The government is planning to create a $500 million infrastructure fund to ease financing of projects under the public private partnership programme.
The proposed fund will primarily be financed by the private sector with the initial seed money worth $100 million or 20 per cent of the total funds to be availed from government sources.
The Prime Minister’s Office has already formed a committee, headed by PMO director general Mohammad Salah Uddin, to make recommendations on the creation of the infrastructure fund and introduction of stapled financing as an effective financing solution for PPP projects.
According to a concept note titled the National Infrastructure Fund — A Public Private Funding Initiative, prepared by the Public Private Partnership Authority under the PMO, the fund will raise long-term capital from private investors while the government will support the fund’s structural framework, seed capital, risk guarantees and regulatory support, including investor incentives.
PPPA officials said that a national infrastructure fund supported by the government and managed by the private sector could be established to fund PPP projects.
The PPPA has already developed a pipeline of more than Tk 48,700 crore of PPP projects in addition to the already awarded projects worth Tk 25,000 crore.
The total amount accounted for more than 10 per cent of Bangladesh’s total banking advances and it would be very hard for local banks to finance these long-term projects, they said.
The Infrastructure Development Company Limited (IDCOL) and the Bangladesh Infrastructure Finance Fund Limited (BIFFL), the two state-owned development finance institutions, had also structural constraints, including the size of their capital, to finance such huge amounts of money in the projects, they added.
On the other hand, capital markets also could not provide equity and debt financing for the PPP projects at present, they said.
According to the PPPA concept note, the proposed fund will directly invest in PPP projects with the government-guaranteed availability payments and minimum revenue guarantee, or in project with other kinds of government or sovereign guarantee in the country.
The fund will be allowed to raise money through issuance of fund units, contribution certificates, bonds or other debt instruments from the capital market and from private sector institutions such as insurance, pension funds, mutual funds and banks, it said.
The government needs to provide first loss guarantee of 20 to 25 per cent and liquidity support to ensure institutional investors like insurance companies and pension funds can invest in the fund.
It also said that a set of incentives, including exemption from income tax on interest income, investment allowance and other policy support for institutions investors, should be given to attract investors to invest in the fund.
A board of trustee, headed by a government representative and consisting of selected investors, mainly from trade bodies, association of banks, will oversee the fund management, according to the concept note.
The fund should be managed by the private sector with professional fund administrator, custodians, investment advisers and asset managers.
PPPA officials said that the PMO committee had already held two meetings on the issue.
The committee also sought the opinions of stakeholders, including the Bangladesh Bank, Finance Division, Financial Institutions Division, the Bangladesh Security and Exchange Commission, the Federation of Bangladesh Chambers of Commerce and Industry, the Bangladesh Association of Banks, the Association of Bankers and the Bangladesh Insurance Association, they said.