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The use of public private partnership (PPP) contracts are becoming more prevalent on the continent, but the mechanism requires careful handling by all partners to deliver scalable benefits across the value chain, delegates attending a recent African PPP event in London heard
A pre-conference training session at Africa PPP Public Private Partnership Conference & Showcase, held between 24-26 October at the Radisson Blu Portman Hotel in London, provided attendees with an overview of managing PPP contracts, their challenges, and an examination of critical success factors in project delivery.
Gori Olusina Daniel, lead transaction advisor at Africa PPP Advistory, began by outlining the significant growth in PPPs across the continent and the world.
“As important as it is, PPPs are challenging and different from what we are used to from a public sector point of view: it calls for greater and stronger degrees of partnership and engagement, and perhaps one of the biggest criticisms is whether the value of PPPs is eschewed more towards the private sector than it is to citizens," he opened.
Drawing on visual aids, Olusina Daniel said that compared to 2007, when there were only a handful of African countries handling PPP projects, the use of the mechanism is now deeper and more prevalent.
"For all the challenges of engaging with the private sector, there is a realisation that the infrastructure deficit is a bigger challenge and the private and public sector must find a way to work together to address this," he noted.
He made clear that PPPs and private finance initiatives (PFIs) are financial mechanisms, where the public sector taps into the private sector's capability to deliver projects based on time and cost efficiency.
It is important for the public sector to understand that engaging in a PPP is not free, and therefore adequate resourcing through actively engaging all stakeholders is required to ensure projects are effective, he continued.
Preparation, through training, ensures practitioners have a robust legal framework and clarifies the roles of each participant in that project.
He then outlined the various levels of private sector participation in public service delivery, from a service contract for a school, to a design-build contract for a new road, or a management contract for a water utility.
Moving on, he said there are other examples where, unlike forms of traditional procurement that are fully financed by the public sector, there are complex agreements where the private sector may contribute in terms of financing.
"Whatever happens and whoever raises the capital, it's always important to bear in mind that as far as it's a public service delivery, the user always pays," he told delegates.
Pointing to the evolution of initiatives that encourage a reduction in the finance on public balance sheets, an underlining theme links to the rapid development of infrastructure to create fiscal manoeuvrability.
"It's critical that (there is) this distinction between public and private finance projects; the private sector goes to the market - in some cases supported by the public sector - to raise capital to deliver projects."
De-bunking the PPP "privatisation" myth
Moving on, Olusina Daniel paid attention to the importance of understanding the "multiplicity of actors" involved in PPP projects.
In the case of Africa, he said projects can often involve the participation of multinational and local banks.
As such, a range of considerations must be made to ascertain whether the PPP entity can raise the finance at a rate that enables affordability for the end user. In turn, the entity needs to ensure that theprivate and public sector enterprises make a dividend.
Parties that are most able to manage the risk associated with a contract, he continued, should take on that risk.
He said that while the concept of PPP was not misunderstood as privatisation to those in the public and private sector, there is a guarantee that the confusion exists with some members of the public.
"If the public confuse PPPs with privatisation and see it is an opportunity for the government to sell off assets on the cheap, it's something we really need to think about," he warned.
"Whatever the combination of PPP option you're looking at, if it's a PPP the distinctive feature is the ownership remains with the government."
The private sector, he continued, is offered the opportunity to deliver specific and contractually binding output requirements, and achieving these requires significant effort.
Olusina Daniel said PPPs also require political will to deliver end results, and he praised the work done by the African Development Bank (AfDB) on capacity development programmes running across the region to ensure PPP entities can access resources and align the interests of contracting parties.