Pub­lic-Pri­vate Part­ner­ships as panacea to in­fras­truc­ture de­vel­op­ment in Zim

Sunday News (Zimbabwe) - - Finance - But­ler Tambo

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 but­ler­tambo@gmail.com

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