GOV’T SHIFTS GEAR TO ENSURE PPP PROJECTS COME TO LIFE
The board of directors of the National Bank of Ethiopia (NBE) aligns strategies in the form of convertibility guarantees and proclamation amendments to anchor the public private partnership (PPP) initiative which is yet to take a foothold in the country’s vital mega projects landscape. Currently, two energy projects are under negotiation to embark on the PPP. After undertaking massive studies and legal document developments through the Ministry of Finance (MOF), the government in 2018 enacted the PPP proclamation 1076/2018 which formalized private sector involvement through public projects for both parties mutual benefit. Unfortunately, to date not a single project has come to fruition despite few projects coming close in the past few years. One of the challenges to adopting the initiative has notably been with the foreign currency risk that the country faced in addition to a bad rep with the western partners, who sided against the government in connection to the northern Ethiopia conflict that erupted late 2020. Companies, which had reached agreements with the government to engage in the energy development under the PPP framework pushed for convertibility guarantees at the pinnacle of the conflict which have since dialed down following a peace deal in November last year in South Africa. The government cognizant of this gave some vital but selected projects to be supported by a convertibility guarantee. According to Ahmed Shide, Minister of Finance (MOF), the NBE board in whom he serves as member, has approved the currency convertibility guarantee for companies which invest on the PPP arrangement. Experts in PPP Directorate General, which is under the MOF, disclosed that the decision was passed to give a guarantee for projects that have big values for the country. “The decision taken by the NBE board is a big step for PPP and has boosted the confidence of interested parties who want to invest on PPP arrangement,” they said. In the budget year, four PPP projects were targeted to be floated and so far on a special condition through the government to government (G2G) approach, two energy projects are under negotiations. According to Ahmed, AMEA Power of Dubai, UAE is under discussions with the government to make moves on a significant energy project.
The negotiation is focused on the Aysha Wind Farm I project in Somali region to generate 300MW, and as Ahmed describes, “The one to one negotiations have been completed to about 90 percent and the only pending issues to be put to bed are tariffs which will soon be finalized.” Similarly on another G2G approach with MASDAR, an Abu Dhabi based state company, discussions are underway to generate 500MW of solar energy in projects situated in Somali and Afar regions. The Minister said that on the implantation of PPP, companies are demanding some sort of arrangements in issues like foreign accounts in related to the project, “They are demanding freedom on financial transactions, particularly for their projects.” Demands in connection with the foreign currency issues have been one of the concerns that were raised by PPP developers. Based on that, the NBE board has given a decision to provide support for the PPP investments and strategic investments on the guarantee of repatriating their profits. As per the decision to give convertibility and transferability guarantee, minor preconditions like debt equity ratio will be demanded for provision of the guarantee for companies who demand investment in PPP. “We hope that it will accelerate the PPP,” the Minister said, adding, “In the future, we believe that the foreign currency issue will not be a concern but in the short term, we have decided to give the guarantee.” “It will attract investments on energy particularly geothermal, solar and wind that will go a long way to help our energy mix,” Ahmed underscored.
In the budget year, parliament has also amended the PPP proclamation on the aim to award projects through a direct negotiation manner besides the open bidding process. As experts in the PPP Directorate General express, the move has also increased the interest of potential investors.
In the beginning of the budget year, the government had issued an expression of interest (EOI) for the development of integrated diagnostic center (IDC) through PPP, while it has since been annulled due to lack of competitive participants from those who expressed their interests.
The information that Capital obtained from the PPP regulatory body signaled that the major intention of the EOI was to invest on the health sector with the private sector particularly with local investors, while it was canceled due to lack of competitive participants of which most were local participants.
The bid will be refloated in the near future with minor revisions on the document. Within the past two years, 23 projects have been identified under PPP from over 100 proposals, while from the selected project some will not be executed under PPP as per the recommendation that came from detailed studies. Roads, energy, housing, and health are included on the selected projects.
On the aim to expand the development path through different instruments and on the objective to expand public service activities, to reduce project delays and cost overrun and to increase the utilization of resources from the private sector on public services; the government issued the first PPP policy in August 2017 which was followed by the proclamation.