The PPPs headache

SHARE   |   Monday, 03 October 2016   |   By Staff Writer
The PPPs headache

As pressure mounts on government to broaden the scope of Public Private Partnerships (PPPs) to different sectors of the economy to improve service delivery, Public Service International (PSI) has warned against the dangers lurking therein. A PPP is a contractual arrangement between a government entity and a private firm, in which the private firm designs, builds, maintains and finances public infrastructure or the other way round. It is intended to transform government departments from being owners and operators of assets into knowledgeable purchasers of services from the private sector. Business Botswana (BB) – the national chamber of commerce and the voice of the private sector – has been advocating for Public Private Partnerships (PPPs) to be considered as a key driver of infrastructure development in the economy. PPPs formed the core of the theme of the 2016 biannual conference, organised by Business Botswana (BB) in partnership with government and First National Bank of Botswana (FNBB), in Francistown on September 13. The 2016 National Business Conference was held under the theme: ‘Botswana at fifty: Celebrating success and strengthening the public-private sector for sustained prosperity’. Business Botswana president, Leta Mosienyane remains adamant that PPPs should be implemented now rather than later as they would reform the economy, help in the efficiency of procurement and create jobs. He said most of the countries that have successfully implemented PPPs started like Botswana, but improved the system along the way.

Why PPPs fail

In a report commissioned by PSI Research Unit at the University of Greenwich, UK, titled Why Public-Private Partnerships Don't Work Professor David Hall enumerates the many disadvantages of the private alternative. The report, released in May, is the culmination of 30 years’ experience with and assessment of privatisation in countries both rich and poor. It demystifies the shadowy PPP processes, most of which hide behind confidential negotiations to protect commercial secrecy. "There are no public consultations, lots of false promises, and incredibly complex contracts, all designed to protect corporate profits. There is also a fair amount of bribery, as privatisation contracts can be extremely valuable," reads part of the report. The report concludes that PPPs are an expensive and inefficient way of financing infrastructure and services. The report is a working paper that PSI is proposing to affiliates to better understand privatisation and its dangers, advising that the different arguments need to be considered on their own merits and in conjunction with others, as privatisation is an inherently complex process.  PSI is a global federation representing 20 million working women and men who deliver vital public services in 150 countries. PSI – working with the United Nations system and in partnership with labour, civil society and other organisations – champions human rights, advocates for social justice and promotes universal access to quality public services. The Minister of Finance and Development Planning, Kenneth Matambo, has also warned against rushing headlong into PPPs reiterating that government will tread carefully when venturing into sophisticated partnerships. Although he conceded that one of the major challenges facing the Government is in project implementation, he cautioned that PPPs are not a panacea to Botswana’s economic problems, and that such contracts are not the only viable model available to finance public projects.

Matambo’s views
He said although some, including the private sector are putting pressure on government to venture into PPP projects, government is treading carefully. “We want to avoid signing contracts over things that we do not have expertise on,” he cautioned. During NDP 10, the development budget was underspent by an average of 17.3 percent for the years 2011/2012 through 2013/2014, due to delayed project implementation. "Even where projects are finally delivered, they are usually characterised by cost overruns and questionable quality. It is against this background that Government continues to take measures to improve on project implementation. To this end, the Public Procurement and Asset Disposal Board (PPADB), is implementing the Integrated Procurement Management System to enhance procurement management, improve transparency, and reduce lead times in public procurement," said Matambo. Twelve years after the adoption of a PPP policy, government PPP office is still not adequately equipped and capacitated to deal with PPP projects, which hinders sufficient engagement with the private sector. The private sector has on numerous occasions complained that government representatives in PPP forums are usually junior officers who are clueless and fail to contribute meaningfully. In 2000, the Government of Botswana adopted a Privatisation Policy aimed at providing an optimal balance between the public and private sectors so as to achieve sustainable economic growth. In the 2002/2003 Budget and the National Development Plan 9, Government announced that PPPs would be used extensively as a form of procuring and financing infrastructure projects in the public sector to ensure sustainable investment in infrastructure as well as to restore soundness in public finances and bring down the budget deficit to a sustainable level. A PPPs Appraisal Committee has been formed within the Ministry of Finance and Development Planning (MFDP) made up of representatives from Ministry of Infrastructure Science and Technology (MIST), PEEPA and the Attorney General’s Chambers. The Committee advises on any PPP proposal from implementing agencies.

Mohohlo steps in

Addressing the National Business Conference in Francistown two weeks ago Bank of Botswana Governor, Linah Mohohlo, said it is important to promote trust between public and private sector entities, since it is crucial in developing and implementing mutually beneficial public-private partnerships. Among other issues the conference discussed the competitiveness of the country’s industries, as well as how an enabling environment needed for businesses to prosper can effectively be in place. This, Mohohlo said, will necessitate a focus on undertaking a collaborative public-private sector effort of regulatory reforms that are well-adapted to the needs of business. President Ian Khama has also recognised the importance of partnerships with the private sector, saying for the country to position its self on a high, stable, non-inflationary and diversified economic growth; other stakeholders such as the private sector have to play their role. He said in the quest to further modernise the economy and position the country as a global competitor, the government would open up the provision of public utilities such as water, power, and the delivery of road infrastructure projects to private capital. “We firmly believe that the business of producing goods and services through meaningful and productive utilisation of our national endowments, information and technology, human capital, as well as entrepreneurial capabilities, can best be handled by the private sector; hence the notion that the private sector is the engine of growth of the economy,” he said.
Barclays for PPPs

Last year Barclays and Francistown Local Government hosted a Public Private Partnership (PPP) workshop, where the Barclays Africa Financing Specialist urged Local Councils to explore strategic investment partnerships. He emphasised the need for long-term planning, both technically and financially to assist in realising Government goals and properly achieve sustainable growth. The bank has since last year made further investments in their public sector department at the Bank. "Through our Corporate Banking Director we have called on Local Government to utilise these Partnerships in closing the existing infrastructure investment gap. Barclays is a committed partner in this drive. We see strategic investment partnerships as a great opportunity for partners to fast track development in our country and thus improving lives of Batswana," said Barclays MD Reinette van Der Merwe at the 2016 Local Authorities forum last month.
Early in 2016, the Chairperson of UK PPP Advisory Board, John Davie, cautioned that Botswana is not ready for PPPs, arguing that the society needs to be informed about such complex partnerships. He was speaking at a PPPs seminar organised by British High Commission in Gaborone, to discuss Botswana’s potential to fully exploit such partnerships.

Botswana not ready

His argument was based on an observation that most entrepreneurs believe that PPPs are just about finance, involving the private sector, privatising simple concessions or outsourcing. In agreement with the PSI report, Davie warned that while PPPs can provide efficiency in the use of public resources, they can also negatively affect public financial management if not properly monitored. he emphasised that public sector training is needed locally to help improve technical knowledge about the PPPs, their operations and how to implement them successfully. Already, government has lost millions in public funds in the construction industry over the years due to cost overruns occasioned by incompetence, efficiency and substandard projects compounded by failure at project management and monitoring. Examples of PPPs include the Lobatse Leather Park, the outsourcing of facilities management strategy, independent power producers’ (IPP) transactions, the SADC headquarters building, management contract for the Central Medical Stores (CMS) and output and performance-based roads maintenance. The most documented is the partnership between De Beers – the world's leading diamond company – and the government in a public-private partnership which started in June 1969, only three years after independence.