More Urgency needed for Public Private Partnerships (PPP)

As governments in emerging economies in Sub-Saharan Africa (SSA) grapple with stretched resources and dependence on the foreign money to plug in the deficits, it has become more apparent that the PPP model for infrastructure development is one of the few options that is becoming more and more attractive for not only Governments but private sector as well.

According to the Zambia Development Agency (ZDA) website, “a PPP is a contractual arrangement whereby the private sector performs government functions of service delivery or infrastructure development, or uses state property, and assumes associated risks for the property, on behalf of Government, for a defined and agreed period of time. The private sector in return receives financial remuneration in form of concession fees, user fees, or any other form of repayment that maybe agreed upon with the Government. In this process, the Government retains a significant role in the partnership as the main purchaser of services or the main enabler of the project.”
The core essence of a PPP is the apportionment of risk and it being allocated to that entity that is best positioned in the PPP deal to handle and manage that risk. With ZDA identifying health, transport, agriculture, and energy as the sectors government are keen on pursing PPPs, the build operate transfer model (BOT) provides that best balance of government’s social agenda and private sectors wealth creation pursuit.

Under BOT, the operator-led PPP approach puts the private sector in charge not just of the construction of infrastructure but of the operation of services afterwards for a defined period. According to the World Bank, this model is increasingly common in social infrastructure projects because the approach transfers operational risks from government to the private partner, but the government still retains oversight of the quality of service through key performance indicators, service criteria, and performance standards. Furthermore, there are financial penalties are put in place for failure to meet the required standards which allows for the safe guarding of public resources.

According to ZDA, some of the key distinguishing features of PPPs when compared to traditional procurement include government not purchasing assets but services, specification of service output and not inputs, private sector providing designing and building capabilities, identification of risks and placing them with the party best able to manage them, private sector being paid based on performance, and maintaining the key PPP objective of achieving value for money on the projects.
Now it comes to the uptake of PPPs in Zambia, it has been rather slow. Since 2014, according to ZDA, since the PPP Act was passed by Parliament in 2009, only one concession agreement under its provision, namely the Redevelopment of the Long Acres Lodge by Thuthuka Group International of South Africa worth $200 million for the development of a five-star hotel, shopping mall, conference centre, office complex and other amenities has reached advanced stages. Sadly, this deal is yet to reach financial close due to gaps in the agreement which the parties have been renegotiating to close the transaction. The gaps relate to some of the financial provisions of the concession agreement.

However, ZDA does identify 6 factors that have led to it not being able to execute PPPs and these include the need for political champions for PPPs (political advocacy is key), lack of capacity in Government to undertake the complexities associated with PPP projects (known weaknesses in the coordinating unit and contracting authority), lack of financial resources dedicated to PPP projects (weaknesses in feasibility studies), lack of clear guidelines and regulations, and high transaction costs associated with the lengthy lead time to execute.

The World Bank has gone a step further in identifying some of the impediments to the PPP process. In their 2017 report, they benchmark capabilities in 82 economies across four key areas: PPP preparation, PPP procurement, unsolicited proposals, and PPP contract management. According to the report, across the four areas measured, the data finds that most economies fall short of recognized good practices. Project preparation and contract management are the two areas where a significant number of countries perform poorly. For Zambia, there were significant weaknesses in the preparation of PPPs from central budgetary authority approval to economic, fiscal affordability, and risk assessment among others. There were further deficiencies identified in the procurement of PPPs such as lack available information online, lack of regulation on disclosure of answers in the clarification of procurement process and non-publication of the award notice online.

Although the report details further specific issues that need to be addressed, such as consistency from government in handling unsolicited proposals and PPP contract management, it is clear that much work remains to be done in order for PPPs to be the success story that they can be. Zambia Institute for Policy Analysis and Research (ZIPAR) believe that having consistency in where the PPP are domical is also important. They raised this concern in January 2018 to parliament following its transfer away from Ministry of Finance’s jurisdiction.

ZDA are candid in their key optimism on the way forward for PPPs. They believe that Government will need to deal with the challenges faced in the implementation of PPPs. They identify orientation of leadership, building capacity in contracting authorities, production of regulation and manuals, having a PPP centre of excellence, and incorporating funding contracting authorities. If all these are in place, it makes a strong case for successful implementation of PPPs.

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