By Joseph K. OFORI-KURAGU (Dr)
The Ministry of Finance defines Public-Private Partnerships (PPPs) as a contractual arrangement between a public entity and a private sector party, with a clear agreement on shared objectives for the provision of public infrastructure and services traditionally provided by the public sector.
In PPP projects, the private sector party performs part or all of a government‘s service delivery functions and assumes the associated risks for a significant period.
In return, the private sector party receives a benefit / financial remuneration (according to predefined performance criteria), which may be derived entirely from service tariffs or user charges; entirely from Government budgets, which may be fixed or partially fixed, periodic payments (annuities) and contingent; or a combination of these options.
The Government of Ghana has well-developed structures for implementing PPP projects. The Ministry of Finance which has overall responsibility for PPP projects works through its divisions and agencies such as the Public Investment Division (PID), the Project and Financial Analysis Unit (PFA), the PPP Advisory Unit (PAU), the Debt Management Division (DMD), the Budget Division and the Legal Division.
Despite these well-developed structures, few potential PPP projects have taken off in Ghana in recent times. Of the 14 PPP projects identified in the 2021 Annual Report on Public-Private Partnerships, none of them had gone on to reach financial close by March 2023, and only one had received funding as of July 2024.
If the full potential of PPPs can be realised in Ghana, fundamental changes in the structures and processes for the identification, development, and implementation of PPPs need to be made.
With an annual deficit of between $1.5 and $2.3b in infrastructure financing as of 2024, the PPP policy has been identified as critical to addressing the infrastructure deficit.
PPP Arrangements in Ghana
Some of the main examples of PPP types used in Ghana, as identified by the PPP Act, 2020 (Act 1039) include: Build, Operate, and Transfer (BOT), Build, Own, Operate (BOO), Build, Own, Operate, and Transfer (BOOT), Build, Transfer, and Operate (BTO) and, Design, Build, Finance, Operate and Maintain (DBFOM).
The rest include Develop, Operate, and Transfer (DOT), Operation and Maintenance (O&M), Rehabilitation, Operation and Transfer (ROT), and Concessions. In the Build-Operate and Transfer (BOT) type, the private entity finances and builds the facility, operates it for an agreed period, after which ownership reverts to the public.
This is useful when the government needs a service or infrastructure that is ideally managed by the government, but the government has no funds to procure. It must be stressed that during the period when the private entity operates the facility, it does not own it.
In the Build, Own, Operate (BOO) type, the private entity finances and builds the facility. The facility is owned and operated by a private entity for an indefinite period. This is once again applicable to instances when the government has no funds to provide the service, or the infrastructure required.
In this case, there should be safeguards in place to ensure the private sector provides a good service and does not make excessive profits.
Build, Own, Operate and Transfer (BOOT) is like the BOO option. Key reasons for whether the facility reverts to public ownership after an agreed period might be how expensive the facility is to maintain, the risks associated with running the facility, or how critical the service is to the public.
In cases where the service offered or the infrastructure is critical to the public, it will be prudent for the facility to revert to government control. Build, Transfer, and Operate (BTO) is another variant in which the private party finances the development of the facility, after which ownership of the facility is transferred to the public entity or government.
The private entity can recoup any investments by running the facility. The period during which the facility is operated by the private entity, if applicable, should be specified.
The other PPP types identified by the PPP Act have slight variations in the roles of the private entity. For example, in the Design, Build, Finance, Operate and Maintain (DBFOM) option, the private party has additional responsibilities for the design with additional responsibilities for maintaining the facility.
In the Develop, Operate, and Transfer (DOT) option, just like BOT, the private entity develops a facility or service, operates it for an agreed period, and transfers ownership back to the government or government agency.
Whilst the BOT type will include some construction, the DOT variant could be the development of a service, so unlike the others discussed so far, it may not be reserved for contractors only.
Both the Operation and Maintenance (O&M) and Rehabilitation, Operation and Transfer (ROT) relate to infrastructure, but in both, the contractor does not develop the infrastructure. O&M involves the operation and maintenance of an existing facility. This might be an opportunity for the government to get critical investment into existing facilities.
This might be suitable for critical national infrastructure like the Electricity Company of Ghana, which, under an appropriate contract, could see the much-needed private investments come in, with the relevant management support.
In the other variant, Rehabilitate, Operate and Transfer, ROT, there will be the expectation that the private sector will rehabilitate an existing infrastructure and bring it to a satisfactory level, operate it for a period, and then transfer it back into public ownership. This is suitable for dilapidated and sometimes abandoned public infrastructure.
Finally, Concessions are probably the most popular form of PPPS. They are like BOT, and these two are sometimes used synonymously.
They both involve “Operating” and “Transferring” a facility; however, BOT involves an element of “Building” or construction, and, like most of these types we have seen, will involve a construction contractor.
However, Concessions may involve schemes that may not be purely construction or little construction. Concessions may be used for IT projects, for example.
The way forward
A consortium of some of the leading financial institutions, comprising the World Bank, the Asian Development Bank, the Inter-American Development Bank, the Islamic Development Bank, and the European Bank for Reconstruction and Development identified the design, build, finance, operate and maintain (DBFOM) contract as the most typical contract form of a private finance PPP.
In a DBFOM contract, the contractor will develop the infrastructure with its own funds and funds raised from lenders at its risk (that is, it will provide all or the majority of the financing).
The contractor is also responsible for managing the infrastructure life cycle (assuming life-cycle cost risks) in addition to current maintenance and operations.
To carry out these tasks, the contractor (a private partner in the PPP context) will usually create an SPV (Special Purpose Vehicle). This will be the way forward in Ghana’s quest, but to achieve this, we must make schemes a lot more attractive to investors.
Conclusion
To give ourselves the best chance to have more successful PPPs, we need to break the concessions-BOT mould and creatively explore the other available types using innovative partnership approaches.
We must realise that we are where we are with PPPs after so many years and that the current framework, policies, and structures have only brought us so far.
To be able to make progress, we need a radical shift from the norm and to try innovative ideas, the only condition is to insist on private finance. For example, most PPP concessions will be for 20 to 30 years.
Given the low value of the cedi compared to other international currencies, high inflationary trends, and generally low fees paid for services in Ghana, should we not be giving investors longer to recoup their investments?
How about extending concessions to 40 years and beyond? That way, investors in DBFOM-type schemes will be guaranteed ample time to recoup any investments made in infrastructure development.
The Author is a PPP expert based at Anglia Ruskin University, UK.
He is a Director at Innovation UK and can be reached via email: [email protected]
