Pre­pare care­fully for joint projects in Africa

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - CLAIRE BAR­CLAY

AFRICAN gov­ern­ments are sub­scrib­ing to the idea of har­ness­ing pri­vate sec­tor skill and cap­i­tal to meet in­fra­struc­ture de­mands in their coun­tries. This is ap­par­ent from the var­i­ous public-pri­vate part­ner­ship (PPP) reg­u­la­tory frame­works be­ing pro­mul­gated in south­ern, east­ern and western African coun­tries.

There have been a num­ber of PPP laws that have been passed in the last few years, most of which still re­main untested. How­ever, be­fore go­ing out to the mar­ket, gov­ern­ments need to set up the cor­rect in­sti­tu­tional mech­a­nisms and en­vi­ron­ment for the suc­cess­ful roll-out of PPPS.

SA has had its reg­u­la­tory frame­work in place for about eight years and has been un­der­tak­ing PPP projects for at least a decade. Me­dia re­ports show that project spon­sors and lenders are dis­il­lu­sioned by the slow pace of the im­ple­men­ta­tion of PPPS. While the Trea­sury is sat­is­fied with the pipe­line of projects and the time it takes to close deals, im­ple­ment­ing gov­ern­ment de­part­ments, un­der pres­sure to de­liver, are voic­ing frus­tra­tion with the long pe­ri­ods be­tween in­cep­tion and clo­sure. Changes in cir­cum­stances dur­ing these long pe­ri­ods has led a num­ber of gov­ern­ment de­part­ments to can­cel their PPPS. The un­pre­dictabil­ity in this ap­proach has led to mar­ket cyn­i­cism of PPPS as a suc­cess­ful form of in­fra­struc­ture pro­cure­ment.

A few of the es­sen­tial build­ing blocks of any PPP pro­gramme in­cludes putting in place the nec­es­sary in­sti­tu­tional struc­tures and ar­range­ments for a reg­u­la­tor. PPP leg­is­la­tion usu­ally es­tab­lishes a PPP Unit. Crit­i­cal to its suc­cess is hav­ing staff that knows and un­der­stand PPPS. The di­verse skill sets re­quired to fully ap­pre­ci­ate the me­chan­ics of PPPS can­not be taught overnight. Bur­geon­ing PPP Units in African coun­tries may con­sider sec­ond­ing peo­ple with rel­e­vant skills from the pri­vate sec­tor, or if pos­si­ble, of­fi­cials from other SADC PPP Units, in an at­tempt to pro­vide mean­ing­ful skills trans­fer to of­fi­cials in those units.

An­other es­sen­tial re­quire­ment is that gov­ern­ments need to pri­ori­tise which of their in­fra­struc­ture projects are suited for PPP and which are suited to di­rect pro­cure­ment for shorter term con­tracts. There is a risk that African gov­ern­ments see PPP as the panacea to their in­fra­struc­ture woes with­out un­der­stand­ing the full ex­tent of their ex­po­sure. Gov­ern­ments need to un­der­stand that PPPS are an ex­pen­sive form of pro­cure­ment and come at a much greater cost to the gov­ern­ment as the fis­cus is re­quired to pay lender costs and fees as well as spon­sor re­turns. What gen­er­ally pushes the drive for gov­ern­ments to go the PPP route is fund­ing con­straints. In Africa, the fund­ing op­tions for gov­ern­ment are gen­er­ally limited to procur­ing debt from com­mer­cial lenders, from DFIS or through bond is­sues.

Gov­ern­ments should also pace the in­tro­duc­tion of PPP projects. Flood­ing a smaller mar­ket with projects will see lo­cal play­ers los­ing out to their in­ter­na­tional com­peti­tors which, dur­ing strained global eco­nomic times, are look­ing to de­vel­op­ing mar­kets for deal flow. Gov­ern­ments need a co-or­di­nated pol­icy out­lin­ing which sec­tors re­quire greater pri­ori­tis­ing in terms of in­fra­struc­ture de­vel­op­ment.

The PPP units within gov­ern­ments also have the task of prop­erly mo­bil­is­ing the pri­vate sec­tor, which in­volves speak­ing to the com­mer­cial lenders within that coun­try, and as­sess­ing the ca­pac­ity of spon­sors to take on longterm projects. In most African coun­tries, it is cus­tom­ary for the com­mer­cial lenders to pro­vide debt for a five- to seven-year ten­ure. This pe­riod is un­likely to match the tra­di­tion­ally longer project term re­quired for a PPP.

Chang­ing lend­ing pat­terns is crit­i­cal for lo­cal banks if they want to par­tic­i­pate in the debt fund­ing of a PPP. How­ever, this must be driven by the PPP Unit if they want to see suc­cess­ful PPP im­ple­men­ta­tion. These are a few of the es­sen­tial pre-re­quire­ments for a suc­cess­ful PPP pro­gramme.

Fail­ure to pre­pare ad­e­quately will lead to a sub-op­ti­mal re­sult and a short­lived PPP regime as a mech­a­nism to de­liver on es­sen­tial in­fra­struc­ture for the African con­ti­nent.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.