Public-Private Partnerships (PPPs) Legal Guide for Bangladesh

The Ultimate Guide to Public-Private Partnerships (PPPs) in Bangladesh

Bangladesh is increasingly leveraging Public-Private Partnerships (PPPs) as a cornerstone of its ambitious economic development strategy, particularly in bridging the significant infrastructure gap. With the nation’s “Vision 2041” aiming for upper-middle-income status, the demand for infrastructure investment is projected to rise from approximately 2% to a substantial 6% of GDP. The Government of Bangladesh (GOB) has firmly identified PPPs as a critical mechanism to achieve this, creating a dynamic and evolving landscape for domestic and international private sector participation.

This guide, prepared for Legalseba.com, offers an in-depth exploration of the PPP framework in Bangladesh. It synthesizes information from the provided article with further details and regulatory insights, drawing from the conceptual resources typically available via the Public Private Partnership Authority (PPPA) of Bangladesh (pppo.portal.gov.bd), to provide a comprehensive resource for prospective investors and stakeholders.

1. Why Bangladesh for PPPs? The Strategic Imperative

Bangladesh presents a compelling case for PPP investments due to:

• Strong Government Commitment: PPPs are integral to national development plans, including Vision 2041 and various five-year plans.
• Growing Economy & Market Demand: A burgeoning population and expanding economy create sustained demand for improved infrastructure and services.
• Strategic Location: Bangladesh’s position as a potential regional gateway enhances the viability of transport and logistics projects.
• Evolving Regulatory Framework: Continuous efforts to refine laws, rules, and guidelines aim to create a more investor-friendly environment.
• Significant Infrastructure Deficit: The gap between required and available infrastructure offers vast opportunities across multiple sectors.

2. The Regulatory and Legal Framework: A Deep Dive

The PPP ecosystem in Bangladesh is governed by a hierarchy of laws, rules, and guidelines designed to ensure transparency, accountability, and efficiency.

A. Core Legislation:

• The Public Private Partnership Act, 2015 (PPP Act): This is the foundational legislation.
  • Objective: To encourage and facilitate PPPs for infrastructure development and public service delivery.
  • Scope: Applies to a wide range of infrastructure and socio-economic projects.
  • Key Provisions:
    • Establishes the PPP Authority (PPPA).
    • Outlines the principles for project identification, procurement, and implementation.
    • Provides for risk allocation between public and private partners.
    • Includes provisions for dispute resolution.
    • Mandates transparency and fair competition.
    • Allows for various PPP models.
• Procurement Guideline for PPP Projects, 2018 (PPP Guidelines):
  • Objective: To provide detailed procedures for the procurement of PPP projects, ensuring fairness, transparency, and value for money.
  • Key Aspects: Specifies processes for bidding, evaluation, and selection of private partners, including eligibility criteria, bid security, and performance guarantees. It elaborates on single-stage and two-stage bidding processes.
• Guideline for Unsolicited Proposals, 2018:
  • Objective: To provide a framework for accepting and evaluating project proposals initiated by the private sector, rather than by government solicitation.
  • Key Aspects: Details the submission requirements, evaluation criteria (including uniqueness and innovation), and the process for potentially moving an unsolicited proposal to a competitive bidding stage, often granting the original proponent certain advantages.
• Policy for Implementing PPP Projects through Government to Government (G2G) Partnership, 2017:
  • Objective: To facilitate PPP projects undertaken through bilateral agreements between Bangladesh and other countries.
  • Key Aspects: Streamlines procedures for G2G projects, often involving direct negotiations or limited competition, based on Memoranda of Understanding (MoUs) or framework agreements. This route can be faster for strategically important projects.
• National Priority Project Rules, 2018:
  • Objective: To expedite the implementation of projects deemed nationally significant.
  • Key Aspects: May provide for fast-tracked approvals, special dispensations, and enhanced government support to ensure timely execution.

B. The Regulatory Authority: PPP Authority (PPPA) of Bangladesh

Established under the PPP Act 2015, the PPPA is the central government agency responsible for promoting and facilitating PPPs.

• Mandate and Functions:
  • Project Facilitation: Supports line ministries and implementing agencies in identifying, developing, structuring, and procuring PPP projects.
  • Regulatory Oversight: Monitors compliance with PPP laws, rules, and guidelines.
  • Guidance and Standardization: Develops and recommends PPP policies, regulations, procedures, and standardized model documents (e.g., template contracts, risk matrices) for approval by the Cabinet Committee on Economic Affairs (CCEA).
  • Capacity Building: Undertakes initiatives to enhance the skills and knowledge of public sector officials and private sector participants in PPPs.
  • Promotion and Advocacy: Promotes Bangladesh as a favorable destination for PPP investments.
  • Dispute Resolution Support: May play a role in facilitating the resolution of disputes that arise during project implementation.
• Governance: The PPPA is managed by a Board of Governors, chaired by the Prime Minister, ensuring high-level strategic direction. Other members include:
  • Minister, Ministry of Finance (Vice-Chairperson)
  • A Minister nominated by the Prime Minister
  • Minister or State Minister of the relevant Ministry concerned with the PPP Project
  • The Principal Secretary to the Prime Minister and CEO, PPP Authority (Member-Secretary – note: the article says Chairman, PPP Authority, but typically the operational head is CEO, while Chairman of Board is PM. Clarification from PPPA website would be ideal, but “CEO” is common parlance for operational head of such an authority).
  • The Board may invite other relevant ministers or experts to its meetings.

C. The Cabinet Committee on Economic Affairs (CCEA)

The CCEA plays a crucial role in the PPP approval process. It provides:

• In-principle approval for project proposals.
• Final approval of PPP contracts before they are awarded.
• Approval for VGF and other significant financial commitments by the government.

3. The PPP Project Cycle & Procurement Process

The journey of a PPP project from conception to operation involves distinct, regulated phases:

Step 1: Identification Phase

• Proposal Submission: The line ministry or sponsoring public agency identifies a potential project and submits a preliminary proposal to the PPPA.
• Screening and Endorsement by PPPA: The PPPA screens the proposal for its suitability as a PPP, alignment with national priorities, and initial viability.
• CCEA In-Principle Approval: Endorsed proposals are sent to the CCEA for “in-principle” approval, signifying the government’s preliminary acceptance to explore the project as a PPP.

Step 2: Development Phase

• Feasibility Studies: The procuring government authority (Implementing Agency), with support from the PPPA and often with the help of transaction advisors (consultants), conducts detailed feasibility studies. These studies assess:
  • Technical Feasibility: Engineering aspects, site suitability, technology choices.
  • Commercial and Financial Viability: Market demand, revenue projections, cost estimates, funding sources, profitability, and bankability. Includes Value for Money (VfM) analysis.
  • Environmental Impact Assessment (EIA): Potential environmental effects and mitigation measures, adhering to national environmental laws and often international standards.
  • Social Impact Assessment (SIA): Effects on local communities, land acquisition and resettlement needs, labor issues, and public health.
  • Legal and Regulatory Due Diligence: Conformity with existing laws and regulations.
  • Risk Allocation: Identification and proposed allocation of risks between the public and private sectors.
• Project Delivery Team: The PPPA and the procuring authority form a dedicated project delivery team, led by a Project Director, to manage the project development process efficiently.
• Project Assessment Committee: Established by the PPPA for each project, this committee reviews the draft feasibility report and provides critical feedback.
• Finalization and Approval of Feasibility Report: The procuring authority, after incorporating PPPA feedback, finalizes and approves the feasibility study. This forms the basis for the bid documents.

Step 3: Bidding Phase (Procurement of Private Partner)

This phase involves selecting the private partner through a competitive and transparent process.

• Advertisement: The procuring authority advertises the Request for Qualification (RFQ) or Information for Bid (IFB) in national newspapers, its own website, the PPPA website, and international platforms like dgMarket.
• Online Data Room: Interested bidders typically register online to access bid documents, clarifications, and updates through a secure online data room.
• Bidding Processes:
  • Single-Stage Bidding Process:
    • An Invitation for Bid (IFB) is issued.
    • Bidders submit their technical and financial bids simultaneously (often in separate envelopes).
    • Evaluation is conducted, and the preferred bidder is selected. This is generally used for less complex projects where requirements are well-defined.
  • Two-Stage Bidding Process:
    • Stage 1: Request for Qualification (RFQ): Issued to interested parties. Bidders submit qualification proposals demonstrating their technical capacity, financial strength, and relevant experience. The procuring authority evaluates these and shortlists qualified bidders.
    • Stage 2: Request for Proposal (RFP): Issued only to the shortlisted bidders. They then submit detailed technical and financial proposals.
    • Evaluation of technical proposals is followed by the opening and evaluation of financial proposals of technically qualified bidders. The preferred bidder is then selected based on pre-disclosed criteria (e.g., lowest bid, highest revenue share, etc.).
• Bid Evaluation Committee: An evaluation committee, constituted as per guidelines, assesses the bids based on the criteria stipulated in the RFQ/RFP documents.
• Negotiations: The evaluation committee invites the preferred bidder for contract negotiations to finalize the terms and conditions of the PPP agreement. These negotiations must adhere to principles of fairness and not materially alter the bid’s core aspects.

Step 4: Approval and Award Phase

• Legal Vetting: The negotiated PPP contract is thoroughly vetted by legal experts, often including the Ministry of Law, Justice, and Parliamentary Affairs.
• CCEA Final Approval: The legally vetted contract is submitted to the CCEA for final approval.
• Letter of Award (LOA): Upon receiving CCEA approval, the procuring authority issues a Letter of Award to the preferred bidder.
• Contract Signing: The preferred bidder (or the newly formed Project Company/Special Purpose Vehicle – SPV) signs the PPP contract with the procuring authority, legally binding both parties to the project’s terms.
• Financial Close: The private partner then typically has a specified period to achieve financial close, i.e., secure all necessary funding for the project.

4. Types of PPP Projects / Modalities

Bangladesh offers flexibility in how PPP projects can be initiated and structured:

A. Solicited Projects:

• Who Acts?: Government authorities (line ministries/implementing agencies) identify projects, prepare feasibility studies, issue tenders (RFQ/RFP), and manage the bidding process.
• The Process: Follows the standard four-phase procurement process (Identification, Development, Bidding, Approval & Award) as detailed above. This is the most common route.

B. Unsolicited Projects (Private Sector Initiated Proposals):

• Who Acts?: A private sector entity proactively submits a written proposal to any government authority, demonstrating their interest in undertaking a particular project on a PPP basis.
• Key Criteria for Proposal Acceptance (as per image and general practice):
  • The project must be necessary for the socio-economic development of Bangladesh.
  • The entity must possess unique expertise or capabilities (‘exclusive skills’) relevant to the project. This could be proprietary technology, innovative solutions, or unique financial structuring.
  • The proposal must be on the private entity’s own initiative and not in response to any formal government request or ongoing solicitation.
• The Process:
  1. Initial Submission & Review: The relevant line ministry and the PPPA review the proposal.
  2. In-Principle Approval: If both the procuring entity and PPPA are satisfied, the line ministry submits the proposal to the CCEA for in-principle approval.
  3. Competitive Bidding (Swiss Challenge or similar): The proposal is then typically put through a competitive bid process. This often involves making the original proponent’s technical proposal public (while protecting proprietary information) and inviting counter-proposals.
  4. Advantage to Original Proponent: During the competitive bidding process, the unsolicited bidder (original proponent) is often automatically considered a short-listed bidder or may benefit from a bonus point system/right of first refusal, giving them an advantage over other bidders, provided they match the best counter-proposal.
  5. Standard Phases: The subsequent development, detailed bidding, approval, and award phases will then largely follow the standard PPP procurement cycle, adapted for the unsolicited proposal context.

C. Government-to-Government (G2G) Projects:

• Who Acts?: The Government of Bangladesh (GOB) and foreign governments engage in joint projects, often based on a bilateral G2G Framework Agreement or Memorandum of Understanding (MOU).
• Mechanism: The G2G mechanism for delivering PPP projects is governed by the overarching bilateral agreement. This can include projects with sector-based MOUs involving state-owned entities from the partner country. An MOU might not cover a specific project but rather an understanding between the two states regarding development cooperation in specific sectors (e.g., roads, ports, energy).
• The Process:
  • The development of a PPP project on a G2G basis typically involves the four standard phases but may have modified procedures.
  • Direct Selection Possible: The PPPA can directly select an entity (recommended based on a G2G MOU) without going through the full competitive bidding stage, subject to CCEA approval and adherence to G2G policy.
  • No Bidding Conflict: If a bidding phase has already commenced for a project, the PPPA cannot select a bidder under the G2G route for that same project unless the ongoing bidding is unsuccessful.
  • This route is often chosen for large-scale, strategically important projects where a partner government brings specific expertise or financing.

D. National Priority Projects:

• Governed By: National Priority Project Rules, 2018.
• Characteristics: These are projects identified by the government as being of high national importance, requiring expedited implementation.
• Process: While they generally follow the PPP framework, these projects may benefit from:
  • Fast-tracked approval processes.
  • Special attention from the PPPA and other government bodies.
  • Potentially more direct government support or intervention to resolve bottlenecks.

E. Other Common PPP Models:

While the above describes procurement routes, the actual PPP contracts can take various forms (models), including but not limited to:

• Build-Operate-Transfer (BOT): Private partner designs, builds, finances, operates, and maintains the facility for a concession period, then transfers it to the public sector.
• Build-Own-Operate-Transfer (BOOT): Similar to BOT, but the private partner owns the facility during the concession period.
• Build-Own-Operate (BOO): Private partner builds, owns, and operates the facility indefinitely, with ownership not transferring to the public sector.
• Design-Build-Finance-Operate (DBFO): Private partner handles all aspects from design to operation.
• Many other variations exist (DBFOM – Maintain, Annuity models, Hybrid Annuity Models etc.), tailored to project specifics.

5. Investment Climate and Opportunities

A. Market Snapshot & Pipeline:

• Significant Investment Need: An estimated additional US$928.48 billion is needed by 2030 to meet UN Sustainable Development Goals (SDGs), an amount far exceeding public budget capacity.
• Dominant Sectors (Historically): Electricity has historically attracted significant private participation in infrastructure (US$11.3 billion over 25 years, 1998-2023, according to World Bank PPI data).
• Current Pipeline: As of the PPPA Annual Report 2022-23, there were approximately 80 projects at various stages, with an estimated investment value of US$41.6 billion. Investors should consult the PPPA website for the most current pipeline data.
• World Bank Support: The World Bank actively supports Bangladesh’s development, including recent financing (e.g., US$1.16 billion in Dec 2024 for sustainability and health projects) which often complements or creates an enabling environment for PPPs.

B. Priority Sectors for PPPs (based on government focus and needs):

• Transportation (Highways, Expressways, Bridges, Tunnels, Ports, Airports, Railways, Metro Rail, Bus Terminals)
• Energy and Power (Generation, Transmission, Renewable Energy)
• Social Infrastructure (Healthcare, Education, Affordable Housing, Elderly Care Homes)
• Urban Infrastructure (Water Supply, Sanitation, Waste Management, Economic Zones, IT Parks)
• Tourism Infrastructure (Hotels, Resorts, Entertainment facilities)

6. Incentives for Investors: Sweetening the Deal

The GOB offers a range of incentives to make PPP projects more attractive and financially viable for international and domestic investors.

A. Viability Gap Funding (VGF):

• Governed By: Viability Gap Financing Rules, 2018.
• Purpose: To provide financial support to PPP projects that are economically and socially viable but may not be financially attractive enough on their own to draw private investment. It aims to maximize Value for Money.
• Eligibility: Applicable to all kinds of projects where such a gap is demonstrated, subject to GOB policy objectives.
• Forms of VGF:
  • Capital Grant: A one-time grant disbursed during the construction phase.
  • Annuity: Periodic payments disbursed during the operational phase, contingent upon the project company providing services as per the contract.
• Limits and Conditions:
  • For Build-Operate-Transfer (BOT) type projects, VGF is typically capped at 30% of the total project cost.
  • Requires fulfillment of specific legal and regulatory requirements, including robust justification and CCEA approval.
  • The exact percentage and terms are determined on a case-by-case basis through detailed financial modeling and negotiation.

B. PPP Technical Assistance Financing (PPPTAF):

• Nature: A GOB scheme (often supported by development partners) providing funding for technical support to develop and structure PPP projects.
• Purpose: To improve the quality, bankability, and development impact of PPP projects by funding essential preparatory activities such as:
  • Feasibility studies.
  • Transaction advisory services.
  • Legal and regulatory support.
  • Capacity building initiatives.
• Access: Requires fulfillment of specific legal and regulatory prerequisites and application through designated channels.

C. Tax Exemptions and Concessions:

These are significant incentives designed to enhance project returns and attract investment, particularly foreign investment.

• Value Added Tax (VAT) Exemptions:
  • Scope: Full VAT exemption for services availed by PPP project companies from construction organizations, consultancy firms, supervisory firms, suppliers (excluding petroleum goods), and legal advisors.
  • Authority: Based on an order from the National Board of Revenue (NBR) dated February 16, 2016. (Investors should verify the current applicability and any subsequent S.R.O.s).
• Other Key Tax Exemptions (typically for specified infrastructure sectors):
  • Sectors often covered: National highways/expressways, flyovers, elevated expressways, bridges, tunnels, river ports, seaports, airports, subways, monorails, railways, bus terminals/depots, and elderly care homes. The specific list of eligible sectors and conditions should be verified from current NBR notifications and the Finance Act.
  • Capital Gains Tax: Full exemption from capital gains tax arising from the transfer of shares of a PPP project company for a period of 10 years from the date of commercial operation.
  • Tax on Royalties, Technical Know-how, and Technical Assistance Fees: Full exemption on tax applicable on such fees paid by the project company for 10 years from the date of commercial operation.
  • Corporate Income Tax (for the PPP Project Company): Full exemption on the taxable income of the PPP project company for 10 years from the date of commercial operation. (This is a significant incentive and its exact terms, including any phased reductions after the initial full exemption period, should be carefully reviewed).
  • Income Tax for Foreign Expatriates: 50% exemption on tax applicable on the income of foreign expatriates employed by the PPP project company for a period of three years from the date of their appointment.

D. Other Potential Incentives and Facilitation (General PPP Environment):

• Repatriation of Profits and Dividends: Bangladesh’s foreign investment laws generally permit repatriation of profits, dividends, and capital, subject to Central Bank regulations.
• Foreign Exchange Convertibility: Policies are in place for currency conversion for legitimate international transactions.
• Land Acquisition Support: While a challenge, the government often commits to facilitating land acquisition for priority PPP projects.
• Dispute Resolution Frameworks: Access to domestic and international arbitration.
• One-Stop Services: Efforts are often made to streamline approvals through bodies like the Bangladesh Investment Development Authority (BIDA) and the PPPA itself.

7. Key Considerations, Challenges, and Risk Management

While opportunities abound, investors must be aware of potential challenges:

• Land Acquisition and Resettlement: This remains a significant hurdle, often leading to project delays. Clear government commitment and effective implementation of resettlement action plans are crucial.
• Availability of Long-Term Financing: Developing local capital markets and attracting international finance for long-tenor infrastructure projects can be challenging.
• Bureaucratic Delays and Approvals: Despite efforts to streamline, navigating multiple government agencies for various permits and approvals can be time-consuming.
• Capacity Constraints: Lack of adequate expertise and experience in complex PPP structuring and management within some government agencies can be a bottleneck. The PPPA is actively working to address this.
• Contract Enforcement and Rule of Law: While the legal framework is developing, consistent and timely enforcement of contracts and judicial processes are vital for investor confidence.
• Unsolicited Proposals: Balancing the encouragement of innovation with maintaining transparency and competition in handling unsolicited proposals is key.
• Foreign Exchange Risks: Currency convertibility and fluctuation risks need careful management, especially for projects with foreign currency debt and local currency revenues.
• Political and Regulatory Stability: Ensuring long-term policy consistency and stability through political cycles is important for investor confidence.
• Environmental and Social Safeguards: Meeting increasingly stringent environmental and social standards requires diligent planning and implementation.

Risk Management Strategies:

• Thorough due diligence (legal, technical, financial, environmental, social).
• Robust contract negotiation with clear risk allocation.
• Appropriate insurance coverage.
• Strong local partnerships.
• Proactive stakeholder engagement.
• Understanding and utilizing available dispute resolution mechanisms.

8. The Way Forward: Enhancing PPP Success

The GOB and PPPA recognise the need to address existing challenges to improve the success rate of PPPs:

• Strengthening Institutional Capacity: Continued investment in training and capacity building for government officials involved in PPPs.
• Streamlining Land Acquisition: Implementing more efficient and transparent land acquisition and resettlement processes.
• Developing Domestic Capital Markets: Facilitating access to long-term local currency financing.
• Improving Inter-Agency Coordination: Enhancing coordination among various government departments to expedite approvals.
• Standardisation and Transparency: Further development and consistent application of model contracts, risk frameworks, and transparent procurement procedures.
• Focus on Project Preparation: Allocating more resources to robust project preparation and feasibility studies to ensure projects are well-structured and bankable.
• Effective Dispute Resolution: Strengthening mechanisms for timely and fair resolution of disputes.

How LegalSeba LLP Can Assist

Navigating the complexities of PPP projects in Bangladesh requires expert legal guidance. Legalseba.com and its network of legal professionals can provide invaluable assistance in areas such as:

• Legal Due Diligence: Comprehensive review of the legal and regulatory landscape relevant to a specific project.
• Bid Advisory: Guidance on RFQ/RFP submissions, compliance requirements.
• Contract Negotiation and Drafting: Assisting in negotiating and finalizing robust PPP agreements that protect investor interests while adhering to Bangladeshi law.
• Regulatory Approvals: Advising on and facilitating the process of obtaining necessary permits and licenses.
• Financing Agreements: Legal support for project finance documentation.
• Dispute Resolution: Representation in mediation, arbitration, or litigation if disputes arise.
• Incorporation of Project Companies (SPVs): Assistance with setting up the legal entity for project implementation.

Conclusion

Public-Private Partnerships in Bangladesh offer a pathway to significant infrastructure development and economic growth. The government’s commitment, coupled with a continuously improving regulatory framework and attractive incentives, creates a promising environment for private investment. While challenges exist, proactive engagement, thorough due diligence, and expert legal counsel can help navigate the landscape effectively. Bangladesh’s PPP journey is one of evolution and opportunity, critical to realising its Vision 2041.

Disclaimer: This guide is intended for informational purposes only and does not constitute legal advice. While efforts have been made to ensure accuracy¹ based on the information provided and general knowledge of PPP frameworks as of May 2025, regulations and policies can change. Investors and stakeholders should always seek specific legal counsel from qualified professionals and consult the official website of the PPP Authority of Bangladesh (pppo.portal.gov.bd) and relevant government notifications for the most current and detailed information before making any investment decisions.