PUBLIC PRIVATE PARTNERSHIP

(a) Explain the term Public Private Partnership
PPP is all forms of contractual arrangement between a Contracting Entity in the public sector and a private sector party, for the provision of public infrastructure and services. In a PPP arrangement, a private sector entity undertakes the financing and construction of a public sector asset, such as an item of infrastructure. The agreement may also provide, when the asset construction has been completed, that the private sector partner will be responsible for the maintenance of the asset (such as hospital facilities) or operation of the asset (such as motorway tolls). At an agreed time in the future, the asset reverts to state ownership. PPPs are referred to as partnerships: the state sector may invest in the scheme.

PPP reflects a cooperative arrangement or relationship, within a reasonable duration, between the private and public sectors which involves rewards and risk sharing with the aim at delivering a desired policy objectives and outcomes. It is a win-win arrangement in which private sector participates in the provision of public services and infrastructure within a medium to long term range. PPP arrangements are usually complex with the following characteristics:

• long-term time horizon of the contract
• the bundling of several project phases in the same contract: for example a construction phase and an operations/maintenance.
• demand uncertainty and the allocation of risk for potential losses which is typically shifted to the private partner, represented by a dedicated company called a Special Purpose Vehicle (SPV), created to manage the initiative and other aspects.

(b) Discuss the principles guiding the use of the Public Private Partnership.
The guiding principles of PPP initiatives include the following:

Value for money
PPPs should give greater value for money than the best realistic public sector project designed to achieve similar service outputs.
Achieving value for money is a key requirement of government at all stages of a project’s development and procurement and is a combination of the service outcome to be delivered by the private sector, together with the degree of risk transfer and financial implications for government. Value for money is the driver for adopting the PPP approach, rather than capital scarcity or the balance sheet treatment.

Risk allocation
An efficient risk allocation is vital in determining whether value for money can be achieved in PPP projects. Government’s principle with regards to risk allocation shall be used to optimise, rather than maximise, the transfer of project risks to the private party.
Risks will therefore be allocated to the party best able to control and manage them in such a manner that value for money is maximised. The allocation of risk will therefore determine the chosen method of private sector involvement and allocation of responsibilities, which shall take into account the protection of the public interest.

Ability to pay
End user ability to pay shall be a key consideration for all PPP projects. The PPP option must demonstrate long-term affordability to the public and overall Government budgetary sustainability, forward commitments in relation to public expenditure and the potential for returns on private sector investment, given other priorities and commitments. Contracting entities shall consider end-user affordability as one of the key considerations in making decisions related to the feasibility of PPP Projects.

Local content and technology transfer
PPP projects shall be structured to encourage the maximum use of local content and technology transfer. As much as possible, the PPP arrangement shall facilitate the promotion of local industries and the private sector in Ghana.
In structuring PPP projects Contracting Entities shall comply with prevailing Government policies on local content. The PPP procurement process may be structured to require the private sector partner to:

• submit a Local Content Plan to the Contracting Entity in response to any Request for Proposals;
• show a programme to build or transfer skill and technology overtime to the local private sector in course of the Project;
• show the arrangement for the transfer of skills and technology to the relevant public entities at the end of the expected life cycle of the Project;
• show how the project may promote local industries and the private sector in Ghana and the objectives of improving the local context of PPP projects.

(c) What are the challenges to the use of PPP in Ghana?
The use of PPP as a vehicle for providing public services and infrastructure faces some challenges in Ghana.

Lack of comprehensive regulatory framework
PPP requires adequate regulatory framework to work effectively. However, in Ghana, there is only a PPP policy document that guides the conduct of PPP. The legal framework is lacking. A draft PPP Bill was drafted since 2013 and it is yet to be passed by parliament.

Inadequate knowledge of PPP and poor negotiating skills
PPP requires both parties to be well informed about the subject matter of the contract so as to negotiate constructively. Unfortunately, the contracting entities most often lack technical competence in PPP arrangements and are therefore not able to negotiate effectively to achieve value for money. The private operators sometimes take advantage of the weaknesses of the contracting entity and exploit them.

Shirking responsibility of government
Generally, governments are fundamentally responsible for the provision of public services and infrastructure and increasing use of PPP is making governments irresponsible with the public monies saved from private sector intervention.

Lack of financial capacity of private sector
In Ghana, the private sector lacks the muscle to finance certain PPP projects and therefore makes it difficult for government to explore the option of PPP fully. Private sector organisations depend on commercial banks. Sometimes funding for projects becomes difficult because of delays in raising debt in commercial banks in Ghana. Sources of funds are the biggest difficulty in the success of projects by PPP. For example, the government wishes to use PPP to undertake major road infrastructure in the country but local contractors lack the financial capacity to execute such projects.

Vehicle for corruption
It is not uncommon to find contracting entities exploiting the PPP public monies to private pockets through special purpose vehicles to the purpose of the country in the name of PPP.