The Analysis on Lusaka-Ndola Dual Carriage Way Under PPP Model

By Sastone Silomba

The term ‘public-private partnerships’ has taken on a very broad meaning. The key element, however, is the existence of a ‘partnership’ style approach to the provision of infrastructure as opposed to an arms-length ‘supplier’ relationship … a ‘public-private partnership’ (P3s) involves a sharing of risk, responsibility, and reward, and is undertaken in those circumstances when there is value for money benefit to the taxpayers.

WHY PUBLIC-PRIVATE PARTNERSHIPS PPP

For economic growth and development, we need a lot of investments. The government could not provide enough funds for investments in public goods (infrastructures & services) Private Sector has a lot of capital for investments. If a system can be developed whereby private players can invest in public goods, they can help create investments, and also earn profits. Thus, to develop infrastructures for development, the government needs to work out a system where private players can come in towards the creation of public infrastructures which are traditionally provided by the government.

Let me define precisely the concept of Public-Private Partnerships (PPP)

A Public Private Partnership (PPP) is a partnership between the public sector and the private sector for the purpose of delivering a project or service traditionally provided by the public sector. It recognizes that both sides have certain advantages and by allowing each to do what it does best, public services and infrastructure can be provided in the most efficient manner.
Therefore, PPP means an arrangement between the government (or statutory entity or government-owned entity) on one side and a private sector entity on the other, for the provision of

1. public assets and/or; and
2. related services for public benefit,Now, through investments being made by and/or management is undertaken by the private sector entity for a specified period of time, where
3. there is a substantial risk sharing with the private sector; and
4. the private sector receives performance-linked payments that conform (or are benchmarked) to specified, pre-determined and measurable performance standards.

Therefore; A strong PPP allocates the Tasks, Obligations, and Risks among the public and private partners in an optimal way. In this context, PPP represent the partnership in action with huge stakes for both the public sector and private sector agencies to succeed collectively. PPP is not about finance alone, but are also about improving the quality and efficiency of public services.

Concession

Let me briefly discuss a concession. In a more elaborated manner, a concession at most gives a concessionaire the long term right to use all utility assets conferred on the concessionaire, including responsibility for operations and some investment. Asset ownership remains with the authority and the authority is typically responsible for the replacement of larger assets. Assets revert to the authority at the end of the concession period, including assets purchased by the concessionaire. In a concession, the concessionaire typically obtains most of its revenues directly from the consumer and so it has a direct relationship with the consumer. A concession covers an entire infrastructure system (so may include the concessionaire taking over existing assets as well as building and operating new assets). The concessionaire will pay a concession fee to the authority which will usually be ring-fenced.

SOME COMMON PUBLIC-PRIVATE PARTNERSHIPS MODELS

What the private partners might do:

(i) Design-build-operate (DBO)
(ii) Design-build-own-operate-transfer (DBOOT)
(iii) Design-build-operate-maintain (DBOM)
(iv) Finance-design-build-operate-maintain (FDBOM)

BRIEF ANALYSIS OF THE LUSAKA-NDOLA DUAL CARRIAGEWAY

An ordinary Zambian definitely will agree that the government has decided to use the Public Private Partnership (PPP) mode of financing on the project because, in a country like Zambia where unemployment is rampant, it is anticipated that PPP will generate jobs to spur social and economic growth.
Secondly, on the political front, the erroneous financing model though will provide at least short-term road infrastructure development as well as service delivery using private capital though not necessarily from private investments, it is necessary for citizens to be told that the choice for “private capital” is not as a result of fiscal debt left by the previous regime but a system of infrastructure development which is employed by various countries globally. PPP mode cannot rely on NAPSA or pension funds in a pure PPP scenario.

While the current state of the Lusaka to Ndola road remains a source of concern to all Zambians, indeed, the road is the backbone of our road network and critical in stimulating much-needed economic growth through increased trade within the country and the region at large. But again, one wonders why the government is now in a hurry to even use the wrong PPP model when they strongly criticized the development of the same road not long ago in opposition (are we going to eat roads).

However, the current scenario where Macro Ocean investment consortium to be represented by AVIC international project engineering company is planned to be engaged for the construction of the dual carriage way, leaves much to be desired. It seems the government does not understand the concept of PPP and its accompanying Act properly because if one makes an analysis about pure PPP model, it’s evident that the private partner (AVIC) will not provide the capital required for investment especially in a scenario where the private partner owns the assets, sufficient enough to recover investment costs through user charges. Therefore:

1. Although in essence, the concession arrangement is that the private sector (concessionaire) AVIC is responsible for full delivery of the services including operation & maintenance, collection, management, construction and rehabilitation of the system, it has been understood so far that NAPSA will fund AVIC which is a private company to undertake the construction of the roads. This is not a pure PPP model;
2. The assets will be owned by the private company during the concession period and until after 25 years;
3. So far, the government seems not to have established standards to ensure that the concessionaire meet them; and
4. Because the concessionaire will collect tariffs from the users as determined in the concession contract for 22 to 25 years, it seems that the role of the government which in essence should shift from the provider of service to regulator appears to be missing hence the public will suffer high toll fees and transport costs;
5. The public sector has not agreed or has no knowledge that it should purchase a minimum level of output produced by the facility

WAY FORWARD FOR LUSAKA NDOLA DUAL CARRIAGEWAY

Government should be advised not to be in a hurry just for gaining political expedient but to think of adopting the model of MANAGEMENT CONTRACT.
Management Contract:

1. It is the arrangement whereby the government contracts out the operation & maintenance of public service (road, utility, hospital, port, water supply etc.);
2. The required infrastructure is already created and the private parties provide working capital for daily maintenance;
3. The Government retains the assets, continue major capital investments and sets tariff; and
4. Private parties are responsible for the management, and are paid for the costs of labour and operating costs and incentives.

POTENTIAL STRENGTHS OF MANAGEMENT CONTRACT:

a. Operational gains from private sector management;
b. Assets remain with the government and continue major investments; and
c. Contracts are easy to develop.

On the other hand, let government be advised by competent civils servants and not caders in order to ensure a viable and cost effective PPP mode is used for Lusaka-Ndola dual carriage way.

Given the enormity of the investment requirements and the limited availability of public resources for investment in physical infrastructure, it is imperative to explore avenues for increasing investment in infrastructure through a combination of public investment, Public Private Partnerships (PPPs) and occasionally, exclusive private investment wherever feasible. The use of PPP as an instrument of procurement for creation of infrastructure assets and delivery of public services has been recognised globally. Apart from bridging the deficit in financing of public projects, PPPs also brings new and cost effective technology for creation of infrastructure assets, managerial efficiency, competency for operation and maintenance of the created assets and the contractual accountability on the private party to ensure timely and quality infrastructure service to the end users.

CONCLUSION

1. There is need to develop a Model Concession Agreement for the road sector including Water Supplies, Power and various Services;
2. There is a need to work out a Viability Gap Funding Scheme/Guidelines for the road sector;
3. PPP activity in road sector is yet to make a meaningful impact in Zambia;
4. The absence of policy on Infrastructure or Service Delivery in Zambia has been one major hindrance to PPP implementation;
5. In view of the sparse population and difficult geographical setting, it may not be possible to take up many of the projects on PPP Mode. However, we need to explore avenues. Urban Sector projects, Power Sector, IT Sector for PPP Projects than start with the huge long road. A road is a public good. No exclusion should be entertained; and
6. Government should start with the formulation of new PPP Policy to kick-start the process.