Abstract
Public–private partnerships (P3s) offer an alternative for constructing public infrastructure by drawing upon private sector finance and expertise. This article explores the case of the construction of an inland container terminal in Bangladesh. Drawing upon a review of the literature on P3s, secondary publications, government documents, and interviews with relevant sources, the study reveals that diverse interests influenced the decision and implementation of an infrastructure project under a P3 model. The investment capacity of the private sector and its human and technological resources could not help overcome the strong obstacles created by political and social forces. The project took a long time to complete, and decisions on the location were frequently changed. The study finds that intense animosity between the two leading political parties that led to efforts to deny credit to competitors and conflicting stakeholder interests are formidable obstacles in the way of implementing P3 projects in Bangladesh.
Introduction
The search for ways to reduce economic costs while better meeting demands for new, improved, or more responsive and people-centered public services (Osborne, 2000) has led to a reappraisal of the relationships and the sharing of responsibilities and risks between the state, the private sector, and civil society. Bangladesh was designated as one of the poorest countries in the world with inadequate infrastructure affected by frequent natural disasters that destroyed roads, bridges, and other public facilities. Construction, repair, and maintenance of infrastructure involve huge expenditure, and the government is often unable to deal with them quickly due to competing priorities in health, education, and other areas. In this context, public–private partnership (P3) can be an appropriate tool for dealing with financial constraints that have severely limited the capacity of the government in Bangladesh. Although P3 projects involve partners who share various aspects in accessing capital, pooling skills, risks, and responsibilities, the use of private sector capital has emerged as a key element in developing countries. The government can take advantage of investments from private sources to meet the needs of the country, while allowing the private sector to contribute to the process, with benefit accruing to all stakeholders. There is a lack of academic analysis on the experience of P3s in Bangladesh, and this article intends to fill this gap.
P3s hold the potential to be an appropriate tool for dealing with needs and demands for infrastructure and public services in Bangladesh. Infrastructure has been at the center of most P3 efforts in developing countries with those that have reached financial closure including projects in the telecommunications, energy, and transport sectors (World Bank, 2010). Given the huge investments that P3s entail, private sector partners are mainly interested in ensuring that the economic returns will be favorable over the long run. For governments, there are opportunities to gain noticeable short-term political benefits, as citizens and the electorate can be easily impressed by infrastructure that are visible and provide tangible benefits to the community. The nature of these benefits, and how equitably the associated costs are distributed among stakeholders, however, is open to dispute. This article examines the case of a complex P3 project in Bangladesh and finds that animosity between regimes, political disharmony, and conflicts among stakeholders have adverse consequences that affect implementation.
In the late 1990s, the incumbent government decided to construct an inland container terminal for transporting commodities through waterways to reduce pressure on the only highway between the biggest port (Chittagong) and the capital (Dhaka) of Bangladesh. The objective was to revive the waterways that, despite their great potential, have previously been neglected. Over time, several stakeholder groups emerged after noting that the project could have an adverse impact on their particular business or political interests. Besides, changes of governments brought different political parties to office, and none of them was willing to build upon the progress made by the other. Difference in preference of location for the project between the past and present governments was another issue. As various stakeholders identified potential threats to their interests, the absence of an acceptable and legitimate mediator contributed to the intensification of conflicts between competing groups. Instead of performing this critical role, the government of Bangladesh (GoB) adopted the role of yet another party in the conflict. The case demonstrates the extent to which the political, economic, and bureaucratic interests of stakeholders can have an impact on the success or failure of P3s in developing countries.
The article examines the case of the establishment of an inland container terminal in Bangladesh and identifies diverse types of challenges arising from conflicts between the two leading political parties. This resulted in frequent change of decisions on the location of the facility and an extremely long period of time to complete only one terminal. A number of research questions are posed to facilitate the investigation. What benefits were expected from the construction of an inland container terminal? Which actors were involved in the decision process? Why did the implementation of the project take such a long time? Who were the stakeholders, and how did they react to the project? What are the distinctive challenges in constructing an inland container terminal through P3 in Bangladesh?
The analysis is based on a review of the literature on P3s, examination of the evolution of the project through published reports, and documents released periodically by the Public Private Partnership Authority of Bangladesh. Moreover, interviews were held with senior government officials of the People’s Republic of Bangladesh who were associated with P3s at some point in their career. Information was also obtained from resource persons in prominent think tanks in Bangladesh, senior managers at the Infrastructure Investment Facilitation Company, Bangladesh Investment Climate Fund, Power Cell of the Government of Bangladesh, and a senior engineer of the Bangladesh Land Ports Authority. Insight was obtained from informal discussions with workers in the transportation industry and owners and operators of small businesses found along the highway from Dhaka to Chittagong. The interviews took place over several visits to Bangladesh during 2009 to 2012 and took the form of unstructured interviews that allowed the participants to offer their perceptions and interpretations. This was followed up by specific questions to identify issues and challenges in the process. Some informal discussions took place with workers who are engaged in the transportation business and small business owners with establishments along the Dhaka–Chittagong highway. Interviewees were selected on the basis of their relevance to the project, availability, and willingness to participate. It was possible to weave together a comprehensive account of the lengthy process that culminated in the establishment of an inland container terminal in Bangladesh.
Public–Private Partnerships
Similar to many other concepts, P3s are difficult to define, and their nature varies according to the area of partnership and the approach adopted by analysts. At one extreme, Kernaghan (1993) suggests that the combination of public and private elements in any organizational innovation could qualify as P3. On the contrary, Lister (2005) attaches importance to the requirement of private financing for public infrastructure. Wettenhall (2005) explains P3s as the result of a combination of ambition on the part of the government and greed on the part of the private sector. Bloomfield (2006) describes P3s as a broad spectrum of creative, intersectional initiatives. Some rely on private philanthropy to achieve a public objective; others use public funding to support the missions of private nonprofit organizations; and still others are business transactions, many of which take the form of novel contracting arrangements. (p.400)
P3s can broadly be viewed as “any activity for which public and private parties cooperate and share resources to achieve mutual benefits” (Yin, 2009).
Governments face constant pressure as new problems emerge and existing ones intensify and become more complex. It is impossible to keep up with research and development that lead to better and more efficient ways of accomplishing tasks. Frequent shortfall of finances for planning and implementing projects in the public sector has forced governments to search for alternative sources of funds. These tasks cannot be accomplished by governments on their own and have led to the need for forging partnerships with the private sector to realize policy goals in a more effective manner. Wettenhall (2005, 2008) notes that some degree of cooperation and mixing between governments and the private sector was always present, but partnerships as a policy tool have gained prominence only in recent years. A summary of the prominent definitions of P3s indicates that they involve an arrangement between the public and private agencies, emphasize delivery of public services by private agencies, make a conscious shift from asset creation to service delivery, transfer risks to private agencies, and offer “some kind of an output based remuneration to private agencies” (Garg & Garg, 2017).
P3s serve many purposes, all of which entail joint efforts, funding, and provision to achieve shared objectives (Wang, 2000). They are “cooperative institutional arrangements between public and private sector actors” that may be used to achieve a wide variety of goals (Hodge & Greve, 2005). The most common practice in developing countries is the investment of capital by the private sector through contractual arrangements with the government for constructing infrastructure and providing public services. P3s, however, vary greatly in their purposes, structure, method of financing, composition of partners, duration, allocation of risks and rewards, contractual arrangements, implementation strategies, regulation and final outcomes. Although used widely, there is no general agreement as to what constitutes a P3 and many differing forms of partnering arrangements exist.
In developing countries, P3s are used in many areas including social, rural, and infrastructural development, poverty alleviation, urban renewal, as well as service delivery in schools, hospitals, sports centers, courts, and prisons. Large-scale P3 infrastructure projects include roads, bridges, commuter rail and urban transit, airports, seaports, cultural centers, water and waste treatments, electricity, and gas (Canadian Council for Public-Private Partnerships, 2001; Fitch Ratings, 2004; Forsyth, 2005; Info Resources, 2005; Rondinelli, 2002). Klein (2015) notes that the “general picture is one of waves of enthusiasm for PPPs followed by some disenchantment and consolidation” and that the timing differed across developing countries. Leigland (2018) finds that renegotiation of contracts often takes place, and they tend to increase costs “sometimes to unaffordable levels for governments.”
P3s have the potential to yield many benefits for a country. Sharing authority, responsibility, liabilities, risks, and rewards can improve the standards of service delivery and value for money obtained. Joint investments and long-term relationships can enable each partner, by working together, to achieve their own objectives while improving upon their performance when acting alone (Rosenau, 1999). Sharing of risks and long-term durable cooperation are two other key benefits of P3s. Vining and Boardman (2008) point out the potential to minimize on-budget expenditure and control of debt and ready access to the private sector’s perceived ability to provide better services at a lower cost. P3s can improve coordination between and within organizations too and can also enhance legitimacy by engaging a wider range of stakeholders (McQuaid, 2000). Li and Akintoye (2003) identify better access to technology and the ability of P3s to attract a larger number of bidders for projects as other advantages.
P3s are particularly helpful to developing countries for balancing problems of financial shortages with public demands for infrastructural development and better services in the social sector (Wang, 2000). The Asian Development Bank (ADB), for example, stresses three basic motivations for public authorities to use P3s. These include increasing efficiency and using available resources more effectively; gaining an opportunity to reform sectors through a reallocation of roles, incentives, and accountability; and attracting private capital investment either to supplement public resources or to release them for other public needs (ADB, 2008, p. 3). However, there is the challenge of balancing a variety of demands such as cost-effectiveness, risk sharing, innovation, reliability, timeliness, stakeholder participation, transparency, and security (Forrer et al., 2010). P3s have also been criticized for not meeting expectations, particularly because governments and development partners had not calculated costs and profits effectively (Leigland, 2018).
It should be noted that the potential benefits to be derived from P3s are impressive, and many large-scale projects have been delivered on time, within budget and with real savings (Berg et al., 2002). However, Koppenjan and Enserink (2009) stipulate certain conditions that need to be ensured. They include the right balance between private investors’ willingness to invest and public values; an incentive structure to substantiate economic and sustainability objectives; and an institutional framework to combine “economic, environmental, social, and financial regulatory regimes.” In the case of infrastructure projects, Murphy (2008) emphasizes the need for establishing clear lines of accountability and redress, optimal allocation of risk, and ensuring that the public sector has the expertise to assess and manage risk (p. 120). The challenge of assessing performance of P3s due to different perspectives has been identified.
It may be viewed from on-high (at the societal level) where it included political matters, program (utilitarian) matters, and process (legitimacy) matters; at the project or activity level (where goals and deliverables are judged); or from the level at which one could observe how the organizations combined to innovate, to collaborate, and to transform to deliver outcomes. (Hodge & Greve, 2017)
The existence of underlying technical and organizational problems should, however, be acknowledged. These may include problems with access to, and control of, financial resources; unclear agreements on the sharing of risks and responsibilities; inadequate procedures for dealing with disagreements and disputes between partners; over-optimistic expectations by parties on service quality; lack of agreements on ways to deal with windfall profits and risks of failure; ineffective monitoring and enforcement mechanisms; lack of trust between partners; variations in demands for services; and associated revenue generation and failures in regulatory procedures (see Asenova & Beck, 2003; Broadbent et al., 2003; Hood & McGarvey, 2002; Wang, 2000; Wettenhall, 2005).
Despite these problems, P3s of one form or another—and especially BOT (Build Operate Transfer) schemes—are making a major contribution to economic, and to a lesser extent, social infrastructure development. Sometimes, they work out well, but not always. This is particularly so where projects fail and governments have to step in with additional, unbudgeted for resources or even assume responsibility for the project and its associated debts as well. Several ways in which P3s may not always lead to positive results also have been documented by the ADB. Following the 1997 Asian Financial Crisis (AFC), the ADB undertook a series of Private Sector Participation sectoral studies that examined problems with various Asian road, port, airport, and water and power projects. Their conclusions were far from complementary, finding that many of the projects had frequently required substantial, unexpected government support; lacked initial business cases; failed to be profitable; generated unexpected adverse effects (e.g., capital cities capturing limited development budgets); or had been dominated by financial, rather than development and social objectives (ADB, 2000).
The ADB studies, while recognizing the undoubtedly important role that P3s had and could play in achieving development goals, also flagged the urgent need for countries to improve their processes of P3 management, legal, regulatory, and contractual environments, transparency, and public trust (ADB, 2000). However, where guidelines are in place, and in some cases, such as the Philippines, these are extensive, the guidelines are not always followed in practice. Thus, in some cases, it appears that despite rules and regulations, partnering arrangements are neither well defined nor adequately monitored. As a result, P3s may sometimes be used to serve the political or economic interests of particular elite groups. Indeed, a particular issue noted by the ADB is the extent to which projects can be “dogged by frequent corruption, nepotism, (and) cronyism at users’ expense” (ADB, 2000). With reference to the fall-out from the AFC, the ADB studies also cast doubts upon the wisdom of trying to manage the political economy on the basis of the elite-favoring “Asian Values” model that, at least up until the AFC hit, had been gaining currency with several governments in Asia. In the case of Bangladesh, however, the main problems are found in the refusal of government and opposition to work together and the conflicting interests of stakeholders.
P3 in Bangladesh
Bangladesh was one of the major recipients of foreign aid during the 1970s and 1980s. Although huge amounts of aid flowed into the country, the results were disappointing, and the country’s need for infrastructure remained largely unfulfilled. Given the financial constraints facing the country and the fact that public services and infrastructure were in dire need of attention, the government decided to experiment with P3s. In many developing countries, new and/or functioning infrastructure is considered to be one of the best indicators of development and success of governments. Prospects of reelection of regimes are considerably improved by the construction of physical infrastructure such as roads, bridges, and modern buildings. The regime in power in Bangladesh decided to use the tool of P3 to develop infrastructure and, at the same time, make political gains in the process.
A number of projects were considered under the framework of P3 for some time. The need for services and capital was too high to be funded solely by the public sector. Initially, the potential for P3 in health and education services appeared good, particularly since such programs required a decentralized approach to be implemented effectively throughout the country. For example, the Ministry of Health and Family Welfare introduced several programs on child care, nutrition, hospital, and waste management using this approach (Interview with Acting Secretary, Ministry of Health, Dhaka, July 14, 2009).
However, under the P3 initiative, infrastructure development, especially power and energy, telecommunication and port development are assigned the highest priority by the government that expected them to boost “every section of the economy” (Muhith, 2009). A Position Paper from the GoB (2009) claimed that a shortfall of US$ 1.04 billion would be covered through investments by providing incentives to the private sector (p.3). The private sector would arrange for resources to build, manage, and maintain infrastructure while the government and citizens would pay for the services, and competitive tendering and a regime of regulation for fees and charges would be introduced. The Position Paper expected the government to gain from the attainment of economic stability, use of private sector expertise and innovation, logical estimate of expenditure on infrastructure development and to achieve a better rate of economic growth. The private sector could expand its scope of operation and innovate in areas such as financing, construction, ownership, maintenance, and management. Citizens will benefit from a safer infrastructure and an accountable service provider (GoB, 2009).
Three public agencies were constituted to assist with the implementation of P3 projects in Bangladesh. The Infrastructure Development Company Limited (IDCOL) is a nonbanking financial institution established to facilitate project financing. The Investment Promotion and Financing Facility (IPFF) finance power sector projects and the Infrastructure Investment Facilitation Center (IIFC) assist the government with advice on project formulation, design, and development as well as technical and engineering matters. P3 projects are expected to cover power and energy, transport infrastructure (rail, ports, airport, and water transport), drinking water, information technology, air transport and tourism, industry, education, health, and housing. However, the government’s “election manifesto accorded highest priority to infrastructure development, particularly to power generation” (GoB, 2009, p. 7). The government issued the policy and strategy for P3 “to facilitate the development of core sector public infrastructure and services vital for the people of Bangladesh” (GoB, 2009). An “Office for Public-Private Partnership was established with staff from both private sector professionals and civil servants” and it became operational in 2012 (Kar, 2016). Finally, a clear legislative direction became available with the promulgation of the Bangladesh Public-Private Partnership Act 2015. The Act provides details on the key concepts relevant to the process, establishment of the PPP Authority, approval of projects, selection of private partners, contracts, and dealing with corruption and conflict of interest (GoB, 2015). By 2016, 44 projects were approved “on transport, health education, economic zones housing, tourism and social infrastructure” (Kar, 2016). Progress, however, has been extremely slow, and the reasons can be understood by considering the case of one of the earlier projects—the Khanpur Inland Container Terminal (KICT).
A Tale of Two Terminals
The biggest sea port in Bangladesh is located in Chittagong—the second largest city in the country—located at a distance of 210 km from the capital, Dhaka. The distance by waterway is approximately 300 km, but this route is not properly developed. 70 percent of the cargo that arrives at Chittagong port is destined for the Dhaka/Narayanganj area. Goods have to be transported overland, using the only highway between Dhaka and Chittagong. The second sea port of Bangladesh is located in Mongla, about 300 km by waterways from the capital. There is no direct road connection between Mongla and Dhaka. To reduce traffic congestion at Chittagong port as well as the heavy usage of the Dhaka–Chittagong highway, the government-initiated steps to establish a Container Terminal on a site owned by the Bangladesh Inland Water Transport Authority (BIWTA) in Narayanganj district, 25 km from Dhaka. The advantages would be the optimum use of waterways, adoption of an environmentally friendly strategy, and reduced dependence on Chittagong port by sharing the burden with Mongla port which is underutilized. Moving containers through waterways would be less expensive and free from disruptions. This project was in the works for a very long time without coming to a productive conclusion.
This section presents the summary of key developments and a discussion on the progress of the project (Table 1). It is based on information obtained from newspapers, notes, and interviews with a number of officials in the GoB and relevant organizations in the private sector. The project extended over the terms of a military government led by the Jatiyo Party (1988–1990), democratic regimes under Bangladesh Nationalist Party (BNP; 1991–1996; 2001–2007), and Bangladesh Awami League (BAL; 1996–2001; 2008–2019). In addition, Bangladesh was governed by nonpartisan caretaker governments between elections.
Summary of Key Developments: Inland Container Terminal Projects.
Note. BIWTA = Bangladesh Inland Water Transport Authority; JICA = Japan International Cooperation Agency; BNP = Bangladesh Nationalist Party; PICT = Inland Container Terminal at Pangaon; BAL = Bangladesh Awami League; CPA = Chittagong Port Authority.
The World Bank sponsored a study on the transportation of containers through inland waterways of Bangladesh in 1988 and recommended the construction of a container terminal and cargo jetty near Dhaka. A study undertaken by BIWTA with financial support from the Japan International Cooperation Agency (JICA) a year earlier also made similar recommendations for constructing a container terminal and cargo jetty, and another report in 1989 recommended the construction of a container terminal in the Dhaka–Narayanganj area. The exact location, however, was not specified in those studies.
A feasibility study was carried out in 1991 for establishing a container terminal close to Dhaka with technical assistance from JICA. This study recommended Pangaon as the site for construction of a container terminal. A mission from the Overseas Economic Cooperation Fund (OECF, Japan) agreed with the recommendation. The report for the project on “Internal Container Port of BIWTA” was considered at the meeting of the Executive Committee of the National Council (ECNEC), and it was decided that after completion, cargo and container handling will be performed by the private sector, while construction, repair, and maintenance will remain the responsibility of BIWTA. This was stated in a memo from the Ministry of Shipping to the Ministry of Planning. In 1995, the government decided to construct a container terminal and Prime Minister Khaleda Zia of the BNP laid the foundation stone for the Inland Container Terminal at Pangaon (PICT). Before much progress was made, the BNP was removed from power and the project remained unimplemented.
A change of government in 1996 pushed PICT off the agenda for a long time. The project was stagnant for 8 years because the next government led by the BAL did not show interest in it. Nevertheless, in July, 1998, approval was given to a proposal from a private company (SSA Bangladesh) to construct a container terminal in Pangaon on a Build-Own-Operate basis. This step was probably initiated by the bureaucrats in the Ministry, but the project remained on hold. Interestingly, there continued to be occasional meetings of the key agencies to deliberate on the construction of a container terminal. At a meeting in November 2000, the BIWTA—perhaps reluctantly—recommended locating the facility in Khanpur in the Narayanganj area instead. A committee was formed in December 2000 to assess the advantages of transporting containers at lower cost from Chittagong and Mongla ports and establishing container handling facilities at Khanpur. A Development Service Agreement (DSA) was signed between BIWTA and IIFC to conduct a prefeasibility study for a KICT. The report on prefeasibility activities confirmed Khanpur as a suitable site for construction of a container terminal on a BOT basis.
Land was acquired for the project, and a financial model was prepared for KICT. The final prefeasibility report was submitted to BIWTA, and cost estimates were prepared for civil works and terminal equipment. A Memorandum of Understanding was signed in July 2001 between BIWTA and Chittagong Port Authority (CPA). It was decided that an inland container terminal would be constructed on BIWTA’s land in Khanpur on a BOT basis, with a 25- to 30-year contract period in mind. The proposal was to be presented to the appropriate authorities for approval for the construction of the terminal. At a meeting at BIWTA in April 2002, it was suggested that private investors could be given the task of ensuring active cooperation from the CPA and Mongla Port Authority (MPA). But BIWTA felt that unless this matter was settled at the official level, private investors might lose interest in the project. It was noted that the construction of KICT would entail the removal of structures and assets of BIWTA including eight warehouses for storing marine equipment and a laboratory building of the Marine Directorate would also need to be relocated at a huge cost. BIWTA suggested that these problems could be dealt with by the private investors by including them in the BOT framework (Conversation with the Superintending Engineer of Bangladesh Land Ports Authority, Dhaka, June 12, 2012).
A total of 15.77 acres of land was earmarked for KICT, but this area was considered to be far from adequate. Alternately, 88.853 acres of land was acquired in Pangaon (the previously selected site), which was not being utilized and no income was accruing from that land either. Since there was no existing structure of BIWTA in Pangaon, the cost of removing structures could be avoided. The IIFC was retained to give advice on the KICT project. They held the view that constructing the terminal in Pangaon would be a very large investment and private investors might be discouraged from participating. However, anxious to avoid income losses from its land there, BIWTA suggested that a container terminal could still be constructed in Pangaon, but on a smaller scale. Another issue, affecting both projects, was that since container boxes are not normally carried through internal waterways in Bangladesh, there would be a need for building new container-carrying barges.
An invitation for prequalification (PQ) statements to BIWTA was published in October 2002, but only two PQ statements were received. An invitation for PQ was then issued to seek private sector participation in the development and operation of a new inland container terminal through a BOT arrangement. It stated that the GoB was seeking private sector participation in the development and operation of an ICT. The project would be the first of its kind to provide container movement service by river barges between the ports of Chittagong/Mongla and Dhaka. BIWTA would lease its land for the project (Interviews with Chair, Privatization Commission, GoB, Dhaka, July 7, 2010; and CEO, Infrastructure Investment Facilitation Company, Dhaka, July 13, 2010).
The initial proposal was to award contracts to two companies—one each for operating the terminal and providing shipping services. Later, this was revised to allow the terminal operator to use one or more shipping companies to increase competitiveness. An Approach Road Study Work Package was prepared, followed by a report submitted on due diligence of existing assets and activities related to the Khanpur terminal.
Leaders of local government institutions and other stakeholders were consulted for the project. The Chair of Narayanganj Municipality was approached to assist with the acquisition of the land required for widening the existing access road to the terminal area, and constructing the road. The Chair appreciated the benefits that would accrue to her city from KICT, but said they were unable to provide land or construct the road. She suggested that the developer should bear the cost, and suggested the Bangladesh Knitwear Manufacturers and Exporters Association and the Narayanganj Chamber of Commerce as well as the Ministries of Shipping or Communications or Local Government could help with land and construction (Discussions with Research Director, Bangladesh Enterprise Institute, Dhaka May 11, 2011).
Events moved smoothly for some time. In April 2003, a work order was issued for topographic survey at Khanpur Jetty sight, a draft Concession Agreement was prepared, and a gender impact assessment report was submitted. Representatives from IIFC, BIWTA Officers Association, BIWTA Employees Union, and BIWTA Floating Workers Union welcomed the project and proposed publicity in the local and international media to attract entrepreneurs. Employee Union leaders suggested, however, reducing the contract period to 5 years (from the proposed 30) and making it renewable so that the concessionaires would be held responsible and the interests of BIWTA protected. The counter-argument from IIFC was that investors might lose interest if the tenure of the contract was shortened because it was going to be a large investment of US$30 million (Interview with the CEO of Infrastructure Investment Facilitation Company, Dhaka, May 31, 2012).
An invitation to international bidders for the KICT was published in newspapers in June 2004. The KICT was to be constructed under BOT term of between 20 to 30 years. The sponsor would finance, design, build, operate, and maintain the terminal and retain revenue generated from the facility and transfer the infrastructure to BIWTA at the end of the term. The design of the facility was to be approved by BIWTA. In terms of financing, the lead sponsor would contribute at least 51 percent, and foreign equity and loan would be allowed, but they would have to be guided by the Foreign Private Investment (Promotion and Protection) Act, 1982, and fiscal incentives provided according to Industrial Policy, 1999 and Income Tax Ordinance, 1984 of Bangladesh.
In August of the same year, BIWTA requested IIFC to amend the bid document and specification of “experience” to facilitate participation by Bangladeshi entrepreneurs. This was another example of local investor groups seeking to further their own interests. A Draft Concession Agreement was then prepared, followed by a reissue of invitation for tender (IFT). A pre-bid conference was organized in March 2005 to inform the investors of the background and objectives of KICT. More delays occurred as BIWTA requested IIFC to make amendments to the IFT, but IIFC refused to do so, on the ground that no change was required in the text for minor points. Three companies—Sino Hydro Corporation (Beijing), Jessop & Co, (India), and TM International Logistics (India)—submitted bids for KICT, and the terminal was expected to be in operation by the end of 2007. This information is based on notes of meetings shared by the CEO of the Infrastructure Investment Facilitation Company during a visit to his office on May 31, 2012.
During the time that the above events relating to the KICT were occurring, fresh parallel developments began to take place in respect to the PICT project. The CPA decided to move ahead with its own version of the earlier PICT plan and in 2004 signed an agreement with BIWTA (which also is an agency under the same Ministry of Shipping) to set up a PICT, not far from Khanpur. This could be seen as another example not only of a lack of coordination, but also of little political tolerance by an incoming government for the policies and projects initiated by their predecessors—a common problem in developing countries. Earlier in 2001, the two agencies had signed a similar agreement to construct the KICT at Khanpur on a BOT basis. But the arrangements in the new 2004 PICT agreement were different. The PICT terminal was to be constructed by BIWTA with financial support from CPA and operated through private agents. The Minister for Shipping of the BNP government announced in January 2005, that work for building a container terminal at Pangaon would start soon and confirmed that CPA and BIWTA would construct the facility jointly and on a self-financing basis. In September of the same year, The Daily Star reported: “After almost nine years, the government has revived the project for constructing an inland container terminal at Pangaon . . . for easing congestion at the Chittagong Port and traffic on the highways.” It thus appeared that the Minister of Shipping was seriously interested in promoting a project in which a profit-making public agency would finance the construction of a facility to be operated by private agents. The Minister expected to complete the construction of the terminal by March 2006 and make it operational within a month. The project did not proceed as planned. The death of the Minister in 2006 could be a reason, but the progress of the KICT may also have contributed to the inaction on PICT. After removal from power of BNP in 2007 and subsequent change of government in late December 2008, the PICT did not appear to be in contention for construction at all.
Events do not, always, proceed as expected, and in June 2009 the CPA and BIWTA announced that work on the new container terminal in Pangaon was in progress, and an operator would be appointed to implement the project under a BOT basis (“New Container Terminal in Pangaon,” 2009). By late October 2009, the project team for PICT reported that despite the earlier delays to the project—caused partly by “bureaucratic tangle”—they hoped that the terminal could go into operation at the end of 2010 (“Pangaon ICT Likely to Start Operation by ‘10,” 2009). One reason for this renewed activity is related to the Government acceding to demands from not only local interests but also from neighboring counties—and especially India—for improved port and waterways infrastructure. The Prime Minister announced in parliament her “government’s massive plans to develop and modernize all sea, river and land ports of the country in addition to setting up a deep-sea port to boost Bangladesh’s economy” (Dredging Today, February 4, 2010). The new inland terminal at Pangaon was particularly singled out for mention as part of this ambitious program. Other reports suggested that the Container Corporation of India Ltd. (CONCOR) had asked to use Khanpur and Pangaon terminals through which to transport containers by river barge. The advantages for CONCOR would be the ability to cut current transit times for containers from India to Chittagong Port from around 30 days to only 7 to 10 days. Transport costs to businessmen would go down by more than half from about US$2 to 3,000 to around only US$700 to 1,200 per container. In the meantime, Bangladesh could earn much needed resources by charging a service fee of about US$100 per container (“Indian Company Proposes Direct Container Transport,” 2010). Eventually, the PICT was inaugurated in 2013, and construction of KICT commenced the same year (“Khanpur ICT Construction Likely to Begin in September,” 2013). Currently, the Public Partnership Program lists 62 projects mainly related to infrastructure that are at various stages: approval, award, development, procurement, construction, and operation (Public Private Partnership Authority, (n.d.), available at http://www.pppo.gov.bd/).
The continuing shifts in focus between Khanpur to Pangaon as the site for the new container terminal makes analysis of this P3 project extremely difficult. Although infrastructure projects are relatively simpler to conceptualize, design, and implement, several intangible factors have contributed to long delays for the project. This leads us to consider the competing stakeholders, their interests, interagency complexities, noncooperation among political actors, and the inability of the government in mediating them to complete the projects on time.
Stakeholders and Competing Interests
Governments adopt the P3 approach for various reasons. In Bangladesh, the benefits sought in the KICT and PICT cases included a reduction of the financial burden on the government, with greater autonomy and more efficient operation by the private sector. Various stakeholders, including investors, operators, and users each had their own expectations and these are outlined below.
First, BIWTA had the potential to earn royalty from private investors and collect rent on land provided on lease. The structures and facilities in the project would be transferred to BIWTA at the end of lease period under BOT arrangements. More income could be generated through yearly conservancy fees from every inland container vessel that used the terminal, as well as from canal charges from the vessels and from pilotage fees. The terminal thus had great potential for the BIWTA to earn revenue without incurring much cost. There would be more scope for the utilization of inland waterways and, to some extent, direct participation in the import–export business of the country, thus contributing to the country’s economic growth.
Second, CPA expected to benefit from reduced congestion and turnaround time at their seaport, as containers would be moving more quickly and in larger volumes through the different waterways. The construction of the inland container terminals in either Khanpur or Pangaon would help release much more space in CPA’s container yard. The capacity to handle containers could be enhanced for CPA to earn more revenue from berth occupancy charges to vessels.
Third, MPA would benefit from a direct link with the capital Dhaka, without the government having to incur costs or take risks in developing this network. More traffic at Mongla port could generate additional employment in the area and earn higher revenue and the funds used to improve conditions at the port. The long-standing problem of the underutilization of Mongla port could be alleviated.
Fourth, Bangladesh could benefit from gaining more channels for transporting cargo to the Dhaka area through inland container vessels. More options for moving containers would facilitate competition among carriers, and help determine tariff on a more competitive basis. Additional benefits could accrue from local development around the project site, lower costs of road maintenance, and more investment in the inland water transport sector. There would be opportunities, too, for transferring knowledge and technology from world-class practitioners. More funds flowing into the economy would enhance employment prospects. As water transport is considered to be more environmentally friendly, the project would help to reduce pollution by cutting down on diesel-fueled trucks making long-distance runs between Chittagong and Dhaka as well as to Mongla through long indirect routes.
All four points reflect points found in the literature relating to intersectional initiatives (Bloomfield, 2006), and cooperation between public and private sector with shared resources for mutual benefits (Yin, 2009). They also highlight joint efforts, funding and provision for achieving shared objectives (Wang, 2000), and the objective of contributing to cooperative institutional arrangements between the public and private sector (Hodge & Greve, 2005).
However, several factors affected the progress of the P3 project, and these reveal competing political, economic, and agency interests. The two major political parties in Bangladesh constantly try to upstage one another and use every opportunity to discredit and discontinue projects initiated by the opposition. The PICT case is a good illustration of how projects can be either politically sabotaged or, if the timing is right, taken over by another party as if it were their own venture. Thus the PICT project was approved by the BNP government in 1995, but the party lost the elections in 1996. For the next 5 years, there was no progress on Pangaon ICT. Although the BNP returned to power in 2001, they took some time before restarting the project. However, the Minister for Shipping passed away as the project progressed and momentum was lost. As the BNP faced challenges to its legitimacy from a combined opposition, PICT was moved to the back burner toward the end of BNP’s tenure in office. There was no action at all during 2007 to 2008 as the country was under emergency rule.
When the BAL returned to power in December 2008, the fate of the PICT appeared to be sealed. Since the project was initiated by rival BNP, all efforts were made to abandon PICT and to revive KICT. The objective of the BAL was to demonstrate its efficiency in building infrastructure, thus depriving the BNP of the credit for constructing PICT.
IIFC worked as a consultant on a retainer basis and was keen to move the KICT project along. It was thus in the interest of IIFC to get the project completed. But BIWTA and the Ministry of Shipping were reluctant to proceed quickly. Since PICT was in the works for a very long time, BIWTA tried to find excuses and ways to continue to concentrate on PICT and abandon KICT. This reflects the interests of the agency and bureaucracy to make administrative decisions irrespective of the preferences of the government in power. It can also be seen as a deliberate attempt by officials who were appointed and promoted by the previous regime to create obstructions in the way of projects initiated by the incoming government that had displaced their favored political party from power. Besides, administrative inertia discouraged innovation and the initiation of a new project while a previous endeavor remained incomplete.
Businesses and commercial interests likely to be affected negatively by the development of a container terminal and opening of inland waterways were resistant. Strong opposition to the container terminal to be serviced by waterways was expected both from the Truck Owners Association and from employees in the land transport sector. They handle a massive quantity of commodities that were transported through the highways and stand to lose revenue when and if the terminal becomes operational, and resisted the project fiercely. The Truck Owners Association is powerful, as they transport essential commodities all over Bangladesh. Several Members of Parliament have a stake in the transport business and can influence government decisions. In addition, the owners of businesses along the Chittagong–Dhaka highway are also resisting the project, because they stand to lose their business if the traffic on the highway thins out. This was disclosed by some transport workers and owners of small businesses along the highway during discussions with them in June and July 2011.
It is possible to identify stakeholders who were interested in moving the KICT project forward. Among the agencies, IIFC and other facilitators expected to gain prestige and visibility in the governmental machinery as capable units. The Minister of Shipping looked forward to disbursing huge sums of money and the construction industry viewed the KICT as an opportunity to expand their business. Potential operators of the terminal were expecting to secure revenue over years by managing the container terminal. Investors in water transport or shallow barge construction, river dredging, and bank building, are other groups who could see a major boost to their businesses from the project. The development of the area could push land value higher and generate employment for a large number of people. These factors made the project attractive to leaders of local councils and the resident community as well.
Over the period during which the PICT and KICT were discussed and planned but not implemented, Bangladesh experienced violent antigovernment protests, emergency rule, four parliamentary elections, and stints of rule by three nonpartisan caretaker governments. Political instability affected the implementation of P3 projects, and the uncertainty that accompanies such circumstances makes agencies and officials suspicious of the outcome. They prefer to procrastinate and watch out for their and the agency’s interests, while investors tend to avoid such venues. Intense politicization of the bureaucracy added to the problem. The civil service in Bangladesh is politicized and polarized into supporters of the major political parties. These partisan officials, who are serving at senior levels from Deputy Secretaries upward, work to protect the interest of the political parties they are loyal to, and try to influence decisions in their favor. Thus, political influences and partisan decisions have emerged as major obstacles in the way of implementing P3 projects in Bangladesh.
The GoB highlighted P3s as the best strategy for developing infrastructure for land and water transportation, power and energy, and health and education in the budget for 2009 to 2010. In June 2009, the Minister for Shipping declared that “tender for developing necessary facilities at the Khanpur terminal would be floated within a week” (“Cabinet Body Nod Sought to Build N’ganj PPP ICT,” 2009). A year later, the Finance Minister expressed disappointment over the lack of progress with P3s and doubted that the proposals submitted for power plants, underground railway, and elevated expressways would be ever implemented (Amader, 2010).
The case is particularly illustrative of the debates in the literature with regard to balancing demands, interests, risks, and stakeholder participation (Forrer et al., 2010). It underlines the need for accurate calculation of costs and profits (Leigland, 2018). Above all, the length of time it took for the various stakeholders to assess their interests and position on the shifting locations for the facility and inability to strike a balance between the private sector’s willingness to invest and public values at stake (Koppenjan & Enserink, 2009) were further complicated by intense conflict among the political actors. This article is distinct in drawing attention to this challenge that may impact the process of P3s. Political parties and leadership, the bureaucracy representing various government departments, consulting agencies, private sector organizations, the transportation industry and small business groups all had stakes, and each made efforts to promote their interests.
Conclusions: Challenges and Lessons
Governments in developing countries are more interested in physical infrastructure projects, probably because they are easier to plan and implement than social services. The private sector is willing and eager to participate due to better prospects of recovering costs. It must also be recognized that there are other undesirable factors that may encourage infrastructure development through P3s in developing countries. There may be scope for receiving kickbacks from the huge amounts of money involved, as well as political advantages to be gained for the next round of elections.
Political instability contributed to the lack of a strong political will to take advantage of P3 as a tool for governing. Successive governments of Bangladesh, while acknowledging in their rhetoric the potential of P3s to alleviate the problems arising from inadequate funds for public infrastructure development, failed to make much headway with implementation. A politicized bureaucracy added to the barriers that obstructed the implementation of P3 projects and, in fact, contributed to the complexity by importing agency rivalry into the process.
Many competing interests developed around the KICT project in addition to those in the existing transportation network. These included the agencies, institutions, and actors in the political and administrative bodies that were assigned the task of planning, designing, and implementing the project. Another set of competing interests developed among the investors—local and international, large, and small. There were efforts by local investors to form consortia to make stronger bids and they tried to specify qualification requirements to suit their eligibility. A third set of interests included the land transportation industry. The Truck Owners’ Association and its employees viewed the development of the inland container terminal as a major threat to their business and livelihood. The employee unions were keen to register their objection to the 25- to 30-year term of operation by the contractors and pushed for short-term arrangements to negotiate better terms with their employers.
Competing interests are, of course, a given in all P3 activities. In most cases, the government acts as the mediator and helps the stakeholders arrive at consensus through compromises. It is possible for the government to play this role when it has clear legitimacy and acts to protect the interest of the country. In the case of Bangladesh, the government descended to the rank of just another stakeholder and was unable to mediate between the competing interests. Consequently, both the PICT and KICT projects, despite their potential for contributing to the economic development in Bangladesh remained incomplete for a very long time. Work on KICT is still in progress. Years of directionless management and “bureaucratic tangle” appeared to be a result of conflicts between institutions, agencies, and actors. This underlines the importance of good governance and political mediation for the success of P3 projects.
The long-delayed completion of the project underlines the need to work toward establishing trust among participants and stakeholders as well as the development of a cooperative relationship between governments and political parties. The case of the two terminals confirms the risks and disappointments from intense conflict between competing interests and the strategy of gaining political advantage through the facilitation and obstruction of public infrastructure projects. The interaction of various actors led to counter-productive outcomes, although it is expected to enrich the process of management in the public sector.
There are lessons to be learned from the case of the inland container terminal for developing countries. Theories of P3s are helpful in understanding challenges, but each case may have distinct and locality-specific issues. It is critical to leave political considerations out of the purview of decisions related to projects that are intended to serve the public interest. The projects are implemented at very high costs and should not be affected by efforts to claim credit for particular regimes. Location of infrastructure facilities should not be casually selected or changed to serve political interests. As McQuaid (2000) noted, it is important to improve coordination and ensure legitimacy by “engaging a wider range of stakeholders.” Stakeholder interests may be diverse, but the projects should include a clear process of mediation by a neutral government authority to minimize disruptions and achieve the objectives underlined by P3s. Finally, the public interest is harmed from attempts by regimes to deny credit to competing political groups, and it should be avoided for the success of infrastructure projects.
Footnotes
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
