Public-Private Partnership - Essay Example

Public-Private Partnership Public-private partnership World Bank has d a positive view on public-private partnership (PPP), which indicates thatit is a methodology for providing public services and infrastructural assistance for development of a country (Notes). It is well known that inadequate fund for infrastructural development is a constraint for the growth of any economy. The poor infrastructural set up has challenged the ability of the government. The problem is more serious in low income countries such as Kenya, Ethiopia and Uganda because of the low investment. These countries do not spend enough for providing appropriate infrastructure that are needed for the development of the economy (Araújo and Sutherland, 2010; Pessoa, 2008). Poor coordination and planning, weak analysis of appropriate project for political advantage and corruption had limited the development of infrastructure in these low income countries. The construction of new assets takes longer time than expected and the service delivery is also very weak (Araújo and Sutherland, 2010; Pessoa, 2008). Moreover, the poor maintenance of the infrastructural assets increases the cost of manufacturing and reduces the scope for benefits. Moreover, it can be depicted that that PPP has the capability to organize the funds that will finance the infrastructural development in the countries (Buse and Harmer, 2004; Araújo and Sutherland, 2010; Pessoa, 2008; Ministry of Foreign Affairs of the Netherlands, 2013). It can be stated that PPP helps in improving the selection of projects subject to the assumptions that are made prior to the market test for attracting private finance. The countries, which have relatively long PPP histories for managing construction projects have identified that PPP is better than the traditional procurement process. PPP also assist in maintaining the assets those are in serviceable condition (Buse and Harmer, 2004; Pessoa, 2008; Ministry of Foreign Affairs of the Netherlands, 2011). Therefore, PPP is useful for the low income countries for funding different public services and projects such as infrastructural and many more. PPP is defined as partnership existing between private and public sector so as to access the provision of public services, which has the capability to take different forms (Ministry of Foreign Affairs of the Netherlands, 2013; Araújo and Sutherland, 2010; Pessoa, 2008). World Bank has used the following graphical representation for depicting the spectrum of choices, which are useful to the policy makers (Notes). Figure 1: PPP Spectrum (Source: Notes) The figure clearly depicts the process of utilization of assets from public to private sector through a spectrum, which explains the methods, which is useful in the process. The PPP aims at financing, designing, operating and implementing facilities and services in the public sector. The main characteristics of PPP are discussed henceforth. 1) The PPP projects have long term service provisions up to 30 years. 2) The projects help in transferring the risk from public sector to private sector; the assets are owned by the private sector (shown in Figure 1). 3) Different types of contracts are developed between the public authorities and legal entities. Apart from the above mentioned definitions, it is also defined as the methods that are used by the public sector to contact the private sector, through which the latter brings the capital that enable completion of certain projects on time. The public sector assures that the benefits are delivered to the economy for it’s and also for the development of human life (Ministry of Foreign Affairs of the Netherlands, 2013). PPP does not take into account service contracts that are characterised by public procurement projects or includes privatization of utilities. This is constrained for the function played by the sectors. PPP projects are dissimilar from private sector commitments; it is observed that the private sector remains occupied in public procurement process. The models of PPP were defined by Leibenstein’s X-efficiency Theory, which was established during 1966. He had also explained the inefficiencies of public sector, which is basically due to the bureaucratic structure of state and discretionary government intervention. Therefore, he expected that the PPPs would reduce the inefficiency in the public sector and allow the companies to respond according to the market force, which makes them competitive (Ministry of Foreign Affairs of the Netherlands, 2013). During 1990, the establishment of PPP was observed to be the key mechanism for public policy worldwide. The method has gained importance in the recent few years because of its procurement process of infrastructural and public services by the government (Caines and Lush, 2004; Ministry of Foreign Affairs of the Netherlands, 2013). The benefits of PPP vary sector wise however, the common advantages are discussed henceforth. PPP uses the financial and human resources effectively with the help of market related incentives, operational efficiency and competition. The PPP helps in integrating the private and public sector, which benefits the private sector. The integration explicitly designs an implementation plan that is accountable for the delivery of the final project. The assessment of the process is generally done with the help of pre-identified monitoring, regulatory oversight and review processes (Charles, 2006; Araújo and Sutherland, 2010; Pessoa, 2008). Though PPP has received the name of effective and efficient mode of public procurement service in the developed nation, very few researches are considered for establishing the success of PPP in context of developing nations or low income countries. It is significant to understand the appropriateness of PPP in funding the public services in such countries as it will help in deciphering the success of PPP in real world. Few examples are discussed henceforth, which comprise the PPP programs adopted in low income countries such as Ethiopia and Kenya. Appropriateness of PPP in low income countries The low income countries chosen for the development of the research are Ethiopia and Kenya. Ethiopia Project: The Public-Private Infrastructure Advisory facility (PPIAF) supported two main activities adopted in Ethiopia that is related to the development of the irrigation sector. The public-private partnership aims at improving the availability and access of water for farmers. The contract also had the goal of increasing the food security and safety for the Ethiopian residents. Moreover, during 2006, PPIAF supported the government of Ethiopia for preparing action plan. The plan is for establishing public-private partnership irrigation project in Megech, Anger Valley and Ribb River (PPIAF, 2012a). During 2010, PPIAF also issued the bidding documents in draft for preparing a model transaction agreement for Megech-Seraba Irrigation and Drainage project situated in North Gondar. In 2012, Ethiopia government signed an agreement with French operator, BRL Ingenierie for undertaking maintaining and operational services in the Megech-Serba project. The contract worth $8 million was extended for eight years, which expected to increase water accessibility and availability to 6,000 landholdings stretched around 4,040 hectares of irrigated areas (PPIAF, 2012a). Main purpose of the project: Agriculture is the backbone of Ethiopian economy as it contributes towards 50% of the country’s GDP and employs 80% of the population (PPIAF, 2012a). The agriculture in Ethiopia is majorly rainfed, which expose the country to food insecurity as a result of drought and erratic rainfall. These droughts had also led to disastrous flood in the past. The potential for irrigation in Ethiopia is 3.7 million hectares; however, it is seen that about 5% of the land can be irrigated presently (PPIAF, 2012a). Hence, there is need for irrigation projects in Ethiopia, which helps the farmers to produce food products easily without experiencing barrier from drought and erratic rainfall. This is the reason why Ethiopian government offered assistance during the period 2006 to 2010 along with PPIAF in order to incorporate public-private partnership in irrigation sector in Megech-Seraba regions of Ethiopia. Impact of the project: The contract is a major PPP in irrigation sector of Ethiopia. It helped in resolving the pragmatic and practical approach of pressing problems related to agricultural sustainability for the small landholding farmers. Moreover, it is anticipated that the contract with BRL Ingenierie during 2012 will offer value for money and ensure specific service standards and coverage to the users, efficient construction supervision, rapid customer response time; effective education and training programs to small landholders and provide enhanced O&M services to the irrigation system (PPIAF, 2012a). It will increase productivity level of agriculture and also develop value chains for the farmers as it permit them to develop commercial surpluses. About 6,000 landholdings take the advantage from the irrigation project (PPIAF, 2012a). Kenya Infrastructure sector Project: During 2003, the new government in Kenya took the support of PPIAF for developing policy reforms and initiatives for increasing the rate of PPP projects in the infrastructure sector. In order to meet the ambitious goals of Kenya, the government felt the need for investing in PPP. Several steps are establlsihed for developing comprehensive PPP models, which were initiated by Ministry of Finance (PPIAF, 2013). During 2011, the Ministry of the Finance asked for PPIAF funds for supporting PPP secretariat for providing: i) Requisite support and advice to the departments, government agencies for achieving and developing PPP projects (PPIAF, 2013). ii) Offer help to the contract authorities for reviewing the works of PPP transaction advisors. Impact of the project: PPP guidelines were issued in 2009 by the Kenya government, where an advisor was hired for supporting the government. The advisor will offer advice to PPP secretariat on management of PPP unit’s along with government agencies and the line ministries, who are related to project development. Furthermore, PPP units were established during 2010 by Ministry of Finance for increasing advisory services to secretariat (PPIAF, 2013). Energy sector Project: Apart from the infrastructure sector, the energy sector in Kenya is also a source of economic growth (PPIAF, 2013). The intensity and level of usage of commercial energy has been challenged in Kenya due to the weak transmission, high cost, inefficient distribution infrastructure and low access to electricity and low per capita consumption of power. Technical assistance was provided to the energy sector of Kenya by PPIAF during 2001-2005, which aimed at restructuring and reintroducing the public-private partnership (PPIAF, 2013). The foremost activity that was undertaken by the partnership was to determine the optimal structure of the energy sector in Kenya and measure the competitiveness in the private sector. The second activity that was granted to the Kenyan government during 2002 by PPIAF included designing of a sponsorship forum in 2004 for the stakeholders and partners (PPIAF, 2013). In this forum, there will be discussion regarding the national energy policy, exchange of ideas and agreement on reforms that are needed for overcoming the obstacles that limit exploitation of existing opportunities by the private or public sectors. PPIAF also granted a third assistance during 2005 for helping the government engaging in transaction advisory services and also prepare performance management contract (PPIAF, 2013). Impact of the project: The first activity helped in evaluating the private sector participation in both energy and distribution company in Kenya. It also recommended medium and short term measures for restructuring the power company internally and put the power utilities on the recovery path by strengthening the corporate governance (PPIAF, 2013). Geothermal Development Company Project: The Company was established during 2008, by the Kenyan Government by accelerating the geothermal exploitation, exploration and development in Kenya. It is basically a fully government owned corporations. It is established for promoting development in geothermal resources in Kenya, avail and to avail the streams of power supply that is offered by the power plant developers, supervise the geothermal reservoirs for ensuring constant power generation and also promote alternative usage of geothermal resources (PPIAF, 2013). During 2011, PPIAF assistance was required by the company for conducting quick evaluation of financial situations and present condition of the company. The review is executed for identifying the key areas of weakness in company that needs to be improved. Therefore, the aim of project is to assist the company for enhancing the creditworthiness and access commercial finance (PPIAF, 2013). Impact of the project: The project helps the company to review its financial, control system and operational activities and determined the alternative source of financing. It identified the bottleneck of the fund flow process and the internal issues, which limit the capability of the company for implementing the planned programs (PPIAF, 2013). Reference list Araújo, S. and Sutherland, D., 2010. Public-Private Partnerships and Investment in Infrastructure. OECD, 803. Buse, K. and Harmer, A., 2004. Power to the Partners?: The politics of public-private health partnerships. Society for International Development, 47(2), pp. 49-56. Caines, K. and Lush, L., 2004. Impact of Public-Private Partnerships Addressing Access to Pharmaceuticals in Selected Low and Middle Income Countries. http://www.announcementsfiles.cohred.org/gfhr_pub/assoc/s14815e/s14815e.pdf > [Accessed 10 May 2015]. Charles, N., 2006. Public Private Partnerships As Modes Of Procuring Public Infrastructure And Service Delivery In Developing Countries: Lessons From Uganda. International Public Procurement Conference Proceedings, pp. 21-23. Ministry of Foreign Affairs of the Netherlands, 2011. Ten ways to achieve the Millennium Development Goals. IOS Study, pp. 1-33. Ministry of Foreign Affairs of the Netherlands, 2013. Public-Private Partnerships in developing countries. IOS Study, 378. Pessoa, A., 2008. Public–Private Partnerships In Developing Countries: Are Infrastructures Responding To The New ODAStrategy? Journal of International Development, 20, pp. 311-325. PPIAF, 2012. Assistance to PPP Units in Africa. PPAIF. PPIAF, 2012a. PPIAF Support to Private Sector Participation in the Irrigation Sector in Ethiopia. PPAIF. PPIAF, 2013. PPIAF Assistance in Kenya. PPAIF. Read More