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Building the Perfect Public-Private Partnership in Africa

16th March 2016

  

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DBSA  (0.03 MB)

When South African Minister of Finance, Pravin Gordhan detailed his budget in Parliament in Cape Town, he emphasized the need for Public Private Partnerships to evolve as a means to reinforce and drive infrastructure. This is a thought that is shared across the African continent, with PPPs now being looked to for diverse projects across the sector.

While the PPP concept gains momentum, it is evolving in order to continually meet and adapt to market drivers and structures, and big business in particular is looking for ways to create the most solid platform on which to base the most mutually beneficial partnerships.At the leading edge of the drive to innovate PPPs is most undoubtedly the Development Bank of Southern Africa. Sinaso Sibisi, the Group Executive Manager of Infrastructure Delivery at the DBSA met with Access Africa and explained why new PPPs were necessary in the African context.

“In a traditional PPP programme, you would have a transaction advisor. They would take it to a feasibility level, and there would be a number of unknowns by the time they got to market, in terms of procurement,” explains Sibisi. The result of these arising unknowns is that the risk factor significantly increases for the private parties and makes the partnership unaffordable.

In this context, the new design for a PPP in Africa will need to look further down the value chain, from the preliminary design all the way through to maintenance, operation, and eventual handover. Every stage of a given project would need to be effectively structured in order for both private and public parties to comment upon and enhance their roles in the process. However, in order to enable this type of partnership, the role of Development Finance Institutions such as the DBSA or the Industrial Development Corporation, as well as other Development Banks, becomes increasingly important.

Sibisi furthers this line of thought by explaining that, “We have to take into account the risk sharing approach. You have intermediaries such as the DBSA who would help set up a strategic Project Management Office to oversee the programme and basically make sure the contract management of the PPP was running effectively.” Essentially this would mean that there would be a triangulation of parties including a DFI, rather than just between the state and private parties. “This would also link to performance based contracts and making sure that negotiations happen on a five-year basis around risk sharing, and that value addition sharing happens in a more fair and collaborative setting,” explains Sibisi.

Major players from the private sector are looking forward to these developments. Coenie Vermaak, the Regional Director: Sub-Sahara Africa Construction & Fabrication at Fluor explains that his company is excited about the prospect of working within new PPPs across Africa, especially in major infrastructure projects where government is the eventual owner of the project. “This lends itself quite well to our model,” explains Vermaak.

However, he also clarifies that the private sector has a large role to play in ensuring that these PPPs work. I think the important thing in terms of risk is to be able to convince the DFI’s and governments, that as a competent engineering turnkey solution partner, we can ensure that the money actually gets applied for what it is intended.” This is not the only new model of a PPP that is being considered. According to Sinazo Sibisi, the DBSA has been looking at other models that work with basic management contracts. This is not a new model on a global perspective, but it is new in an African context.

Essentially these models would include the take over of operations – of water or power plants for example – and link back to paid performance contracts. “This would either be financed through social impact bonds, which are essentially paid for performance, or even normal finance with a blend of commercial funding,” explains Sibisi. This would include for greater upside benefits for a private contractor which partners with a DFI who would oversee and essentially manage the performance contract. She continues, “Through the sharing of the upside, the private contractor will be paid what they need to get paid, and the public body will get more out of the deal than they did before.”

One company looking to work with both models is Mega Water, a completely integrated water management company. CEO and Founder Rudy Roberts explains that his company is looking at a two fold business model to work with government both as an intervention player for the rehabilitation of water infrastructure through a basic management contract, and also as a major partner for governments on large infrastructure projects that roll out. Roberts explains that in theory these contracts and partnerships would be managed within the capital structures of DFI’s and development banks. “The opportunities are available,” explains Roberts. He continues to say that within this respect, “Mega Water looks forward to engaging in a great deal of projects in both the public and private sector throughout Africa in the future.”

At the end of the day, a new blend of private-public partnerships will no doubt have the effect of kick starting and streamlining infrastructure projects across the African continent in the future. However, both African governments and private industry will have to work together, and ensure that local and regional development is a shared goal, and that this needs to be made a primary objective before a successful project can be realized. The role of a prominent DFI could essentially ensure that this happens.

Edited by Creamer Media Reporter

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