Pakistan needs a pathway to decide which projects should qualify as PPPs

Pakistan faces a critical need for infrastructure development, but its fiscal capacity to fund such projects is constrained. In the fiscal year 2025, federal development expenditure amounted to approximately Rs1.05 trillion, compared to current expenditures exceeding Rs15.8 trillion. This financial disparity makes public-private partnerships (PPPs) alluring yet precarious.

When government resources are insufficient to finance infrastructure projects like roads, hospitals, water systems, or other utilities upfront, incorporating private capital can deliver the asset, manage its operation under a contract, and generate returns. However, securing financing does not equate to alleviating financial burdens.

Private capital can fund infrastructure today; nevertheless, the cost remains to be borne by someone eventually. This could be users through tariffs and tolls, the government through availability payments and subsidies, or taxpayers via guarantees and contingent liabilities. Pakistan’s history with independent power producers (IPPs) serves as a cautionary tale for future PPP initiatives.

Private investment via take-or-pay contracts, which were instrumental in constructing power plants amidst limited public funds, also exposed risks and payment obligations. The National Electric Power Regulatory Authority (Nepra) reported total power purchase costs of approximately Rs2.94 trillion in FY25, while the Finance Division disclosed a circular debt of about Rs1.89 trillion.

These financial pressures coincide with distribution losses, weak recoveries, theft, and tariff pressures. The Federal amendment of 2018 transferred powers to provinces, yet complexity ensued. Responsibilities for essential services such as health, education, and agriculture shifted downward at the provincial level, while federal spending continued in these areas, causing overlap and uncertainty over payment and leadership.

Projects categorized as 'Qualified Projects' under PPP legislation require special government guarantees or subsidies, facing stringent reviews by the Public Private Partnership Authority (P3A). Conversely, non-qualified projects undergo less oversight. Recently, the government relocated P3A’s administrative functions from the Planning Division to the Privatisation Division.

Despite these arrangements, the underlying issue remains: fragmented responsibilities obscure clarity regarding project selection, funding, delivery, and risk retention. Pakistan does not merely require more PPP projects; it demands a structured pathway to determine which projects should be classified as PPPs. Not every private-sector involvement in a PPP translates to a reduction in government accountability.

Every significant public investment should address fundamental questions. Is the project a legitimate responsibility at this governmental level? Does it deliver sufficient economic and social benefits to warrant state involvement? Can the government sustain its commitments throughout the project's life cycle? Would conventional procurement methods offer superior value?

If opting for PPP delivery, what risks and liabilities will remain with the public sector? This distinction extends beyond infrastructure projects like roads and power plants; it encompasses health, education, water, irrigation, housing, logistics, and other social and economic sectors. Devolution does not necessitate that provincial governments finance, build, and operate all services independently.

The government can retain responsibility for ensuring a service while allowing the private sector to finance or execute certain components. The involvement of the private sector in a PPP project does not absolve the government of accountability nor does it imply the government automatically sidesteps financial risk. Policymakers must resist two extremes.

Fiscal constraints should not deter the government from accepting private investment that can deliver infrastructure more efficiently. However, these limits should not transform PPPs into a mechanism to transfer today’s spending into tomorrow’s debt. The inquiry should not be whether Pakistan necessitates more PPPs; instead, it should focus on whether the appropriate projects are being delivered through PPPs, whether they provide superior lifecycle value compared to conventional procurement, and whether the government comprehends and can shoulder the risks it retains.

While Pakistan requires private capital, it requires infrastructure even more urgently. The IPP experience should serve as a reminder to policymakers that mobilizing investment is merely the initial step in a broader equation. Transferring expenditure off today’s development budget does not diminish risk from tomorrow’s balance sheet.