LocationsReimagining Public-Private Partnerships in Pakistan
By Muhammad Danish | Head Projects, Public-Private Partnership Authority
Public-private partnerships are not simply delivery mechanisms. Instead, they can serve as a platform for channeling blended capital and achieving development outcomes.
History of Public-Private Partnerships in Pakistan
Pakistan’s experience with public-private partnerships (PPPs) began in the energy sector during the 1990s. The 1994 Private Power Policy was a major turning point, attracting over US$5 billion in private capital through Independent Power Producer (IPP) contracts. These projects were structured using limited recourse project finance backed by sovereign guarantees and dollar-denominated power purchase agreements. This was considered a major success in a new and sub-investment grade market.
Yet the same features that made the model attractive to investors later created a sub-optimal proposition for the government. Most IPPs relied on imported furnace oil and were not part of a least-cost generation plan. There was no competitive bidding, and demand forecasting was weak. By 1998, over two-thirds of the contracts were renegotiated, damaging investor confidence and creating a legacy of financial mistrust.
The next major wave of PPPs focused on the transport sector. The M-2 and M-9 motorways were politically high-profile and aimed to improve connectivity. However, these projects faced similar issues. Toll-based models were adopted without robust demand studies or enforcement mechanisms. In both the energy and transport sectors, the PPP model emphasized infrastructure delivery over financial sustainability or innovation in structuring.
The International Context
Colombia’s Fourth Generation Toll Road Program launched in 2014, offers a contrasting example. The program involved 40 PPP concessions covering nearly 6,000 kilometers of road. The projects were structured based on the risk profile of each transaction. For example, low-traffic corridors used availability payments while others remained toll-financed. Nineteen projects reached financial close by 2016 and mobilized over $10 billion in private investment. To support this, Colombia in partnership with the World Bank, International Finance Corporation and Inter-American Development Bank introduced credit enhancements, standardized contracts and legal reforms that allowed pension funds to invest in infrastructure bonds. The program demonstrated how PPPs could be tailored to corridor-specific viability and contribute to long-term financial market development.
Kenya’s Lake Turkana Wind Power Project, Africa’s largest wind farm with a total project cost of $680 million, presents another robust risk management model. Built in a politically sensitive and remote region, it relied on concessional equity from Nordic Development Finance Institutions (Norfund, Investment Fund for Development Countries, and Finnfund), long-term debt from African Development Bank (AfDB), and a sovereign-backed power purchase agreement. When the World Bank withdrew its partial risk guarantee, AfDB stepped in to fill the gap. The project avoided default despite delays in transmission infrastructure thanks to its layered and flexible financing. Unlike Pakistan’s IPPs, Kenya’s project did not involve bond issuance, equity was held by sector-aligned actors and AfDB provided partial risk guarantee for the transmission line and debt. The project’s structure reflects a more adaptive and less guarantee-dependent approach.
Another forward-looking example is Indonesia’s SDG Indonesia One, a green finance platform. Designed as a sovereign intermediary loan, the facility channels blended capital to SDG-aligned infrastructure through PT Sarana Multi Infrastruktur, a state-owned institution. The Asian Development Bank provided a $150 million loan, complemented by $273 million in public co-financing. The facility supports both project preparation and investment, linking funding to environmental and financial performance benchmarks. By functioning as a pipeline rather than a set of standalone projects, Indonesia demonstrates how PPPs as a program can be embedded within a broader national financing strategy.
A Future Strategy for PPPs in Pakistan
These case studies suggest that PPPs are no longer simply delivery mechanisms. Instead, they may serve as a platform for channeling blended capital and achieving development outcomes. Pakistan’s next steps must involve shifting from one-off projects to more structured, programmatic, and multi-actor financing strategies.
The Delta Blue Carbon Project in Sindh shows this is possible. A partnership between the Government of Sindh and Indus Delta Capital, the initiative aims to restore more than 350,000 hectares of degraded mangroves. It is expected to sequester 142 million tons of CO2 and generate 128 million carbon credits over 60 years. Financed through voluntary carbon markets, the project directs revenues to community employment, clean energy, and ecosystem resilience. Unlike traditional infrastructure PPPs, it aligns investor returns with verified climate outcomes.
Such models suggest new directions are possible for Pakistan’s PPP authorities. First, they should establish project preparation facilities dedicated to SDG and climate-aligned infrastructure. Second, concessional and blended finance structures that combine public lending with risk-sharing instruments should be embedded at the design stage. Third, pipeline-based investment platforms, similar to SDG Indonesia One should be developed to allow for long-term institutional participation. Finally, nature-based solutions like the Delta Blue Carbon Project should be mainstreamed within PPP frameworks and monetized through mechanisms like carbon credits.
Ultimately, these are not just technical changes; they represent a strategic shift. It is important not to treat PPPs as financing workarounds. Instead, they must be treated as national programs for shaping the flow of public and private capital toward long-term development objectives.
Published in UNDP Pakistan's Development Advocate Pakistan, Volume 12, Issue 2, titled "The Business of Money — Who Pays for Development?".
Read the full issue [here].