Question

For the management of Covid-19 the Ministry of Health is currently considering Public –Private Partnership (PPP) to construct a treatment center for Covid-19 cases and general health delivery in the countryside. The Ministry wants to use PPP to construct and manage modern wards at the countryside that will attract clients from the big towns in the country. The private sector will provide funding whilst the government will secure lands from the chiefs of the various chosen communities.

The private sector will require the government to provide guarantee for the funds that they will borrow for the project. Currently some health services are provided free to all those registered with the National Health Insurance Scheme. However when the PPP project is completed patients will be required to pay user fees. The estimated average user fee will be ₵50 per week for the first financial year of operation and this will be reviewed upwards to have funds to manage the modern facilities.

To stimulate private sector interest in the project, the Ministry intends to protect the private sector against all risks and challenges associated with this project as much as possible. To ginger the local community up the Ministry would insist on the use of local materials and the employment of the youth from the area in the construction and management of the facilities. Training programs will be arranged for the youths. This project if completed is expected to open up the chosen rural areas and will be of immense benefit to all.

Required:

What are the principles and policies of Public –Private Partnership that the Ministry can use to determine the feasibility or otherwise of this project. Ascertain the risks and possible challenges that can befall this well conceived project and advice the Minister of Health of the possible PPP arrangements that can be used to achieve the objective of this project

Answer 1

The iCOVID-19 ipandemic iis iunlikely ito idisappear iin ithe iimmediate ifuture. iManaging ithe iepidemic iand iensuring ia ifull icomplement iof ihealth icare iwill irequire iextraordinary iresources iand iinvestment. iThis iunprecedented icrisis ihas ihighlighted ithe icritical ineed ito imobilize iavailable iresources iin ipublic isector, iand ithe iprivate isector iin iparticular.

However, ithe icurrent istrategies ito iinvolve ithe iprivate isector iin icombating ithe iinfectious idisease iare ishrouded iin iambiguity. iThere iare ino iclear ipolicy iguidelines ito iuse iprivate isector iresources ithat icould icomplement ipublic isector iefforts, iand ihow ithe ipayments ifor itheir iservices imade. iHaving ibeen idirected ito isuspend imost iof iits iservices iand ibe iready ito imanage iCOVID-19 icases i(none iforthcoming), ithe iprivate isector iis igasping ifor icash iflows. iCountries ithat ihave ihad ia ipolicy-based istrategic irelationship iwith ithe iprivate isector iseem ito ihave iperformed iwell iin icontrolling ithis ipandemic. iInstead iof i‘arm itwisting’ ithe iprivate isector, ithere iis ia ineed ito iformulate ia istable ipolicy-based istrategy ito iget ithe iprivate isector ion iboard.

Last imonth, ithe iWorld iBank ikicked ioff ia imarathon iof ibrainstorming isessions iwith inational iPPP iunits iand igovernment irepresentatives iacross ithe iglobe ito iget ia isense iof ihow iCOVID-19 i(the icoronavirus) iis iaffecting itheir iPPP iprograms. iWe iwanted ito iencourage ifrank iexchange iamong ipeers ithat iwill iinform iconversations ifor ia ivirtual iPPP iCommunity iForum ifor igovernments ithat iwe’ll ilaunch ithis imonth.

Our iintention iis ito iproactively isupport icountries ias ithey iput iin iplace icrisis imanagement iand irecovery istrategies ito iprevent, imitigate, iand ibackstop idistressed iPPP iprojects. iWhile iwe’re isurging ito iaddress iCOVID-19, ithis iis ipart iof iour iintegrated iapproach ito ihelp imobilize iprivate isector ifinancing iand iexpertise ifor iinfrastructure idevelopment iin igeneral—to iget imore iresources ito icountries ifor ithis ipurpose iaffordably, iin ia iway ithat iprovides ivalue ifor imoney.

We iknow ithat ihealthy icooperation iwith ithe iprivate isector iwill ibe imore iimportant ithan iever ias icountries iexit ithis icrisis ieven imore ifiscally iconstrained. iWe ialso iknow ifrom ipast icrises ithat imany igovernments iwill iuse iinfrastructure ispending ias ian ieconomic istimulus imeasure. iOur irole iis ivery iclear: iwe’re ihere ito ihelp icountries ioptimize iprivate isector iinfrastructure isolutions ithat iare isustainable iand iresilient ias iwell ias iinformed iby ibest ipractices, igood igovernance, itransparency, iand ifiscal isustainability. iWe ialso iwant ito ihelp ithem iensure ithat itheir iinfrastructure iinvestment—by iboth ipublic iand iprivate imeans—supports ilow-carbon ipathways iand istrengthens iresilience ito iclimate ichange iand iother ikinds iof ishocks, ilike ithe iCOVID-19 ipandemic.

The ireality iis ithat iwe ineed imore iresilient iPPP iand icontractual iframeworks igoing iforward. iPPPs, ias ia imeans ito ideliver iinfrastructure, iare iin iconstant ievolution, ias iis igovernments’ icapacity ito ieffectively iprocure iand iimplement ithem. iContinued ifocus ion ithe idevelopment iof iinfrastructure ias ian iasset iclass iwill ihelp imove ithis ialong.

But ito iborrow ifrom ibiology, iwe ialso iknow ithat ithere iare imoments iof irapid ievolution. iWe’re inow iexperiencing ithe icreation iof ia inew inormal iin imany iparts iof iour ilives: isome iof iit iwill ibe idifficult, isome ihopefully ibetter.

In ithe iwork ithat ioccupies ithe ireaders iof ithis iblog, ilet’s inot ishy iaway ifrom ithe ichallenge ito imake ieven imore iprogress itowards iachieving imore isustainable iand iresilient iinfrastructure iPPPs. iEspecially iin imoments ilike ithis, iwe iknow ithat iquality iinfrastructure idevelopment ihelps iprotect ilives, ilivelihoods, iand ithe ivery ifuture iof icountries.

The itime iis iripe ialso ibecause ieach ipassing iday ithe iworld ifinds iways ito iharness iinfrastructure itechnology i(InfraTech) ithrough ithe iintegration iof imaterial, imachine, iand idigital iinnovations iacross ithe iinfrastructure ilifecycle—and iindeed ifuture iPPPs.

Potential iBenefits iof iPublic iPrivate iPartnerships

The ifinancial icrisis iof i2008 ionwards ibrought iabout irenewed iinterest iin iPPP iin iboth ideveloped iand ideveloping icountries. iFacing iconstraints ion ipublic iresources iand ifiscal ispace, iwhile irecognizing ithe iimportance iof iinvestment iin iinfrastructure ito ihelp itheir ieconomies igrow, igovernments iare iincreasingly iturning ito ithe iprivate isector ias ian ialternative iadditional isource iof ifunding ito imeet ithe ifunding igap. iWhile irecent iattention ihas ibeen ifocused ion ifiscal irisk, igovernments ilook ito ithe iprivate isector ifor iother ireasons:

1. Exploring iPPPs ias ia iway iof iintroducing iprivate isector itechnology iand iinnovation iin iproviding ibetter ipublic iservices ithrough iimproved ioperational iefficiency

2. Incentivizing ithe iprivate isector ito ideliver iprojects ion itime iand iwithin ibudget

3. Imposing ibudgetary icertainty iby isetting ipresent iand ithe ifuture icosts iof iinfrastructre iprojects iover itime

4. Utilizing iPPPs ias ia iway iof ideveloping ilocal iprivate isector icapabilities ithrough ijoint iventures iwith ilarge iinternational ifirms, ias iwell ias isub-contracting iopportunities ifor ilocal ifirms iin iareas isuch ias icivil iworks, ielectrical iworks, ifacilities imanagement, isecurity iservices, icleaning iservices, imaintenance iservices

5. Using iPPPs ias ia iway iof igradually iexposing istate iowned ienterprises iand igovernment ito iincreasing ilevels iof iprivate isector iparticipation i(especially iforeign) iand istructuring iPPPs iin ia iway iso ias ito iensure itransfer iof iskills ileading ito inational ichampions ithat ican irun itheir iown ioperations iprofessionally iand ieventually iexport itheir icompetencies iby ibidding ifor iprojects/ ijoint iventures

6. Creating iversification iin ithe ieconomy iby imaking ithe icountry imore icompetitive iin iterms iof iits ifacilitating iinfrastructure ibase ias iwell ias igiving ia iboost ito iits ibusiness iand iindustry iassociated iwith iinfrastructure idevelopment i(such ias iconstruction, iequipment, isupport iservices)

7. Supplementing ilimited ipublic isector icapacities ito imeet ithe igrowing idemand ifor iinfrastructure idevelopment

8. Extracting ilong-term ivalue-for-money ithrough iappropriate irisk itransfer ito ithe iprivate isector iover ithe ilife iof ithe iproject i– ifrom idesign/ iconstruction ito ioperations/ imaintenance

Potential iRisks iof iPublic iPrivate iPartnerships

1. Development, ibidding iand iongoing icosts iin iPPP iprojects iare ilikely ito ibe igreater ithan ifor itraditional igovernment iprocurement iprocesses i- ithe igovernment ishould itherefore idetermine iwhether ithe igreater icosts iinvolved iare ijustified. iA inumber iof ithe iPPP iand iimplementation iunits iaround ithe iworld ihave ideveloped imethods ifor ianalysing ithese icosts iand ilooking iat iValue ifor iMoney.

2. There iis ia icost iattached ito idebt i– iWhile iprivate isector ican imake iit ieasier ito iget ifinance, ifinance iwill ionly ibe iavailable iwhere ithe ioperating icashflows iof ithe iproject icompany iare iexpected ito iprovide ia ireturn ion iinvestment i(i.e., ithe icost ihas ito ibe iborne ieither iby ithe icustomers ior ithe igovernment ithrough isubsidies, ietc.)

3. Some iprojects imay ibe ieasier ito ifinance ithan iothers i(if ithere iis iproven itechnology iinvolved iand/ ior ithe iextent iof ithe iprivate isectors iobligations iand iliability iis iclearly iidentifiable), isome iprojects iwill igenerate irevenue iin ilocal icurrency ionly i(eg iwater iprojects) iwhile iothers i(eg iports iand iairports) iwill iprovide icurrency iin idollar ior iother iinternational icurrency iand iso iconstraints iof ilocal ifinance imarkets imay ihave iless iimpact

4. Some iprojects imay ibe imore ipolitically ior isocially ichallenging ito iintroduce iand iimplement ithan iothers i- iparticularly iif ithere iis ian iexisting ipublic isector iworkforce ithat ifears ibeing itransferred ito ithe iprivate isector, iif isignificant itariff iincreases iare irequired ito imake ithe iproject iviable, iif ithere iare isignficant iland ior iresettlement iissues, ietc.

5. There iis ino iunlimited irisk ibearing i– iprivate ifirms i(and itheir ilenders) iwill ibe icautious iabout iaccepting imajor irisks ibeyond itheir icontrol, isuch ias iexchange irate irisks/risk iof iexisting iassets. iIf ithey ibear ithese irisks ithen itheir iprice ifor ithe iservice iwill ireflect ithis. iPrivate ifirms iwill ialso iwant ito iknow ithat ithe irules iof ithe igame iare ito ibe irespected iby igovernment ias iregards iundertakings ito iincrease itariffs/fair iregulation, ietc. iPrivate isector iwill ialso iexpect ia isignificant ilevel iof icontrol iover ioperations iif iit iis ito iaccept isignificant irisks

6. Private isector iwill ido iwhat iit iis ipaid ito ido iand ino imore ithan ithat i– itherefore iincentives iand iperformance irequirements ineed ito ibe iclearly iset iout iin ithe icontract. iFocus ishould ibe ion iperformance irequirements ithat iare iout-put ibased iand irelatively ieasy ito imonitor

7. Government iresponsibility icontinues i– icitizens iwill icontinue ito ihold igovernment iaccountable ifor iquality iof iutility iservices. iGovernment iwill ialso ineed ito iretain isufficient iexpertise, iwhether ithe iimplementing iagency iand/ ior ivia ia iregulatory ibody, ito ibe iable ito iunderstand ithe iPPP iarrangements, ito icarry iout iits iown iobligations iunder ithe iPPP iagreement iand ito imonitor iperformance iof ithe iprivate isector iand ienforce iits iobligations

8. The iprivate isector iis ilikely ito ihave imore iexpertise iand iafter ia ishort itime ihave ian iadvantage iin ithe idata irelating ito ithe iproject. iIt iis iimportant ito iensure ithat ithere iare iclear iand idetailed ireporting irequirements iimposed ion ithe iprivate ioperator ito ireduce ithis ipotential iimbalance

9. A iclear ilegal iand iregulatory iframework iis icrucial ito iachieving ia isustainable isolution i(for imore, igo ito ilegislation iand iRegulation)

10. Given ithe ilong-term inature iof ithese iprojects iand ithe icomplexity iassociated, iit iis idifficult ito iidentify iall ipossible icontingencies iduring iproject idevelopment iand ievents iand iissues imay iarise ithat iwere inot ianticipated iin ithe idocuments ior iby ithe iparties iat ithe itime iof ithe icontract. iIt iis imore ilikely ithan inot ithat ithe iparties iwill ineed ito irenegotiate ithe icontract ito iaccommodate ithese icontingencies. iIt iis ialso ipossible ithat isome iof ithe iprojects imay ifail ior imay ibe iterminated iprior ito ithe iprojected iterm iof ithe iproject, ifor ia inumber iof ireasons iincluding ichanges iin igovernment ipolicy, ifailure iby ithe iprivate ioperator ior ithe igovernment ito iperform itheir iobligations ior iindeed idue ito iexternal icircumstances isuch ias iforce imajeure. iWhile isome iof ithese iissues