2017

Zienzi Dillon

Corporate & Government Partnering

(PPPs and other formats) for Societal Impact

#tks17

Introduction

• Africa economic growth drivers

- Regional integration – roads, rail, bridges, ports, energy, water and

sanitation needed.

- Rapid urbanisation – cities to grow from 1500 to about 3000.

• Africa infrastructure investment gap is about $93bn every year – 50% is unfunded.

• Fiscal space is contracting – limited budget to finance to infrastructure projects.

• Africa risk profile is challenging – BUT still infrastructure must be developed.

• Innovating financing solutions needed – think outside the box – lets ask the Lord

God for the innovative solutions.

#tks17

What is a PPP?

• PPP is a mechanism for providing public infrastructure and services by Government through partnering with private sector

– How can two walk together unless they agree?

• Private sector will bring in technology, skills and finances –PPP normally executed through an SPV.

• PPP models include:

– Build-operate-transfer (BOT)

– Build-lease-transfer (BLT)

– Design-build-operate-transfer (DBFOT)

– Operate-maintain-transfer (OMT)

PPP Structure

Private Sector Participation

• There are legal, social, economic, political and administrative issues involving PPPs so as to attract private sector.

• Government needs to implement a series of economic, financial and legal reforms.

• Major responsibilities of government are in:

– Formulation of a PPP policy framework

– Creation of an enabling environment

– Establishment of an administrative mechanism

– Promotion of good governance

– Addressing the social and political concern of PPP projects

– Capacity-building of the public sector

Public Sector Participation

Government involvement may be through:

• Assets ownership.

• Equity participation.

• Subordinate debt financing.

• Risk sharing.

• Provision of various incentives including loan guarantees for sub-sovereign and non-sovereign borrowings.

• These types of involvements require the government to bear explicit direct and contingent liabilities.

Risk Sharing

Keys risks include:

• Construction risk (mainly delays in construction)

• Technology risk (arises when the technology is not a proven one)

• Sponsor risk (ability of the sponsor to deliver the project)

• Environmental risk

• Commercial risk (lower than expected demand for services produced by the project)

• Operating risk (inefficiency in operation leading to higher operating cost)

• Legal risk (change in law)

• Regulatory risk (change in regulatory regimes)

• Political risk (change in government policy)

• Force majeure (risks due to unpredictable natural and man-made events such as earth quake, flood, civil war, etc.)

PPP Models

Build Operate and Transfer (BOT):

– Private partner is responsible to design, build, operate

– Transfer back the facility to the public sector

Roles:

- Private Sector – finance, construct and maintain

- Public sector - collect revenue from the users

Build-Own-Operate (BOO): ownership of the newly built facility will rest with the private party here.

Build-Own-Operate-Transfer (BOOT):

the infrastructure asset is transferred to the government or to the private operator after the agreed period – ideal for highways and ports.

PPP Models

Build-Operate-Lease-Transfer (BOLT):

government gives a concession to a private entity to build a facility (and possibly design it as well),

own the facility, lease the facility to the public sector and then at the end of the lease period transfer the ownership of the facility to the government

Lease-Develop-Operate (LDO):

government or the public sector entity retains ownership of the newly created infrastructure facility

and receives payments in terms of a lease agreement with the private promoter.

This approach is mostly followed in the development of airport facilities.

PPP Models

Rehabilitate-Operate-Transfer (ROT):

Under this approach, the

governments/local bodies allow

private promoters to rehabilitate

and operate a facility during a

concession period.

After the concession period, the

project is transferred back to

governments/local bodies

DBFO (Design, Build, Finance and

Operate):

In this model, the private party

assumes the entire responsibility for

the design, construction, finance,

and operate the project for the

period of concession

Management Contract:

Here, the private promoter has the responsibility for a full range of investment, operation and maintenance functions.

has the authority to make daily management decisions under a profit-sharing or fixed-fee arrangement

Service Contract:

This approach is less focused than the management contract.

In this approach, the private promoter performs a particular operational or maintenance function for a fee over a specified period of time.

Let’s Do It!

Like Nehemiah - we have to rise up and

build the Economic Walls of Africa!

With God nothing is impossible!

2017

Zienzi Dillon

Corporate & Government Partnering

(PPPs and other formats) for Societal Impact