1- COTTON: A STRONG SUPPORT TO ECONOMY
2-
THE ENERGY SECTOR
3-
PERFORMANCE OF THE ECONOMY
4- IMPERATIVE OF JOINT PROJECTS WITH BROTHERLY COUNTRIES

 

IMPERATIVE OF JOINT PROJECTS WITH BROTHERLY COUNTRIES

 

Better procedures and practices so identified must be adopted for future projects

 

By Muhammad Bashir Chaudhry
Jan 13 - 19, 2003

 

 

 

Development projects, such as Turkmenistan-Afghanistan-Pakistan Gas Pipeline project, foster economic activities particularly in the countries where these are physically located. It is not uncommon that two or more countries agree on implementing large industrial, energy or infrastructure projects jointly. Such projects are the culmination of close relations between the countries so associated. In certain cases the project is physically located in one country such as an oil refinery that is financed, implemented and operated jointly by a management team comprising officials from the partner countries. In other cases, the project may be such that its facilities are located in geographical limits of all the partner countries. Oil and gas pipelines fall in this category though the role of participating countries is not similar. In the present day conditions there is urgent need of south-south co-operation and many such projects might be established among neighbouring/brotherly countries. This paper is an attempt to discuss some of the factors that are essential to accelerate progress in joint projects for welfare of the people of the participating countries.

Mutual trust and confidence are basic requirements for initiating any joint project. There must be full appreciation and understanding of the economic, financial, political and social benefits that would be available to each participant country. The benefits derived by each partner in a specific project may not necessarily be in direct proportion to the monetary contribution made for the implementation and operation of the project. However, when there are a number of joint projects with each brotherly country, on overall basis the benefits to all the partners should be proportionate to the monetary or other contributions. Clear understanding at the initial stage of the development approach as well as the sharing of benefits, would speed up project approval and realization process for the common good.

The process for realization for each project entails certain responsibilities, rights and monetary contribution by the participants. These and other allied particulars of the project may be documented. Each government may be required to accord approvals of the project arrangements including enabling legislation and the financial allocations within reasonable time schedule. In order to conserve resources and efforts, each project may be put to detailed scrutiny and analysis as to its capital cost and other requirements vis-a-vis its economic benefits particularly profitability, sustainability, transfer of technology and improved managerial practices. Once the projects is selected and approved using the objective criteria, then the subsequent actions legal, administrative or operational must be accomplished without delays by all the participating countries.

Preparation of feasibility reports of joint regional projects by the multilateral institutions is not very common. In most situations the feasibility report is prepared for a joint project by one participant and offered for review to all the participating countries. There is a fair chance that the criteria and rationale used by different countries for prioritizing and selecting a joint project will differ in many respects. Therefore, to avoid delays in clearance and acceptance of the project feasibility, it is prudent to jointly consider the main issues and criteria in a joint meeting of experts from relevant countries before the feasibility is actually initiated. Such concerns and matters may include appointment of consultants for the feasibility, coverage of topics in the feasibility, pertinent assumptions, formats as well as the objective criteria to be used to rate project viability. The facilities to be provided by each participant to the consultants working on the feasibility and the responsibility for payment to them for their services may also be agreed. Systematic work at each level and by each participant can avoid delays and misunderstanding among the participating countries

Pakistan has in the past developed projects under aegis of ECO as well as under bilateral arrangements with brotherly countries. These projects fall in sectors such as banking/investment, engineering, pipeline, refinery, education, industry etc. However, the number of such projects is rather very small. Most of these projects are doing well. It is pertinent to ascertain the combination of factors that contributed for the success or failure of various joint projects. Better procedures and practices so identified must be adopted for future projects while the mistakes that harmed the projects in the past must be avoided. Some of the important joint projects are lingering on at the processing stage for many years with no apparent cogent reasons for delays. These might be hindering progress on other attractive projects and as such these problem projects may be taken up with appropriate authorities at the earliest for amicably resolution. It is felt that for common good the number of joint projects may be increased considerably. Also, there is big potential for developing regional projects under aegis of Saarc.

 

 

The successful projects can be replicated in other brotherly countries through support and possibly financing from the existing projects/participating countries. In addition, there is need to rationalize the whole procedure of selection, approval and financing the joint projects in the light of past experience. Each country may designate one special department for handling matters concerning the joint projects. This department should coordinate with the concerned ministries, institutions and authorities within the country to remove the bottlenecks in the approval and implementation of the joint projects. To facilitate smooth progress of the projects, there must be continuity of service of the officers associated with this work. Large numbers of middle-level officers may be associated to be trained on the job. This special department may preferably be attached to the office of the head of the government in order to push the desirable joint projects for early clearance and execution.

All large projects, particularly energy and infrastructure, are capital intensive. No country can easily afford to abandon the incomplete projects after spending hundreds of million dollars. This calls for careful scrutiny of all projects at the initial stages. Expertise in most sectors is available within many countries but perhaps due to bureaucratic reasons such experts often are not associated in sufficient numbers with the official teams reviewing and selecting the projects for joint financing and execution. Such thinking has to be changed. In addition, the quality of the officials associated with the projects may be enhanced through specialized training. On certain specific aspects of particular projects assistance might also be useful from the multilateral financial institutions. Brotherly countries may also help improve expertise of the officials from less-developed countries by offering fixed term internships and hands-on training at reputed plants and institutions.

The selection of the joint project has to be proper. Generally, it should be on the basis of comparative advantage of the participating countries. The country having the highest comparative advantage should be chosen for locating the project in its territory. Moreover, the differing views may be reconciled in the spirit of co-operation. The project parameters are often affected by the desire of one country to create market for its products or raw materials abroad through such a joint project. There is no harm for that either. However, in such cases the project location, finances, incentive, rights and obligations of each country, etc. may be discussed and agreed in the light of marketing strategy for the particular finished product or the raw material base. An oil refinery in Pakistan based on crude oil from a brotherly country is an example of such a joint project. On overall basis, the project should benefit both the economies.

The world is changing fast and with that the trade regimes all over. Due to quota restrictions by certain markets on some regions or countries, the production facilities are being shifted to locations that are free from quota restrictions or where the requirements are not so strict as in the home country. Joint industrial projects can also be considered for taking advantage of such opportunities. The full benefits from such projects would be possible only if the execution of the projects is on fast track and the gestation periods is reduced to the minimum possible time. Educated and experienced labour, with capable senior managements play important role in project location and making it a success.

Pakistan is presently deficient in oil and gas and large quantities are imported to meet the requirements. There are possibilities of oil or gas pipelines to meet needs of the Pakistani market. If such a joint project is undertaken, Pakistan will be a customer state of the oil/gas exporting country. Another country that is neither a customer nor an exporter, but provides transit facilities due to its location; and therefore its position will be different from the other two countries. In such situations the rights and obligations of the three states may be negotiated and agreed in such a way that all the countries benefit. The beauty of the joint project shall be apparent when all the countries are happy with the deal. The prices for the products should be the market prices, suitably adjusted to the geo-political realities and the situations on ground. Also, in such cases there must be indexations to take care of changes in price in future. Index chosen for the purpose should be such that none of the countries involved has any control over elements used in its determination.

Due to its long shoreline, Pakistan is in a position to provide an outlet to the worldwide marketing for the oil and gas pumped by the landlocked petroleum rich countries. In case a pipeline is under consideration for supplying oil or gas to Pakistan as well as for export to other countries, the relative position of Pakistan will be different. Pakistan would be paying the product it buys but it may also expect compensation for providing transit facilities as well as its security. The other countries should realize the position and adjust the rights and obligations accordingly. Arrangements in all such cases may be fair to all the participants. Historical data on similar existing projects, with proper modifications and adjustments, can help pave the way for early resolution of the matters. This is essential for the project to materialized and sustained over the years to come.

Joint projects offer employment and other opportunities particularly to the participating countries during construction and operation phases of the project. The benefits would differ from project to project. The participating countries may agree on the basis for sharing the benefits. In addition, there will be immense opportunities for training that must be exploited for development of technical expertise of officials from all participants. Some countries will also be a position to provide machinery, pipes, construction material or other inputs at world competitive prices. Subject to acceptable quality, procurement from such participating countries may be preferred. This may also restrict the kickbacks that are alleged in some large procurement. Local procurement shall have big beneficial impact in reducing capital cost and the gestation period for realization of the project as well.

 

 

Proper databank on such projects being implemented world-wide as well as the existing joint projects can greatly enhance the speed with which such new projects can be taken up for consideration, approval, financing and execution. Copies of the agreements, engineering/procurement contracts, feasibility reports, annual audited reports, letters of support, guarantees, etc. are the set of documents that can be useful to help negotiate and actually realize new projects in record time. However, these documents may not be easily available. Special efforts and financial allocations may be required to set up such databank. The databank, once established, could also be used for clearing many aspects of the national projects as well.