NEPAL: Support to PPP Program

Nepal, until recently a fragile and conflict-affected state, suffers from many challenges resulting from internal and external stresses. Several years of conflict and political transition have impeded both public and private sector investment in various sectors. Nepal adopted a new constitution in September 2015, departing from a monarchy system to a federal republic. The contested political transition has been marked by an absence of political consensus, increasing risk perception by domestic and foreign investors. 

The devolution process created additional uncertainties for private sector investment at the legal, regulatory, and institutional levels. Private sector investment is low; dependence on donor funding is high. The country's susceptibility to natural disasters and challenging geological terrain adds to its vulnerabilities. Low investment levels for development and maintenance and poor planning and execution in key sectors, including energy, transport, and urban service delivery, increase the cost of doing business and reduce the economy's competitiveness. 

Given these pressing needs, a substantial and continued increase in infrastructure investment as well as greater efficiency in spending based on systematic planning, are required. At the beginning of this activity (2019), Nepal lacked several key features of countries that have had success with PPP and private participation in infrastructure programs: Sector-level regulations and institutions conducive to infrastructure growth with private sector solutions; systematically created pipelines of projects in key sectors; capacity and culture within line ministries to effectively prepare and implement projects and spend available budgets; and investment-friendly foreign direct investment policies. 

To this effect, the government of Nepal requested support to create a robust environment for crowding in private investment and commercial finance for infrastructure and service delivery. Following the delivery of the Nepal Infrastructure Sector Assessment Program (InfraSAP) and the Country Private Sector Diagnostics (CPSD), PPIAF provided support to: 
1. Assist the government in setting up a Fiscal Commitments and Contingent Liabilities (FCCL) framework (support to the Public Debt Management Office – PDMO)
2. Identify and screen infrastructure projects (support to the Investment Board of Nepal – IBN), as well as ad-hoc support, as needed, including for the review of the IBN project bank guidelines

This activity was delivered in collaboration with World Bank's Finance, Competitiveness & Innovation Global Practice under the "Post-COVID Private Sector Recovery Program" and with strong support from the country management unit and IBN. PPIAF provided technical support for developing the guideline's structure, specifically for capacity development initiatives such as the Project Screening and Analytics Tool (PSAT), FCCL, and value-for-money (VfM) training and collaborative efforts in the development of IBNPSAT Tool as well as VfM analysis tool.