Public Private Partnerships (PPP) have emerged as a strong platform to enable infrastructure development across the world. It was developed to fund social infrastructure in Western Europe in the 1990s and since then has continued to branch out both in terms of location and sector focus. In context, PPP allows for infrastructure development and the associated economic benefits in circumstances where public funding constraints exist. So, what is behind the success of PPP and what is the potential for its future use in Africa?
PPP structures can be used to fund the development and operation of new infrastructure over a long-term period. Rather than funding a project up-front, it allows a public body to arrange for the private sector to fund, construct and operate the new infrastructure. In return, the public authority makes committed payments to the private sector throughout the project term once services commence. It is perhaps one of the most acute displays of the transition to a service-centric global economy.
The label ‘PPP’ can be applied to a multitude of delivery structures. To structure a project most effectively, consideration must be given to what type of PPP should be used, before determining the most suitable risk allocation to reflect the priorities and preferences of the contracting parties. The selection of a structure depends on a number of variables, including (i) the level of involvement required from the private sector and (ii) required asset ownership during/after the project. Terms such as BOT, BOOT, DBFO, DBFOM, PFI and similar all represent a different combination of these variables.
Key infrastructure developments in Africa are now being increasingly procured using PPP, with recent examples that Eversheds has advised on including:
- Egypt – the design, financing, construction and operation of a secondary treatment stage for the Abu Rawash Wastewater Treatment Plant, and the operation and maintenance of the existing primary treatment facilities with a capacity of 1.2 million m3/day;
- Nigeria – the establishment of a US$30 million 100-bed referral hospital and primary gateway clinic in Calabar, to provide quality and efficient public health services in the area through a PPP; and
- Sierra Leone – an agricultural and renewable energy project that will produce 90,000 m3 of ethanol per year, being the first bio fuels project to be successfully project financed on the African continent.
One of the perennial issues for PPP in emerging nations is how a long-term project that requires certainty can be implemented in an environment which, by its very nature, is striving for and will achieve change. Careful analysis of these risks will determine what structure and risk allocation should be pursued. PPPs have historically been used in countries where infrastructure is already developed, where this tension has already been minimised. However, recent examples of PPP in Africa have shown that PPP can underpin and thrive in an evolving environment; this has paved the way for its use on a wide variety of projects across the continent. PPP is playing an integral part in the development of a number of economies within Africa; with its foundations now firmly established, it is gaining significant momentum which can only see its importance to the continent increase.