By Chongo Sombo Mulenga (MCIArb)

Although PPPs are a phenomenon originating from developed countries, they have steadily gained momentum in developing countries due to the alluring associated benefits and budgetary limitations within the public sector. In as much as PPPs have been recognised as a mechanism for providing a “win-win” outcome for both the public and private sector, it is pertinent to interrogate the success factors and challenges faced in the procurement and implementation of PPPs in developing countries.

PPP awareness and knowledge

Benjamin Franklin believed that “investment in knowledge pays the best interest” and this stands true for PPPs. Inadequate awareness and knowledge on PPPs oppose the successful procurement and implementation of PPPs owing to the unique characteristics of PPPs. There is certainly need for in-depth understanding of PPPs in both the public and private sectors so as to ensure that both partners are equipped with operational knowledge that will contribute to the procurement of well – designed projects and, in turn, attract adequate financing to facilitate successful implementation of PPP projects.

Increased awareness and capacity building will not only improve the identification and conceptualization of PPP projects but will also ensure that both partners possess the requisite skills to efficiently manage the procurement, negotiation and implementation of PPPs. In a bid to fill the knowledge gap, reliance is often placed upon the invaluable, yet costly, services of transaction advisors and sector experts. Nonetheless, a comprehensive understanding of the core principles of PPPs and key components of the PPP process by project stakeholders is integral to the success of PPPs in developing countries.

Financial Resource Allocation for Feasibility Studies

Another obstacle to the efficacious procurement and implementation of PPPs pertains to the lack or inadequacy of financial resources allocated to PPPs due to adverse economic conditions prevailing in developing countries which usually require the government to channel funds towards more crucial public needs. The procurement of PPPs requires public finances for the undertaking of feasibility studies. A feasibility study identifies, describes and assesses the technical, financial, economic, legal, social and environmental aspects of a potential project. It brings to the fore the risk factors relating to the project and, in addition to informing the decision to procure the project, the feasibility study also highlights negotiation parameters.

In order to comprehensively and efficiently assess the viability of PPP projects, it is in the best interest of the public sector to undertake feasibility studies which can be costly. Therefore, in the absence of budgetary allocations for feasibility studies, it can be quite challenging to accurately assess the viability of PPP projects and the consequences of inaccurate predictions are likely to manifest post – execution of the PPP agreement.

Bankability of PPP Projects

PPP projects are capital intensive and the bankability of these projects plays a critical role in attracting private sector investment. In some instances, the public sector may be keenly interested in, or in dire need of, particular infrastructure or social services but the project variables reveal that the private party will not be able to profitably recoup its investment solely through user fees. Consequently, the public sector may be required to lend a financial hand to the private party in order to make the project viable and attract private investment.

Viability gap funding is a term used to refer to financial support from the public sector that is provided to the private party under a PPP agreement in order to enhance the financial viability and bankability of the project. Financial support from the public sector promotes inclusive development through PPPs by ensuring that disadvantaged geographical regions and economic sectors are not left out. However, in many developing countries, the government may not have the financial capacity to offer viability gap funding to the private party in light of more pressing financial needs within the country.

Partnership Perspective in PPP Negotiations

A specialised approach towards negotiation of PPP agreements is also of great importance. It is my belief that the word “partnership” was purposefully infused in the formulation of the term “Public – Private Partnership” so as to ensure that the public and private sectors view one another as partners. The partnership perspective not only facilitates successful negotiation of PPP agreements but also contributes to effective conflict resolution during the implementation of the project.

While both parties enter into PPP agreements with different objectives, the fulfilment of those objectives is dependent upon the overall success of the project. Therefore, it is important for the public and private sectors to approach negotiations with this in mind as well designed and negotiated agreements contribute to the success of the project and limit the execution of multiple addendums to the PPP agreement or termination thereof.

Conclusion

In conclusion, while there are other obstacles to PPPs in the developing world, I am of the view that insufficient awareness on PPPs, limited financial resources and inapt negotiation strategies pose serious challenges to the efficient procurement and successful implementation of PPPs. Arguably, limited financial resources are the most challenging hurdle for struggling economies to overcome. In the absence of the proverbial “pot of gold”, financial limitations may be remedied by coming up with innovative investment incentives such tax exemptions, among others.

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