Private Public Partnerships embraced by government and business
By John Davie, Chairman of Altra Capital and Visiting Professor and course leader for the Advanced Diploma in PPP at Guildhall Faculty of Business and Law, London Met University.
Public Private Partnerships were at the heart of the United Kingdom government’s revival of Great Britain’s public services. I was therefore delighted to share some of our global experience in PPP with some very capable people in Namibia at the end of last month. I am very happy that Namibia is considering its Public Private Partnership (PPP) agenda and the British government is supporting this. I enjoyed working with the PPP Unit, the Ministry of Finance, the Office of the Attorney General and several other organisations. This is the second PPP workshop this year that the British government has sponsored in cooperation with the Ministry of Finance. Right from the first morning delegates engaged in a some vigorous and well considered dialogue. Having worked with over 70 countries this impressed me, and I am not easily impressed!
But PPP is only one element of a broader economic policy and thorough assessment of the pros and cons of alternative procurement routes should always be at the start of any project. We discussed important aspects such as Value for Money (VfM) analysis, and why it should be used to compare PPP projects with traditional public sector procurement and financing. Another key point is that PPP should not be decided upon by government before careful analysis or that a business case will defend that decision. The project must stack up in all aspects and be deliverable no matter the form of financing.
Are the benefits of private finance worth the premium apparently paid compared to government’s borrowing cost? It rests on an important assumption: that government can sustainably fund projects from borrowing more cheaply than the private sector. Is this true? Most government do not know the real long term costs of what they provide. Where proper data are available PPP compares very favourably. And when properly structured they do.
PPPs have successfully delivered improved energy, water and sanitation, transport, education, healthcare and many more sectors. They mobilise private sector capital and expertise that would otherwise be far beyond the reach of governments, municipal and local authorities. For Namibia, PPP is a significant element in the government’s broader plan for infrastructure, services, local employment and business growth. Procurement decisions should be based on facts. PPP works best in essential public services; to services that directly improve people’s lives. Building new government offices, for example, often consume resources rather than provide better public services.
In the last two decades the use of PPP has transformed the delivery of public services and infrastructure around the world. Crucially, in PPP contracting authorities are not dealing with private sector parties that have money; rather, they are dealing with private sector parties that have the capacity to raise and to mobilise money. That means Namibia must become very attractive to outside funds. They come from capital markets – pension funds and insurance companies.
As a result of PPP successes, Namibia is in competition with around 120 countries for the same skills and funding: all these countries are looking at doing PPP are in competition for a limited international pool of advisors, capital and operators.
The government must enable conditions to attract investment and ensure long-term commitment to PPP among all stakeholder groups. Among these are political and economic stability, a competent PPP Task Force (which Namibia is developing), understanding the real costs of public sector activity, understanding which risks should be transferred, ability to produce output-based specifications, ability to negotiate and handle private sector companies in a sophisticated and thoughtful way and appropriate primary legislation. We looked at all of these.
Namibia’s PPP legislation is a work in progress. Testing Namibia’s legislation and institutional arrangements against other African jurisdictions would greatly strengthen and improve outcomes. A cardinal principle behind the PPP is that it is intended to transform government departments from being owners and operators of assets into purchasers of services from the private sector.
Being a smaller economy it is imperative that Namibia becomes very attractive if resources are to find the country appealing. Namibia is competing with places such as Vietnam, Canada, Peru, Belgium as well as with its immediate neighbours.
Above all PPP is outward looking. The PPP legislation must also be outward looking, which may be distinct from most domestic legislation.
PPP is no magic bullet for the public sector. As Robert Bain said when at S&P, “PPPs perform very well, but . . . there is a whole series of cards that need to be stacked up to get the full benefit”.
