The fundamental principle behind the success of public private partnerships (PPPs) has been the availability of a clear legal framework to guide the implementation of such projects. When laws that are clear exist, the second matter to consider is the bait to attract the right investors for the right projects. This is mainly achieved through incentives offered to the investors for implementing PPPs. An interesting observation to note at this point is that PPPs are not the default method of providing infrastructure in the United States.
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As at 2014, only a paltry 20 PPP transportation projects were implemented in the US. A PPP is one that involves, to some extent, the designing of the project and includes the construction, operations, maintenance and financing of projects mainly through the private sector.
From the 18th to the 19th century, the private sector was significantly moving towards achieving profitability through linking by road interior agricultural markets to the ports. This brought about the notion of financing, construction and operations of toll roads that increased road infrastructure. Despite this development, in the US, PPPs are more of exceptions in favour of the traditional practice of financing infrastructure through the national budget. This might be influenced by robust tax systems capable of funding infrastructure activities.
The first pillar for effective implementation of PPPs was the availability of the law in the US. The US has federal states that adopt different approaches in the implementation of their projects. The 1998 Transportation Equity Act for the Twenty First Century and the 2005 Safe Accountable Flexible Efficient Transportation Equity Act: A Legacy for Users provides legal framework for the individual federal states to implement PPPs. The decision to implement projects through PPPs is, therefore, left to each federal state. The federal government, through the 1998 Transport and Infrastructure Finance and Innovation Act allows federal states to leverage private investment for major transport projects. Availability of seamless laws is, therefore, critical to effectively implement PPPs.
The legislative approach to PPPs is, therefore, not a strait jacket in the federal states. Nevada is the only state that accepts unsolicited projects for implementation. The pioneer PPPs projects were mainly unsolicited and were awarded without any competition. As the opportunities increased, the US has achieved significant experience and has been awarding infrastructure projects after some form of competition. Six of the 20 projects were awarded without competition. Most of the projects awarded without competition were unsuccessful. This led to massive renegotiations to save the failing projects. The lesson here is that the major motivation for renegotiation is to save failing projects. There is, therefore, no argument of revisiting viable projects for the sake of just to renegotiate.
The US has used tax incentives to attract PPPs, but the tax bias in favour of traditional provisions led to the slow development of such a mechanism for infrastructure projects. The US has well-developed debt markets capable of financing public investments. The income from municipal bonds is exempt from federal tax and that although there are strict laws on general obligation debt, municipal bonds provide an alternative means that is not stringent. This has led to a new wave of PPPs that are quasi-private sector shadowing the traditional approach that only involves the private sector. It is, therefore, necessary to employ an attractive tax relief system to attract investment in PPPs by the private sector.
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The lessons are critical for Zimbabwe venturing into PPPs, particularly in the construction on modern road and rail networks. We can gain significantly from lesson learnt in the US in the implementation of their PPP projects.
Nyasha Chizu is a fellow of the Chartered Institute of Procurement and Supply writing in his personal capacity. Feedback: [email protected] Skype: nyasha.chizu
