Head of PPP unit, Lindi Toyi

Productive partners Across Africa PPPs are set up to build infrastructure and provide essential services.  Are they just a way for private companies to make profits and cut jobs?

There has been much criticism of Public Private Partnerships (PPP) recently as there is a perception that government should be delivering what its citizens need, free of charge.  The bottom line, however, is that whatever government delivers, needs to be paid for - ultimately by tax payers.

Many African governments are now realising that they simply do not have enough financial resources to deliver the desperately required infrastructure within a reasonable timeframe and the private sector could contribute the bulk of funding, as well as operating and maintenance skills.

Monitoring must be consistent and standards strict to ensure that the required service levels and timeframes are adhered to.

The IDC’s PPP unit is mandated to fund all PPP projects that have economic merit, primarily targeting areas where no other funding institutions have the risk appetite to invest. The organisation’s PPP budget averages around R4 billion a year and is flexible to allow changes in the economic landscape and the IDC’s funding strategy.

Until recently, the IDC has had limited success with PPPs and has instead built a track record funding other types of infrastructure projects in South Africa.  Part of the challenge has been that the feasibility stage seems to be the biggest bottleneck, while general scepticism around the expense and benefits of PPP projects continues to cast projects in a negative light.

We also have a situation where the procurement process tends to lead to the losing parties taking legal action and challenging the bid award decisions – delaying the process even further.  Then there is the challenge of getting the balance right between a process that has to be fair and transparent, with meeting immediate service delivery needs. There is room too for the regulatory and legislative frameworks governing PPPs to be more supportive of the situation on the ground.

The IDC now has an agreement with National Treasury to pilot a few PPPs in the health sector where the IDC is playing a catalytic role in the project development phase.  This should assist with project preparation to a point where the private sector and other financial institutions can move the projects to completion. 

In order to create a continent of strong trading partners, the IDC is looking at funding PPPs throughout Africa.  For example, a rail project that links different countries gives the affected countries enormous economies of scale and unlocks stranded resources and goods.  Other infrastructure projects that are particularly well suited to the PPP process are electricity generation, toll roads, rail, telecoms, ports and airports.  The quantum of funds required for these types of projects, plus the ability to implement a user-pays principle, for example on road tolls provides the possibility of removing contingent liability on the government balance sheet.  Long term concession contracts, typically twenty to thirty years, ensure that state assets are used efficiently and then revert back to the state after the concession expires..

In keeping with this thinking, the IDC has also approved funding for a wind project in Kenya and this confirms IDC’s commitment to clean electricity generation project involvement for the organisation.  The IDC is funding both the project development side and project implementation areas in line with our developmental mandate. 

PPPs are believed to be expensive because they are seen as a way for private companies to make super profits, and cut jobs while they are at it.  But there are ways to ensure that private sector companies deliver their side of the bargain.  For instance, contracts between the state and private sector should specify the rewards those companies can receive if the service quality, deliverables and deadlines are met. On the flip-side, if private companies do not deliver to the specified level as part of a partnership, they should be penalised.

It is also important that contracts are conditional on employment quality and numbers since job creation is of such critical importance.   Monitoring must be consistent and standards strict to ensure that the required service levels and timeframes are adhered to.  The key to sustainable PPPs is that the processes and conditions that underlie them should evolve as the focus and policies of government evolve.

Since PPPs are partnerships, it is important that the relevant government department with all stakeholders including financiers like the IDC, commit and partner to deliver on a sustainable basis.