PPPs: New cost effective way

SHARE   |   Monday, 26 March 2018   |   By Kabelo Adamson
Orono Otweyo  Orono Otweyo

Public Private Partnership (PPP) is reportedly becoming popular among governments across the world, which is a way of delivering key infrastructure projects at less cost to the state. While provision of public infrastructure services across the world has always remained the sole responsibility of governments, this is said to be changing as now governments enter into agreements with the private sector, with the latter expected to benefit in various ways once the project is complete. On Wednesday this week in Gaborone, the Ministry of Finance and Economic Development (MFED) in partnership with Business Botswana held a sensitisation workshop for contractors and consultants on PPP Policy and Implementation Framework. Government has created a Unit within the MFED called the PPP Unit and is currently coordinated by Orono Otweyo, a privatisation expert from Uganda. Otweyo describes PPP as a commercial transaction between government entity and a private party. Speaking at the workshop, the PPP expert explained that the private party performs institutional functions, establishes or manages public property. He said in this arrangement, substantial risk, financial, technical and operational are all passed to the private party and that private party is expected to benefit through payments from government or end user fees. According to Otweyo, during the construction phase of a project under PPP, government does not pay anything to the private party and that will be done once the project is over with the costs of construction resting with the private entity. Under the PPP model, private companies are expected to form a consortium and incorporate a company that will enter into an agreement with government. The company formed will be a Special Purpose Vehicle (SPVs) which shall solely exists for the purpose of implementation of that particular project and cannot undertake any business that is not part of the project. Government can also have nominal representation in the SPV which may be due to strategic, financial or economic interest. The SPV will in turn get funding from equity or any other form of financing to carry out the project. Government has already identified 16 projects which are in the pipeline for implementation under the PPP model during NDP11. These include the construction of about 4 000 teaching houses, Glen Valley Waste Water Reuse Project, Chobe-Zambezi Water Transfer Scheme, Land Servicing, Sepopa Prison Farm and Gaborone Tourism Project among others.

According to another expert on the PPP model John Davies, who is the Chairman of Alta Capital – A UK based advisory group which is predominantly active in infrastructure and public-private partnerships – PPPs bring benefits. Davies, who has served as chairman of the UK Government’s Advisory Group on PPPs for a period of three years, said one of the benefits of the PPPs is introducing private sector technology and innovation in providing better public services through improved operational efficiency. This partnership between government and the private sector, Davies said incentivise the private sector to deliver projects on time and within budget. Giving an illustration of how PPP works, Davies said it is a partnership, and not a master and servant structure, explaining that for it to succeed it is imperative to be aware of the principles that set PPP apart. Davies said over the years PPPs have become popular part of vocabulary for a number of countries. He said at the turn of the millennium there were few PPPs, but today about 120 countries are doing or thinking PPP programmes. However, he said only a small percentage of these have actually succeeded while majority have failed. The reason behind low successful rate, Davies said, is because of lack of knowledge on PPPs as well as corruption. He emphasized that experts with skills on PPPs should always be engaged as this require top advisory from relevant people.

PPP expectations
According to Davies, PPP is about creating a new business and therefore it should contain expectation of service improvement. The expectation is also a commitment to transparency and dismantling of monopolies and the increased efficiency of public services. Other expectations are that it should bring a new and innovative approach to public services delivery and an enhanced role of the private sector but under good governance.

Types of PPP
Davies said PPP can be grouped into two sorts – the first one is demand-based PPP where the private firm takes revenue and demand risk and would rely on end user payments. The other type of PPP is the annuity-based PPP where the government retains those risks instead of passing them to the private firm. This model remains relatively unexplored in Botswana in so far as delivery of infrastructure and so far it remains a policy and not legislation.

PPP in Botswana
The PPP Policy is a product of The Privatisation Master Plan which was adopted by government in 2005. It identified PPP as one of the strategies that will be used for private sector participation in the provision of infrastructure and services, especially as it relates to new projects. The Master Plan recognised the need of the development of clear policy on the implementation of PPPs, the establishment of a legal and regulatory framework that promotes commercial and innovative approaches to service delivery as well as developing competitive bidding and procedures and guidelines specific to PPPs. In 2006, PEEPA went ahead to develop an implementation strategy for the PPP programme in Botswana, informed by among others a review of international best PPP practices and an analysis of the application of those best practices within an African country context. Davies advised that in order for PPPs to work in Botswana, there should be high level political support and development of PPP legislation and regulations. He said there should also be a review of previous PPP projects and the provision of capacity building trainings for PPP Unit members and other stakeholders in the PPP.

Challenges of PPP
As the procurement process is lengthy and costly, it is understood that PPPs require complex contractual arrangements due to these. This, therefore, would mean that both government and the private sector will require capacity and skills to undertake PPP procurement and to implement and manage PPPs. Davies said both parties should always engage personnel with relevant skills to undertake projects and has even linked most failures on PPP to lack of the needed skills and capacity to implement PPP projects. In an interview with Patriot Business, economist Dr Keith Jefferis said one of the main challenges of the PPP is that its contracts are very complex. He said the challenge would be exacerbated if the project would also entail service delivery, giving an example of a hospital or a school where the private sector would also be required to provide services of those hospitals and schools. “If it is a just a building, for example of a road or any sort of infrastructure it would be quite straight forward,” he said in an interview on Thursday. Dr Jefferis, who is former Deputy Governor of Bank Botswana (BoB), said government has to study contracts before committing to be sure of how it is spending and how to avoid a situation where government ends up paying more than initially calculated. However, Dr Jefferis said some of the benefits of the PPP are that government literally has got nothing to do on projects being carried out under the PPP, saying responsibility of construction, maintenance and servicing of the project will rest with the private party and this would lead to efficiency in delivery of key infrastructure. Since PPPs are complex by their nature, Dr Jefferis said this would bring the needed international expertise, adding that PPPs cover a wide range of projects which are commonly complex.