Helmke Sartorius von Bach | Jul 1, 2020 | 0
Long-term investment needs PPPs
The Harambee Prosperity Plan is built around five priority areas, namely effective governance, economic advancement, social progression, infrastructure development, and international relations and cooperation – all essential for the prosperity of this nation.
The government has taken a progressive step with the establishment of a Public Private Partnership (PPP) unit housed in the Ministry of Finance; whose mandate is to create awareness of PPPs, coordinate PPP capacity building; assist government agencies to prepare and submit PPP projects to market to demonstrate workability; assist in developing a favourable environment for PPP projects; perform project assessments; and function as the Secretariat to the PPP Committee.
Public Private Partnerships are commonly defined as a contract between a government institution and a private party with the aim of achieving value that could not have been achieved without collaboration, in this instance, infrastructure development to spur economic development. This type of infrastructure is usually capital intensive with a tangible asset to operate and maintain, with the generation of cash over the long term.
Several contractual approaches have been identified by the World Economic Forum, namely: partnerships, where both the public and private parties share in the risks and benefits of a project; concessions, where the government gives a third party the right to use or develop an asset for a specific purpose and period with all risks and benefits transferred to the party during the concessionary period; licences, where the government gives a third party the right to own or utilize a country’s resources; and lastly privatization, where assets and/or operations are transferred from the public sector to private ownership.
A rarely used approach in Namibia is the concessionary approach, with the build-operate-transfer (BOT) arrangement considered the most frequent form of PPP worldwide. Variants to this arrangement are build-transfer-operate (BTO), design-build-finance-operate (DBFO), build-own-operate (BOO), design-build-operate-maintain (DBOM), and several others.
Typically under concessions, a private sector party, known as a concession holder, invests, builds, and operates an infrastructure project for a specific period, keeping control and cash flow rights until the concession period ends, after which the asset is transferred to the government. Such concessions have frequently been used to finance major infrastructure projects such as highways, tunnels, airports, ports, bridges, canals, railway transport systems, power generation, transmission infrastructure, water supply infrastructure and telecommunications infrastructure.
However, in order to attract private investors, there has to be a business case showing that the concession holder will re-coup its investment cost from the firm’s profits during the concession period, while mitigating the risk of a decrease in consumer surplus due to inflated pricing strategies by concessionary holders which might leave consumers worse off.
In Namibia, an example is the construction of the Ujams waste water treatment plant that wa commissioned in 2014 using the DBOM model for a 21-year concession period.