The development of infrastructure, such as roads and bridges, power, gas and other utilities, water and sewage systems, requires the allocation of huge capital. It is fundamentally a State function to invest in infrastructure. At times, the governments enter into partnerships with the private sector for investment in infrastructure development. The public private partnerships bring efficiency, innovation and funding of the private sector and administrative and financial support of the government. It helps to share the project risks between the government and private party.

Public private partnerships in infrastructure projects depend on a variety of factors including, predominantly, the attractiveness of an economoy for investment. An economy with serious challenges, such as high input costs, energy shortfall, administratve hassle, weak regulatory framework, policy uncertainty and political risks, discourage private parties from making large investments. Unless due improvements are made in the business environment, private investment in infrastructure development will invariably come at a higher cost and require a host of incentives.

Among others, private investors demand fixed returns on their investment in infrastructure development. The government typically enters into commercial agreements with private investors to provide administrative support and guarantee pre-determined return on investment. The fixed returns secure the investors regardless of actual use of the infrastructure or revenue generated by it. Independent power projects of Pakistan is one example where fixed returns were committed to investors against the development of power production facilities.

Fixed returns and fiscal incentives are not inherently bad; they are helpful to develop infrastructure, create employment opportunities and boost trade and commerce in a particular economic context. However, the grant of such benefits require a careful assessment of the future obligations and economic impact. For a country with only 2 percent active tax payers and gigantic sovereign debts, the quintessential need is not only infrastructure development but also to expand the tax net to a decent level – let’s not be hoodwinked by the chants of bad governance and incompetence. A recourse to excessive burdening of the existing tax payers and continuous imposition of indirect taxes is only a recipe for brain drain, de-industrialisation and business migrations. Is that what we aim for!