Rationale for using public–private partnerships
Public–private partnerships are becoming increasingly popular, given the expected and associated benefits of such partnerships.
They have the potential to provide access to additional sources of funding and financing by leveraging existing resources with those of the private sector and improving the quality of public services. Through these partnerships, Governments could attract and access specialized skills, technologies and innovation from the private sector, leading to greater operational efficiency, hence better quality public services. Public–private partnerships may thus be attractive instruments for developing countries seeking to improve the quality and competitiveness of their services base. This is particularly true for infrastructure services, such as telecommunications, where competitiveness depends on a high level of expertise and cutting-edge technology (UNCTAD, 2015c).
However, efficiency gains need to offset the higher financing costs of public–
private partnerships so as to generate additionality of resources. Financing costs
of such partnerships tend to be higher, given that private partners generally face higher financing costs than the public sector. The Trade and Development Report, 2015 (UNCTAD, 2015b) thus cautions the expectation of public–private partnerships leading to the allocation of additional resources to the public sector.
The Report states that on a global scale, the results in terms of additionality are at best ambiguous, as the results in terms of improved efficiency are mixed.
In the African context, however, public–private partnerships have led to an extension of new infrastructure services, which suggests additionality. Moreover, it could be argued that both private partners and Governments have shown a continued and increasing interest in public–private partnerships.32 This may be representative of many African countries struggling to secure financing for infrastructure projects. When Governments are credit constrained so that they cannot borrow, public–private partnerships are a potential financing modality.
Other associated benefits are related to training and professional development, research and development and knowledge sharing. Public–private partnerships are a means of developing local private sector capabilities through joint ventures with large international firms, as well as subcontracting opportunities for local firms in areas such as civil and electrical works; facilities management; and security, cleaning and maintenance services (UNCTAD, 2015d).
Public–private partnerships may offer an alternative to lending on the capital market or privatization. Compared with privatization, the Government does not need to relinquish control of a public service, as it circumvents complete privatization (Qizilbash, 2011). Moreover, such partnerships allow sharing the risk of a project between the public and private sectors. When risks are allocated adequately, depending on the management of risk capabilities, the overall project cost for the Government can be reduced. Typically, the private sector would bear construction and environmental risks, while the public sector assumes regulatory and foreign exchange risks; commercial and financial risks are shared. Perhaps what most distinguishes public–private partnerships from other development finance vehicles is their flexibility. These instruments can be tailored to meet the specific needs of a contractual relationship between the public and private sectors.
Regional push for public–private partnerships
At the regional level, public–private partnerships are being used to finance large transnational projects in the telecommunications, transport, water and energy sectors in a significant number of African countries. There are several initiatives
and programmes at the pan-African level that focus on public–private partnerships.
Under the New Partnership for Africa’s Development, public–private partnerships are considered a promising vehicle to attract private investors critical for Africa’s infrastructure development (African Union, 2001).
The Programme for Infrastructure Development in Africa also recognizes the value of such partnerships. According to the Programme, many countries are unable to fully harness private sector interest in infrastructure projects for lack of enabling regulations, local skills and an adequate understanding of the risk allocation of public–private partnerships. Furthermore, this may be curbing the potential for such partnerships in Africa’s transformation (African Union et al., 2010).
Regional economic communities33 are making efforts to improve on this situation by addressing public–private partnerships through modal regulation and/
or instruments. An example of this is the Economic Community of West African States Energy Protocol, which seeks to promote the development of various energy programmes by harnessing private sector energy investments. The Protocol has also served as a basis for the agreement establishing the West African Power Pool, which includes 14 Member States of the Community and sets the framework for the engagement and association of public and private power entities comprising the Pool.
Yet another example of emerging regional policies and regulations that cater for such partnerships is the Southern African Development Community regional framework for public–private partnerships. This framework prioritizes infrastructure development in the 15 members of the Community and provides a set of principles and guidelines based on experiences in public–private partnerships to support institutions in the region that are involved in the development and management of such partnerships. Along the same lines, the Common Market for Eastern and Southern Africa (COMESA) in late 2013 issued the Monitoring and Evaluation Policy Framework for its 20 Member States, in an effort to harmonize public–private partnership structures in the region.
Another interesting initiative can be found in the East African Community: a legislative and institutional framework for public–private partnerships in the infrastructure sector. Launched in 2012, the public–private partnership Project Advisory Unit Network aims to assist the Community in building capacity in Member States to be better able to harness public–private partnerships in infrastructure services. From a policy perspective, these efforts are viewed as conducive to the
development of a regional policy on public–private partnerships that will need to look at regulation, standards and policy harmonization across the Community (World Bank, 2014).
In addition, public–private partnerships are implicitly addressed in a number of regional investment protocols, such as those of COMESA, the East African Community, the Economic Community of West African States and the Southern African Development Community. For example, the Investment Agreement for the COMESA Common Investment Area establishes the COMESA Common Investment Area, with a view to promoting COMESA as an attractive investment area, among other objectives (article 2). As such the agreement defines investment (article 1.9) as “assets admitted or admissible in accordance with the relevant laws and regulations of the COMESA Member State in whose territory the investment is made” and further provides a positive list of what is considered to be investment.
This list includes, among others: “business concessions conferred by law or under contract, including build, operate, own/transfer, rehabilitate, expand, restructure and/or improve infrastructure; and concessions to search for, cultivate, extract or exploit natural resources.” These are traditional forms of public–private partnerships.
The same applies to rules of investment in the Economic Community of West African States. A supplementary act adopting community rules on investment and the modalities for its implementation within the Community contains an investment definition which includes “contractual rights, such as under turnkey, construction or management contracts, production or revenue-sharing contracts, concessions or other similar contracts”.34 Equally so, the Southern African Development Community Protocol on Finance and Investment defines investment as “rights conferred by law or under contract, including licences to search for, cultivate, extract or exploit natural resources”.35
Public–private partnerships are also being covered through existing investment regulations in the regional economic communities, although the implications of this are too early to be assessed. Potentially, a public–private partnership contract covered by any of these existing agreements made by an investor of one of the Member States could have recourse to the existing dispute-settlement mechanism provided for in these various investment protocols. This in itself could lead to litigation dealt in domestic and regional courts, which in turn may have implications on the institutional capacity to better understand the regulation and contract clauses of public–private partnerships.