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NO MORE MEGA PROJECTS PLEASE!

During the past few days PTV has been running talk shows explaining the mega-public sector projects being undertaken by the government particularly in Sindh.
One is forced to think how many of such projects have actually materialised in the past.
There is a strong case against mega projects in Pakistan on two counts: First, the efficiency of public capital has been dismal and second, public sector at the federal and provincial level has in fact little capacity to implement such projects.
Let’s first look at the efficiency of public sector development program (PSDP).
There is ample of scientific literature in Pakistan which suggests that in the past (owing to lapses in governance) there has been no strong relationship between PSDP and economic growth.
While PSDP at time kick-started economic growth, however it was not sufficient to sustain growth in the longer term (in absence of structural reforms).
This is largely attributed to: a) weak overall planning process, and b) incentives for creation of new projects but not service delivery.
The result (as shown by one of the studies conducted by Planning Commission) is that for every Rs 100 allocated only Rs 38 reaches the beneficiaries.
If one asks the officials involved in the planning process, several issues are highlighted which pertain to the second aspect mentioned above ie lack of capacity in planning and implementation.
There are serious issues in the feasibility, appraisal and approval process which include: nepotism in processing of projects, very short time given to process the projects (particularly those coming from the top offices), basic requirements of financial and economic analysis are not fulfilled, and officials seem not aware of risk-analysis, shadow pricing and estimation of rates of return.
The result of such a project processing regime is that cash flows and benefits remain vague.
Another question to ask at this point is that where is the money to finance mega-projects? The public sector is already running a throw forward of over Rs 2 trillion.
The throw forward includes already approved projects waiting to be financed.
The existing projects whose implementation is underway are facing time and cost over-runs partially due to poor macroeconomic mismanagement which amongst other consequences resulted in sharp decline in the value of currency, in turn making the raw material and other inputs expensive.
Planning Commission’s own calculations show that any new scheme approved today will take on average 17 years to complete.
The sharp changes in input prices, cost of capital, adverse exchange rate impact, and delays in project implementation has led to an increase in average cost per scheme which has increased from approximately Rs 950 million in 2007 to Rs 1640 million in 2011.
This escalation has also been attributed to design changes which very frequently take place in badly conceived public sector projects.
Given the lack of capacity the government out of the total PSDP portfolio of 1846 projects (up to end June 2011) could only monitor 578 projects.
Amongst the key reasons highlighted for weak implementation in the projects that had been monitored included: weak managerial capacity, inadequate release of funds, delays in civil works, and lack of co-ordination between federal and provincial governments.
The less highlighted fact is that many of these projects had a poor design process as they were politically driven and due care for appraisal and possible duplication was not in place.
We also know that most projects are being run by civil servants (on deputation) and not by dedicated project managers having sectoral specialisation/expertise selected on merit from the market.
So the starting point towards reforming public investment regime in Pakistan is to leave the idea of mega projects and focus on small and doable deliverables given the resource and capacity constraints.
In order to do so there are some general steps that federal and provincial governments may follow.
These include rationalising the PSDP projects portfolio and strictly adhering to a prioritisation regime; reducing throw forward through alternate financing regimes such as public-private partnerships (which have not been very successful until now), built to operate and transfer, built to operate and own; discourage brick and mortar projects; avoid duplication of project (particularly for capacity building); assure full release of funds without cuts at least to the prioritised projects; and careful estimation of cash flows and benefits.
However going beyond these general steps there are also some specific measures that are needed particularly in the context of governance of public sector projects.
Firstly any flagship program requires steering from the top.
The East Asian miracle exhibits examples where the heads of the government used to sit in the situation room every fortnight to critically monitor the project progress.
The top leadership’s attention to detail was a key ingredient in the implementation process.
Second the apparatus for implementation of public sector projects is the civil service.
Reforming the structure of roles, responsibilities and rewards in civil service and correcting the civil service incentives to govern projects is of critical importance as regards timely and cost-effective implementation.
Third the supremacy of a consensus-driven vision broken down into strategy and programs need to be restored.
The projects-driven development paradigm will not deliver.
It is politically driven, distorted and prone to premature termination.
The author is Research Fellow and Head of Economic Growth Unit at Sustainable Development Policy Institute.
vaqar@sdpi.org

This article was originally published at: Business Recorder

The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.