Mmegi

New PPP Bill takes shape

Private partners: The new government is expected to significantly ramp up PPPs PIC: MORERI SEJAKGOMO
Private partners: The new government is expected to significantly ramp up PPPs PIC: MORERI SEJAKGOMO

The Ministry of Finance hopes to fast-track a Public Private Partnership Bill which it believes will give more “comfort” to investors, as the country’s public infrastructure funding is opened up to private capital.

The Public Investment Programme (PIP), which is the core of every National Development Plan (NDP) and which details the projects to be developed in each NDP, the expected cost and the source of funding, has for decades been funded solely by government, helped by other development agencies.

However, BusinessWeek understands that the upcoming NDP12 could be the first in which the PIP is specifically opened up for private capital, under the PPP model.

“The PPP bill is one of the strategies that if we could pass the law and regulations, would give the private sector a safe space to play in,” Walter Matekane, the ministry’s director of macroeconomic policy, said at a budget pitso for general stakeholders last week. “We need life partners with deep pockets to play a role and we have to give you the comfort through passing this bill. “People want to see what is there and they want protection. “We will try and speed up the bill to be passed into law.”

Earlier in the pitso, Vice President and Finance Minister Ndaba Gaolathe said government was on the lookout for private sector partners for the country’s development agenda.

“We need partners as government, partners that are in it for the long term. “We need partners with deep pockets. “We need to agree amongst ourselves in the same way that you look for a life partner. “Together, we can get to the bottom of this thing,” Gaolathe said.

The “thing” is the fiscal and broader economic crisis the country is facing due largely to the downturn in diamonds.

Government is facing a mammoth budget deficit of more than P18 billion this financial year, with projections of another P11 billion shortfall in the next financial year. Much of this will be funded by domestic and external debt, as the country’s reserves have been weakened by the prolonged slump in diamonds.

The situation has made the need to bring in private sector into public infrastructure, even more urgent.

Three years ago, the Finance ministry called a well-attended funders’ conference to test the private sector’s appetite to invest in public infrastructure.

According to previous Finance ministry estimates, between 2012–2013 and 2021–2022, government funded 95% of the total development spending of P108 billion, with the balance coming from project-specific loans and donors.

“This situation is not sustainable,” said former Finance minister, Peggy Serame at the time. “Government revenues are declining as a share of GDP, as the diamond industry matures and costs of production increase, whilst the recurrent budget is continually increasing.”

Despite having launched the PPP policy in 2000 and establishing a dedicated unit in 2010, only two projects have thus far been developed involving direct funding from the private sector, largely because healthy government savings have papered over delays in implementing the policy.

PPPs involve a contractual arrangement between a governmental institution and the private sector, where the private sector party provides public infrastructure and/or infrastructure-related services.

Typically, government’s contributions, over and above equity in the venture, may include subsidies, incentives, provision of service, the cost of providing the service, and others. The private sector can be asked to contribute up to 80% of the project’s funding.

Besides reducing government’s direct expenditure on public infrastructure, PPPs are expected to enhance the efficiency of both project development and operation, a challenge that has haunted nearly every major state-sponsored project over the decades.

At the previous funding conference which included financiers such as the World Bank, International Finance Corporation, African Development Bank, and several major local and regional banks, government unfurled its list of 15 projects it plans to pursue under the PPP model in the NDP12.

The list includes the $2.5 billion coal-to-liquids project and the long-anticipated construction of a pipeline to draw water from the Zambezi to the countries' drier south, estimated at $1.6 billion in 2015. Other projects involve key road and railway lines, expanded national oil storage facilities and public infrastructure.

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