, as investors were requested to trust that their government will be reasonable in taking care of their interest. The tender specified that tariffs are to be regulated and subject to approval of the port authority. 

Additionally, the tender contains a unique term, requiring the investor to relinquish all financial control, as monies received by the terminal operator are required to be deposited in an escrow account and any disbursements controlled by the port authority. In this PPP project, the proposition appears to invite investors to take a leap of faith into the dark. 

There are common traits of the successful PPP projects as described above. The concession period of 25 to 30 years allows the investor adequate time to recover his high capital costs and make a reasonable return. There is a mechanism, which balances the interest of the investors and public interests, where the government or port authority undertake not to indiscriminately issue new concessions, exploding supply, and destroying any opportunity for the investor to recover his capital. 

A PPP is a business relationship, albeit a very structured one. It is necessary to have a structure to ensure that the interest of the parties (port authority and investor) and public interests are protected respectively. Written contractual terms, rather than verbal guarantees of reasonable behaviour from ministers or port officials are needed to assure investors. 

PPP projects with imbalance weighing against investor's interest will not attract the participation of the private sector for any funds needed to build the infrastructure for the country. South Asia needs to work out a viable formula for its economies, it has to be done soon before the crippled West rises again, this time they should be in a better position to be partners in global commerce, rather than be at the back end of it. 

The cash strapped countries of South Asia need considerable foreign direct investment in the next five years, of which it is estimated that 65% will be needed for new investments, whilst the balance will be needed to maintain existing assets to extend their useful lives. 

We certainly need regulations but regulatory regimes must have the enforcement power who takes care of national interest while having the flexibility to be fair to private investors to earn a reasonable return (IRR). The PPP systems can only flourish when each country devises its own to suit local conditions. No single blueprint can be imposed. 

Both public and private sectors must be allowed to exercise creativity within a broader framework. There are five phase of PPP implementation, namely policy development, capacity building, development of enabling environment, identification of partners and evaluation/selection of credible partners. 

Saturday, August 15, 2009

Fallen in love with Nepal

When planning holidays, it is our mind set to either visit Malaysia, Dubai, Thailand or UK, USA, however having seen the west and orient both, I took the risk of venturing my holiday break at Nepal. It was all suspense in-spite of my internet surfing, but I was amazingly pleased when I actually landed and went out of Khatmandu. 

Most of our Pakistanis are unaware that Nepal offers cheapest holiday than west/orient and has lot to offer. The natural beauty and Himalyan views, the culture and tradition, historical monument, art and architecture, Hindu Temple and Budhist Stupas and monasteries, its people and rites, myth, mysteries, which are daily part of the life of Nepalese. 

Nepal has geographical extremes from cold highest mountains to the deepest Gorge of the world, hot plains mild hills. Nepal is blessed with eight highest mountains above 8000 meter out of 14, whilst five are in Pakistan and one in China. These eight mountains cover 800 miles of Himalayan range. Natural beauty and cultural identities are its lively and legendary phenomena that makes destination holiday in Nepal spell bound and magically touched. I can sum it up as, "see and touch it once and feel it forever", and those who have hobby of visiting new places will feel that Nepal is one of the places that is to visit at least once before you die. 

You may find more what you imagine as one treads on its thrilling trails, snowy slopes, mysterious dens and wonderful beauties of wildlife and flora such as yarchgumba (Himalyan energytic herb known as half animal half plant). I did find fresh scents in air and more challenging paths on the lanes of trekking trails. Khatmandu is the first arrival point surrounded by mountains an old but basic and congested city with five star hotels. 

The Darbar Square is the major attraction of the city listed as world heritage site. Nearby places are Patan and Bhaktapur, which according to a Indus Valley Pakistani artist whom I came across described as the hub of artist and sculptures in Asia, whilst Pushupatimath and Swambunath are Hindu / Budhist religious sites. 

I must profusely admit that I did not see any crime like mobile snatching etc and the society appeared to be most modern, tolerant and welcoming to tourists as tourists income is more than 40% of its revenue. I was amazed to see no beggars although poverty is visible, but Nepalese are clean, polite, humble and gracious in general, based on my observation in city and countryside both. I recommend visiting Nepal without any fear of harassment, theft or roadside crimes. 

Whilst Khatmandu is congested and polluted, but once you are out of the valley, the closest point 2175 meter above sea level is Nagarkot which is popular vintage point to take in expansive mountain range view only 32 km from Khatmandu. The sun rising from behind the Himalayas clothing the snow clapped peaks with a succession of hues is another visual to feast on. Club Himalyan resort is most comfortable hotel for overnight stay. Dulikhel only 30 km from Khatmandu is an ancient town and drive is scenic, full of winding streams and paddy fields. 

The most attractive tourist attraction is Pokhra about 200 m West of Khatmandu about 880 m above sea level. The Fish Tail Lodge resort on the island of Phawe Lake is breath taking and exotic, with five star facility and has played host to most of the dignitaries of the world. 

If you are early rising bird you can view Fishtail Mountain towering 6997 m high and the sunrise is so fascinating that it can't be described, one has to see and believe it. The lake with Jungle around offers boating facility and city is quite, but David Fall and Mahendra Cave is worth visiting, so is the visit to the Milky River, unique to see. 

Having enjoyed Pokhra, we ventured for Chitwan Jungle safari, the 50 km road is not metalled, but the Machan Paradise Hotel is excellent, offering safari in jungle on jeep and elephant. The jungle is full of animals and canoeing in Rapti River is another attraction, including visit to nearby villages. The standard of hotels and meals are good and safe too. The jungle safari is an adventure, which one should enjoy, thereafter we ventured for 8000 feet Daman, which is a treacherous winding road but scenic. 

I, must admit that my trip was a good experience, however the worst was awaiting us as we were made to stay 10 hours on Airport as PIA flight to Karachi was delayed due to mismanagement at Karachi and it is poignant memory. Nepal was the cheapest holiday spot, which offers excellent experience of rafting, trekking, canoeing, mountains and above all scenic as all mountains have forest and green look unlike ours denuded. The season is from September to May, but out of season the Nepal was full of tourists of all nationalities. The service provided by our tour operator Yeti was commendable and there was no deviation on our itinerary and they lived to their commitment without any hassle. 

There is general liking for Pakistanis amongst masses except I noted discrimination that Indians are given more than 60% discount in all hotels as per government policy, which is not comprehendible. The trade is dominated 80% by Indian merchandise and economy of 28 million people is in virtual control of Indians. I could not find any Pakistani product thus, we must explore the market to introduce Pakistani products and tourists as well. The literary rate is 60% in Nepal, and there is no discrimination based on religion. I did find Nepalese equally dissatisfied with democracy and governance as is the case with us.