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budgets.”
There is an enormous demand for infrastructure across the African continent, but many countries are struggling with their
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budgets.”
continent, but many countries are struggling with their budgets. That is why PPPs are important.” Rwelamila cites, among others, the N4 toll road connecting South Africa and Mozambique. The road has been financed, built and managed by a private consortium, Trans African Concessions in exchange for a 30-year concession and for debt guarantees by the governments.
This is only one of the many ways in which public-private partnerships can be structured. And though PPPs can be deployed as a source of financing, they are an even more important efficiency tool, bringing the discipline and ability to innovate that is typical of the private sector to public-sector investments.“ In India the Government, especially, at the state level, is beginning to see that money needs to be spent on building an infrastructure project and that the role of a PPP is to do this in a more efficient and less costly manner,” says Manish Agarwal, leader for capital projects and infrastructure at PwC India. In the southern state of Karnataka, the Government is experimenting with a hybrid annuity model for roads, whereby it provides the private partner with partial funding of the construction cost and then pays it an annuity to cover the rest and to manage the infrastructure over time, without transferring toll revenue risk.
PPPs are central to the European Fund for Strategic Investments, an effort by the European Commission to leverage € 21 billion( US $ 24 billion) of public money and guarantees into investments of € 315 billion. In the US, President Barack Obama recently introduced the Build America Investment Initiative to get the private sector more involved with infrastructure. Countries like Australia, the Philippines, South Africa, the United Kingdom, Canada and Colombia, are all leading the way in their region. Colombia, for example, is undertaking a US $ 25 billion roads development programme and has set up a new PPP law,
There is an enormous demand for infrastructure across the African continent, but many countries are struggling with their
- P. D Rwelamila, University of South Africa
Australia, in particular, can count on clear guidelines and broad acceptance of infrastructure PPPs by the community.“ The early focus was on motorway projects that could self-fund,” says Brendan Lyon, Chief Executive of Infrastructure Partnerships Australia.“ As the market became increasingly sophisticated, we saw the PPP model consortium being stretched further. For the new Ravenhall Prison in Victoria, the winning PPP consortium must not only provide the physical infrastructure but also bring the reoffending rate of prisoners 12 % below the state average.”
International organisations are also increasing their investment in infrastructure developments. In 2014 the World Bank Group introduced a Global Infrastructure Facility to deepen the collaboration among the various actors working on complex infrastructure PPPs. The Asian Development Bank established an Office of Public-Private Partnerships( OPPP) to provide advisory services on PPPs and is developing the Asia Pacific Project Preparatory Fund to assist countries pursuing PPP projects.“ The biggest challenge we see is the implementation capacity of Government,” says Ryuichi Kaga, the head of OPPP.“ So we help them in setting up PPP policies and provide hands-on advice on structuring individual transactions.”
COMPLEX STRUCTURES
Infrastructure investment remains a complex endeavour and, in emerging markets, private participation has been declining. Today it represents only around 15 % of total finance. Among the hurdles, beyond finding the money, are:
●● selecting worthwhile projects;
●● predicting users’ demand, which is particularly difficult in the transport sector;
●● setting up a framework of risk sharing acceptable to public and private partners; and
38 VOL 66 APRIL- JUNE 2016