Public-Private Partnerships as panacea to infrastructure development in Zim
THIS is the final instalment on my series on infrastructure and will look at successful models of Public-Private Partnerships (PPPs) and how Zimbabwe can learn a few lessons from success models in the region.
The Government is looking to PPPs under Zim Asset to radically improve infrastructure networks and enhance service delivery to ordinary citizens. They are hoping that this development finance model where the State shares risk and responsibility with private firms but ultimately retains control of assets will improve services, while avoiding some of the pitfalls of privatisation, unemployment, higher prices and corruption. The record of PPPs in Africa over the last 20 years is mixed and the process is complex.
PPPs potentially bring the efficiency of business to public service delivery and avoid the politically contentious aspects of full privatisation. PPPs allow Governments to retain ownership while contracting the private sector to perform a specific function such as building, maintaining and operating infrastructure like roads and ports, or providing basic services like water and electricity. Both sides stand to benefit from the contractual agreement. Government earns revenue by leasing State-owned assets or alternatively pays the private sector for improved infrastructure and better service delivery. Often the private sector can do the job more efficiently, which can lower prices and improve roll-out. PPPs in Zimbabwe, a historical background There were a number of initiatives in the 1990s to expand the role of the private sector in provision of infrastructure services, but these were largely inconclusive. The most prominent example of the use of PPP from that period was the private concession that began providing rail services in 1998 on some 385km of track between Bulawayo and Beitbridge under the Bulawayo-Beitbridge railway (BBR) concept and this has been a huge success and profit making venture at a time when the National Railways of Zimbabwe which runs a track of over 2 600km is a perennial loss maker and an albatross on the fiscus.
In 2004, Government issued a revised policy statement for the use of PPPs in various sectors to promote economic growth through collaboration with the private sector in the provision of infrastructure. The goal of the policy document was to “promote sustainable economic growth and development through mutual collaboration between Government and the private sector in the efficient management and operation of infrastructure and other development projects in the country.” It provided for several forms of PPPs, including management contracts, leasing, concessions, and “new entry” through de-monopolisation. PPPs were envisaged in a wide range of sectors, including transportation, water, telecommunications, and energy. The document provided guidelines for the approval of projects identified by Government agencies and project promoters, including a tendering process for the selection of the private sector partner and rules governing unsolicited proposals emerging from the private sector’s own initiatives. Tax incentives were provided for investors engaged in approved Build Operate Transfer (BOT) schemes. Other incentives were to be provided on a case-by-case basis, including duty exemptions. The remittance of dividends and disinvestment proceeds was to be in accordance with Exchange Control Regulations. Pitfalls of Zimbabwe’s PPPs A review by the UNDP in 2008-2009 concluded that there was a continuing lack of a clear legislative and regulatory framework for PPPs. The report went on to say that for PPPs to realise their full potential in Zimbabwe the guidelines developed in 2004 needed to be revised, since these did not cover in a comprehensive way the legal and operational modalities of the programme. Capacities within the public sector to carry out the necessary due diligence work were also limited. The registration, conduct of feasibility studies, and project procurement were done haphazardly, added to which the necessary human and financial resources to manage the programme were not in place. According to the UNDP at that time, committees responsible for PPP processes were not functioning, and as a result, there was some risk that sub-optimal concessions could be concluded that would ultimately lead to lengthy re-negotiations. This is a sad reality especially if one considers all the incomplete or and delayed Government projects to which the Matabeleland Zambezi Water Project immediately springs to mind as one such project as it has remained a pipedream for generations as it was first mooted by the colonial Government in 1912 and now 105 years later it is still to come to fruition. Regional examples of successful PPPs Development Corridor between South Africa and Mozambique
In 1996 the Governments of post-civil war Mozambique and post-apartheid South Africa developed the concept of the Maputo Development Corridor (MDC) to foster stronger transport and trade links between the two countries. The MDC’s first projects were the N4 toll road from Witbank in South Africa to Maputo in Mozambique; the rehabilitation of Maputo Port; and the Ressano Garcia railway. Mozambique did not have the money to improve and maintain its portion of the N4 highway, or to rehabilitate the port and the railway line, which had been neglected and damaged in the country’s long civil war. The South African government also faced an accrued backlog for road infrastructure in 1997 of R37 billion. In 1996 the two Governments signed a 30-year concession for a private consortium, Trans African Concessions (TRAC), to build and operate the N4 toll road from Witbank, South Africa to Maputo, Mozambique. After the 30-year period, control and management of the road reverts to the governments. The contract was worth R3 billion (at 1996 estimates).
The N4 was financed from 20 percent equity and 80 percent debt. The three construction companies who are the sponsors of the project contributed R331 million worth of equity with the rest of the capital provided by the SA Infrastructure Fund; Rand Merchant Bank Asset Management and five other investors. The debt investors included South Africa’s four major banks: Absa, Nedcor, Standard Bank and First National Bank; the Development Bank of Southern Africa; and the Mine Employees and Officials Pension Funds. The governments of South Africa and Mozambique jointly and severally guaranteed the debt of TRAC and, under certain conditions, guaranteed the equity as well.
At the time it was the biggest project finance deal in Southern Africa. The N4 faced demand risk that is whether motorists would pay to use this road when less well-maintained but free alternative routes existed? There was also considerable user payment risk in Mozambique as the poor communities were unable and unwilling to pay high toll fees. TRAC crosssubsidised the Mozambican portion of the road with higher revenues from the South African side. It also provided substantial discounts to local users and public transport on both sides of the border.
The N4 has successfully reduced overloading of heavy vehicles, a major cause of road deterioration. It has also facilitated the growth of tourism in the region as well as other sectoral investments in Mozambique such as the Mozal aluminum smelter and the natural gas plants at Pande and Temane.
With such regional success stories Zimbabwe should retain its place of the Jewel of Africa. Zimbabwe’s unfinished projects have become an eyesore as expensive equipment is left to rust on sites. Dualisation of the Harare-Masvingo Road, Gwayi-Shangani, Kunzvi and Mtshabezi Dams become part of finance ministers’ budget statements for decades, with little progress being made until recently when sanity has finally prevailed.
Zimbabweans will remember ground-breaking ceremonies across the Hunyani River for the HarareChitungwiza railway line. The preliminary assessment (technical and economic) was completed in May 1987 but the railway line is still to take shape 30 years later. This is in stark contrast to South African company Group Five (G5) which under a PPP arrangement rehabilitated the Plumtree-Bulawayo-Mutare Road, which stretches close to 800km at a cost of just above US$200 million one year ahead of schedule meaning that Zimbabwe has the capacity to utilise PPPs in order to fix its infrastructure backlog.
The country’s level of human capital is high, compared to other countries in Sub-Saharan Africa. According to the Global Competitiveness Report (2016), the quality of its educational system is higher than in the average SSA country. The relatively high level of human capital should make it easier for Zimbabwe to address some of the structural challenges on its development and transformation agenda and the country should be back to its glory days and move away from the country that most investors shy away from because of its dilapidated infrastructure.
Butler Tambo is a Policy Analyst who works for the Centre for Public Engagement and can be contacted on email@example.com