What are Public Private partnerships?
a) These are contractual arrangements of varied nature where the two parties share rights and responsibilities in the duration of the contract regarding the provision or construction of a project/service.
b) A way of contracting for development and maintenance of an infrastructure service using the private sector innovation, skills and leveraging for finance.
Statistics show that 1.2 billion people live without electricity; 1 billion people live more than 2km from an all weather road, 750 million people lack access to safe drinking water and 60% of the world population lack Internet access. This imbalance is what is known as the infrastructure gap.
An infrastructure gap exists when the services are of poor quality and unreliable for example, worn out sewage system. This creates a gap that affects the growth, development and competitiveness of a government in the global market.
In Africa the roads affect the price and quality of produced goods as it takes longer to transport them to the required consumer. The greatest challenge faced by developing and middle-income states are the high demand for quality, affordable and service-oriented infrastructure.
Finding a balance between the Private and Public sector is a constant requirement in order to bridge the infrastructure gap. Infrastructure involves road, ports, airports, energy, water, telecommunications, sewage systems, hospitals and other social and health-care facilities.
PPPs can be either foreign or domestic. They are not only confined to large-scale players. For example, In Paraguay there is a small-scale PPP agreement known as “Los Aguateros’, in charge of the provision of water.
PPP contracts may involve:
B.O.T: Build, Operate and Transfer
D.B.F.O: Design, Build, Finance and Operate
B.O.O: Build, Own and Operate (Not returned to the public)
PPPs should not be confused with Privatization. Privatization involves the permanent transfer of a previously public owned assets to the private sector/party whereas PPPs involve a continuing role of the public sector as a partner.
Some states have gone further and renamed their PPPs to avoid confusion i.e. in Mexico they’re called projects for provision of services and in Peru they’re Legal framework as co-financed concessions.
Public Private Partnerships (PPPs) are however not appropriate for all infrastructure projects. For instance, money printing should remain in the hands of the government.
TYPES OF PPPs
1. User free PPPs/ Green field concessions/ Whole life costing:
The public authority grants the private party the right to design, build (refurbish or expand) maintain, operate and finance an infrastructure owned by government. The agreement/contract can be between 25-30 years. These often happens in contracts for roads, railways, power, water, gas, telecommunication, ports and airports.
Focus on service delivery It allows the public sector to focus on other objectives and reduces the constraints as responsibility of the project is on the private sector until it’s handed over.
Innovation Specifying outputs rather than inputs provide opportunity for innovation, as bidding done by private parties is competitive. This benefits the consumer.
Asset utilization Private parties use a single facility to support multiple revenue streams, reducing cost to the public.
Mobilizing of additional funding Private companies can provide alternative sources of financing as government may face financial constraints.
Accountability It makes it easier to hold the private company/party responsible in case of unmet requirements.
2. Availability based PPPs:
The private party designs and finances a project and the public authority (not the end consumer) makes payment to the private party. This payment is made when a service, not an asset is made available. For instance:
• Power purchase agreements where the private investors build a power generation plant and contract to sell the electricity generated to a publicly owned power utility (Private distribution company)
• Operation of waste management services.
The mechanism to determine the level of payment for the service is set out in considerable detail in the project agreement.
ROLE OF PPPs IN INFRASTRUCTURE
Tap private capital markets to finance badly required infrastructure
Transfer resources to alleviate immediate government budget constraints
Incentivize real efficiency gains, transformation and allow better output from input
For successful PPP contract good governance principle must be in place in order to ensure that the priorities of government and/or the general public are met: The criterion to be followed include:
Prioritize the people; Projects must at all time be about the people after all they’re the ones who’ll benefit so it must be beneficial to them.
User needs; Projects must meet the needs of the final consumer. You thus don’t construct a road if the people require a hospital or bridge.
Economically warranted; Projects should be economically viable and affordable in that it can’t be so overly priced that expands the debt margin.
Legal framework; The legal framework through which the contract is based on must be at all times immune to irregularities and illegalities.
Transparency; During tendering and procurement of the project. It’s mandatory to know who did the tendering, who won the tender and how.
Competence of Government; This is important especially in ensuring that the terms of the contract no matter the duration will be adhered to with the discipline it requires.
Access risks; It’s a requirement that risks involved in the project to either the environment or the people be accessed thoroughly before any agreement is signed.
Involve everyone; Everyone who will be affected or will be consuming the project and services must be involved in the entire process to avoid personal gain of few individuals.
LIMITATIONS OF PPPs
1) They may appear to relieve funding problems while government fiscal commitment to them can be unclear.
2) They provide better project analysis and adoption of innovative ideas and practices but responsibilities for planning and project selection remains with the government.
3) PPPs have unclear fiscal contractual costs.
The awareness and involvement of the public in PPPs is required not just for basic information but greatly to define the role in which they can play in the procurement process. It is thus necessary to understand that governments can and will always borrow money to fund projects that we consume as the citizens in order to bridge the infrastructure gap.
This however means that Kenya being a middle income state can borrow more money easily as the default in payment of this debt is passed on to the tax payer.
The taxpayer here is known as unremunerated credit insurance for the state (the same as security required by a bank before issuance of a loan).
This makes it a necessity that all citizens be aware of PPPs, their role and how they not only bridge the infrastructure gap but also influence budget allocations and priorities of states. PPPs are now a major source of procuring public service and not just a means of sourcing finance for infrastructure.