What threatens public-private partnerships?

The aim in the engagement of public-private partnerships (PPPs) is to advance efficiencies from the private sector that improve the quality of service to the general public. Regardless of the reimbursements outlined, the benefits often prove to be very elusive.

PURCHASING & SUPPLY: Nyasha Chizu

They end up being white elephants and pork belly projects that are further characterised by lack of transparency in the public works contracts coupled by sub-standard maintenance
They end up being white elephants and pork belly projects that are further characterised by lack of transparency in the public works contracts coupled by sub-standard maintenance

Persistent negotiations, faulty fiscal accounting and poor governance are the major threats of PPPs. In most cases, governments chose the adoption of PPPs instead of conventional provisions without putting to mind critical issues such as how the PPPs would be implemented, including the appropriate governance structures.

The trend in most African countries is that PPPs are always renegotiated once there is a slight change of administration due to poor governance structures. That practice brings uncertainty to the investors, resulting in Africa lagging behind on infrastructure and technology. This includes the lack of capacity to collect revenue by the use of manual systems that make compliance very difficult and in the process corruption takes root.

PPPs are the middle of the road between public provision and privatisation. Until recently, facilities of infrastructure such as highways, bridges, hospitals, schools and airports in developing countries and prison systems in developed countries are migrating from funding by the governments through taxation and being managed by public agencies. The public and private sector are entering into long-term contracts in a PPP bundle that involves designing, financing, operating and maintenance of public projects. The private sector partner receives streams of revenue from the operation of the project as the return on investment. At the end of the contract, assets return to the government in a state that will enable them to operate and receive revenues before major maintenance is required.

A State such as ours that is struggling with service delivery and budget deficits should benefit from the solution of engaging costless means of releasing resources from infrastructure investments that can be deployed to other needy programmes. The deficiencies of fiscal accounting provide the main incentive for PPPs because they do not affect the budget deficit or count or public debt. The bonus is the means by which they harness the deficiencies of quality and costs containment that most public projects fail to achieve.

Most government projects fail to achieve the desired results because of lack of proper due diligence that exposes flaws in public provisions. They end up being white elephants and pork belly projects that are further characterised by lack of transparency in the public works contracts, coupled by sub-standard maintenance.

The lack of a clear PPPs law and regulations cloud the process of engaging effective partners for meaningful projects. In many cases, especially in Africa, politics take precedence ahead of economics to the detriment of the implementation of projects that present a meaningful business case. There is, therefore, an urgent need for proper procurement procedures for engaging PPPs given that the process is far different from conventional procurement that can be concluded by way of a tender process. PPPs from different providers would present different risks and returns, prompting the setting aside of tendering in preference to transparent negotiations.

It is important to observe that PPPs can be solicited by the government or can be offered to the government unsolicited. Most developing economies lack proper guidance on the handling of the two scenarios. In the case of solicited PPPs, it is important to observe the public principles of integrity, transparency and fair treatment of providers. This is achieved by means of advertising the opportunities and requesting for expressions of interest.

After evaluating the expressions of interest, the next issue is to decide whether to seek proposal from the only best proposal or to shortlist between a number between three and six.

Proposals are then evaluated and structured negotiations are entered into for either the best offer or shortlisting route. The award of PPPs is mainly based on acceptable technical solution that offers the State the lowest tariff or the largest payment. Given the benefits associated with PPPs and the dark cloud hovering the understanding of how the value for money in a PPP is determined, there is need to invest heavily in capacity building.


Nyasha Chizu is a fellow of the Chartered Institute of Procurement and Supply writing in his personal capacity. Feedback: nya.chizu@gmail.com Skype: nyasha.chizu

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