What you Need to Know About Public Private Partnerships

What you Need to Know About Public Private Partnerships

PUBLIC-PRIVATE PARTNERSHIPS

“The time has come for Public Private partnership to fix this country and put it back to work – Van Jones”

When listening to the national dialogue on investment and finance, the average Ugandan is blindsided either by the complexity in language or the cavalier belief that those are discussions limited to the higher offices along Parliamentary Avenue. No one ever seems to keep their ears peeled to find out the effect or importance of such dialogue.

One of such kinds of topics is the one on Public-Private Partnerships or as they are commonly known PPPs. In this article, we will attempt at unmasking the importance and potential of PPP’s and how private companies can use this initiative to grow themselves and the nation at large.

Definition

The PPP Knowledge Lab defines a PPP as “a long-term contract between a private party and a government entity, for providing a public asset or service. Public-private partnerships are primarily used for infrastructure provision, such as the building and equipping of schools, hospitals, transport systems, and water and sewerage systems. PPPs have been highly controversial as funding tools, largely over concerns that public return on investment is lower than returns for the private funder. This has not deterred most governments from turning to them when it comes to some ground-breaking projects.

Origin

From as early as the time of Muhammed Ali Pasha to the modern-day United States of America, PPPs have proved to be an integral part of the development of what would have been considered a weak economy. Notable projects include an early steamboat line between New York and New Jersey in 1808; many of the railroads, including the nation’s first railroad, chartered in New Jersey in 1815; and most of the modern electric grid.

Based on such evidence, modern-day governments have decided to formalise and utilise this kind of arrangement to facilitate rapid growth at lower costs.

Before opting for PPP arrangements, a government will analyse the value-for-money benefit to be achieved by either using the normal procurement procedure or the PPP model.

In Uganda, these arrangements are guided by the PPP Policy Framework (2010) which derives its legal force from the Constitution of Uganda (1995). It provides the overall legal policy framework for the Central Government to plan and implement a development program to benefit all the people in the country.

Eligibility

So you have a private company in Uganda and you would want to know how to enter into a PPP contract with the government? The PPP Act of 2015 outlines the requirements and procedure to be followed by such a company before the agreement.

Any company bidding for this kind of contract shall be either a company, already existing or having been registered under the Companies Act of Uganda or a special purpose company (incorporated for the purpose of entering into a PPP)

The company shall provide evidence of technical and financial capacity to carry out the project, this will include the capital of the company, necessary guarantees for obtaining the said capital and any permits that may be required.

After such evidence has been received, the government then carries out a preliminary economic cost-benefit analysis which will show the strategic objectives, the cost, rationale of the project and projected policy outcomes of the project among other things. If considered suitable the same is registered by the accounting officer and necessary persons to oversee the project are hired.

This is followed by a feasibility study to ensure that the project is feasible as a PPP. This study will identify and define the function the company is to perform, its impact on the contracting authority, the comparative advantage of having the project as a PPP and its legal aspects thereunder. In the end, the study should show that it is financially and technically viable to have the project as a PPP. Successful companies will be approved by the Committee.

Procurement procedure

Procurement in this area is by an invitation to tender from the contracting authority and shall be in accordance with the procurement methods of government. The bidding process may either be “Competitive” or “Non-competitive” depending on the type of project. Competitive bids may be open or restricted, open bids are made available to the general public in a nationwide newspaper while restricted bids are sent to specific service providers. On the other hand, Non-competitive bids may be either by direct procurement or unsolicited proposals. Under direct procurement, a sole source procurement is used, this is for bids which do not promote competition. The other form is by sending of unsolicited proposals.

Bids are then evaluated by the Evaluation Committee and they typically look at the technical and professional capability of the bidder. An evaluation report is made and will show how the criteria of affordability, value for money and risk transfer were applied in the evaluation.

After such reports have been considered, successful bidders will sign PPP agreements which shall contain clear and detailed descriptions of the rights and obligations of the contracting authority and private party or company.

After the commencement of operations, the contracting authority will still maintain the power to monitor projects to ensure compliance with conditions and remedies in case of default. The authority will submit periodic reports to the Minister in charge.

Types of PPPs

A wide range of PPP arrangements exists, differing in purpose, service scope and legal structure. Depending on the region in which you are in the world, they will bear acronyms like DB (Design and Build), O&M (Operate and Maintain) and DBFM (Design, Build, Finance and Maintain) and the like

Some of these PPP arrangements fall in the following categories as listed by the Government under the PPP Act of 2015;

Lease, develop and operate agreement; A lease, develop and operate agreement shall be used where a private party is to be given a long-term lease to operate and expand an existing infrastructure and where the private party is to invest in the operation and expansion of the infrastructure and to recover the cost of the investment over the duration of the lease period.

Build, own and maintain agreement; A build, own and maintain agreement shall be used where a private party is to build, own and maintain infrastructures, such as a school or a hospital, and the contracting authority is to lease that infrastructure, from the private party.

Build, own, operate and transfer agreement; A build, own, operate and transfer agreement shall be used where a private party is to finance, build, own and operate infrastructure for a specified period and to hand over the infrastructure to the contracting authority at the end of the period.

Design, build, finance and operate agreement; A design, build, finance and operate agreement shall be used where a private party is to design, build, finance and operate infrastructure for a specified period and to hand over the infrastructure to the contracting authority at the end of the period.

Build, own and operate agreement; A build, own and operate agreement shall be used where the private party is to own the project in perpetuity.

Other public-private partnership agreements; The Minister may by statutory instrument, prescribe any other type of public-private partnership agreement to be used for a project.

Choice of public-private partnership agreements; A contracting authority shall, for a project, taking into account risk allocation, financing and operating methods, use any of the public-private partnership agreements specified in sections 38 to 45 or a combination of any of these, using the procedures in this Act and as may be prescribed by regulations.

Concession; A concession is the lease of an asset of the contracting authority or Government to a private party for a long period of time where the risk of funding, developing, managing and operating the asset is transferred to the private party.

Operation and maintenance agreement; An operation and maintenance agreement shall be used where a private party is to operate and maintain a property of the contracting authority in accordance with an agreement made under this Act.

Franchise: Under this arrangement, the government awards a finite-term zonal monopoly (a franchise) to a private firm for the delivery of service. The franchise award is made after a competitive qualification process.

Lease purchase: Under this arrangement, the government contracts with a private sector partner to design, finance, and build a facility to provide a public service. The private partner then leases the facility to the local government for a specified period of time after which the facility reverts to the Local Government. This approach is preferred where the government requires a new facility or service but lacks financial resources.

Pros and Cons

There is always a great risk that accompanies service provision on a national scale by private individuals. That is to say that PPPs bear both the positive and negative of it, some significant advantages may include Reduction in expenditure, Potential reduction of national debt accrued from service provision, local job creation, and growth of the private sector, efficiency in completion of projects and a little bit of oversight.

However on the flip side of things, it has been observed that PPPs tend to bring about monopolistic tendencies among service providers, are usually politically motivated, poor service provision because of the lowest-bidder principle and ultimately reduces control over services and infrastructure.

Dispute Resolution

Disputes arising from a PPP agreement are to be settled through the dispute resolution mechanisms agreed upon under each agreement. Seeing as the government is usually overwhelmed by litigation it will be no surprise that most of its contracts will be handled under the processes of arbitration and conciliation.

The private company is also required statutorily to establish mechanisms for handling claims for its clients (if its providing services directly to the public)

In Uganda…

According to a survey by the PPP Knowledge Lab and World Bank Datahub, several of these ventures have littered the Ugandan industry, some of them being the Bujagali Hydro Plant, the Namanve Power Plant which have contributed to the 22% of electricity provision in the country and the MTN arrangement that has since seen 57.27 of every 100 people in Uganda get mobile subscription. The most recognisable of these arrangements is the 77km Kampala-Jinja expressway.

Though for the start PPP arrangements have been limited to multi-million projects, they are slowly entering the small business sector and the companies that will organise themselves well enough to meet the required standards will definitely benefit from such partnerships.

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