Transcript PPPs in Swaziland

Discussion document on a PPP Policy
Purpose of this Presentation
 To present the draft PPP policy document formulated
in 2008
 To discuss the proposed policy
 To obtain inputs from the group in respect of changes
since 2008
 To obtain inputs from the group leading to
recommendations for improvements, additions and
deletions before final adoption by Cabinet
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Background
 The Government of the Kingdom of Swaziland
applied to the EU for assistance to formulate a PPP
policy in 2008
 The ACP Business Climate Facility is an ACP-EU joint
initiative financed under the 9th European
Development Fund and Bizclim made funds available
for consultants to assist the Government of Swaziland
to formulate a Policy
 SIPA has requested the European Development Fund
and Bizclim to sponsor a workshop to train Swaziland
government practitioners in PPP’s
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Objective
The policy objective was to develop a
comprehensive, clearly articulated and propoor Public Private Partnership policy for
the Kingdom of Swaziland accompanied by
a framework in the form of an operational
manual to assist in structuring win–win PPP
deals.
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The Approach Adopted
Steps
1 Interview Stakeholders
 Government Ministries
 Labour
 Private sector
2 Prepare Situation Report
3 Prepare draft Policy
Framework
4 Final PPP Policy
5 Prepare Operational Manuals
Consult Stakeholders
Consult Stakeholders
Government approval
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Capital is for
government
account
Assets belong to
Government
Government
purchases services
transfers
operational risk
PPPs
Normal
Government
function for goods
and services
Outsourcing
Procurement
Procurement spectrum
Government
purchase service or
allows recovery
from user
Fixed assets belongs
to government
(eventually)
Private sector
designs, builds,
finances and
operates
Privatisation
Sale of state assets
Only regulatory responsibility
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Definitions
Privatisation: Typically the sale of non-core
Government assets to the private sector and once sold
the government has no further responsibility except a
regulatory role
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Definitions (Continued)
Public Private Partnerships: The conclusion of a
contractual agreement between Government and/or
its agencies whereby the private sector will provide
services and/or facilities in sectors and services
traditionally provided by the public sector. Such
contracts are characterised by:
 a Real and substantial transfer of risk to the private
sector if they are best suited to manage it
 A long-term relationship
 Ownership of the assets remains with the government
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Definitions (Continued)
Outsourcing is the use of the private sector, generally
without capital commitment, to manage or provide a
service like catering, cleaning etc. It includes
management contracts where the private sector is
given responsibility for maintenance and operation of
a specific facility, such as a water or sewage treatment
works or a service like catering. Assets are created with
government funds and ownership remains with
Government
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Typical PPP Financial
Arrangement
Lenders
Debt
service
Investors
Debt
Regulatory
Authority
Option 1
Service agreement
with Government
generating income
Equity
Financial
Arrangement
SPV as
project
compant
Dividends
Government
performance
Monitoring
Option 2
Cost recovery from
consumers
Project
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Situation Analysis in 2008
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Situation Analysis done in
2009
 Analyse Swaziland Government’s Rationale
 Existing Policies with an impact on PPPs
 Existing institutional arrangements
 Attitudinal perspective
 Previous and current PPP Initiatives
 Opportunities for PPPs
 Challenges to be resolved
 Preliminary conclusions
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Rationale of Swaziland
Government in 2008
 Speeding up Delivery
 Efficiency
 Managing maintenance better
 Cost savings
 Better service to customers
 Enabling public sector to concentrate on core services
 Creating off balance sheet assets
 More efficient use of State land
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Relevant Policies in 2008
Informing PPP Approach
Privatisation Policy
Issued by the Public Enterprises Unit, 2004, briefly refers
to PPP-type arrangements:
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Corporatisation
Contracting out
Management Contracts
Franchises
Leases
Concessions
Procurement Bill/Act & Regulations
No necessity for Further Acts only regulations
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Principles of Existing
Privatisation Policy(2008)
 Government and private sector play a complementary
role in the economy
 Inappropriate government intervention in private
entities must be avoided
 The role of the public sector in the provision of goods
and services should diminish over time
 Performance contracts will play a critical role and must
be monitored
 The process to be transparent and equitable
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Principles of Existing Privatisation
Policy(2008) (Continued )
 Broad ranging consultation will be promoted
 A thorough analysis will be undertaken
 An appropriate regulatory and supervisory authority
will be created
 Measures will be taken to safeguard employee interests
as far as possible
 Government will drive the process
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Principles of Existing Privatisation
Policy(2008) (Continued
 Environmental safety will be considered
 Any negative impacts on society minimized
 The privatisation process will be conducted for the
benefit of all, not for the privileged few
 Concrete strategies to ensure citizen empowerment,
and to maximise the participation of Swazi citizens,
will be adopted
 Important that policies not be in conflict
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Procurement Policies
 Crown Agents have developed improved procurement
systems, including input to Procurement Bill, 2008; aim to
promote:
 Transparency
 Economy, efficiency and competition
 More diverse private sector participation
 Bill proposed establishment of technical secretariat in
Ministry of Finance
 Bill defines relationship between procuring entities and
technical secretariat
 “Contracts ( for PPPs) shall be awarded in accordance
with the principles and objectives of this act and
government policy”
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Institutional Arrangements as in
2008
 Ministry of Finance
 Public Enterprises Unit (may be transformed into semi-
autonomous Public Enterprise Agency)
 Tender Board
 Ministry of Economic Planning and Development
 Co-ordination and management of Government’s capital
programme
 Line Ministries (Public Works, Health etc)
 Responsible for identifying , designing and
implementing projects
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Changes in Institutional
Structures since 2008
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PPPs in 2008
Description
Initiator
Ezulwini refusal
removal
Ezulwini Town Board Concession
Failed during
implementation
Various outsourcing
Swaziland Railway
Board
Service outsourcing
Successsful
Construction of
factory shells
Swaziland
Investment
Promotion Agency
Turnkey project
Aborted
Mbabane parking
garage
Mbabane
municipality
Joint development
Successful
Mbabane township
development
Mbabane
municipality
Joint development
Failed due to
collapse of cost
recovery principles
Sale of government
assets/concession
Successful
Royal Swazi Airways Government of
Swaziland
Classification
Status
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PPPs in 2008(cont)
Agricultural PPP
Swaziland Water and
Agricultural
Development
Enterprise
Joint
Development
Successful
Manzani abbatoir
Manzini Municipality
Outsourcing
Successful
Manzini street
cleaning
Manzini Municipality
Outsourcing
Successful
Manzini shopping
mall
Manzini Municipality
Joint
development
Being advertised for
second time
Catering in
hospitals
Ministry of Health
Outsourcing
Moderately successful, but
monitoring insufficient
Security services
Ministry of Finance
Outsourcing
Successful but expensive
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Changes in PPP environment
since 2008
Description
Initiator
Classification
Status
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Attitudes in 2008
 General
 Support and interest
 Political level
 High expectations - maybe even unrealistic
 Government officials
 Supportive but concerned about skills
 Private sector
 Concerned about labour reaction
 Concerned about dominance of foreign companies
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Attitudes in 2008(Continued)
 Labour
 Job losses
 Exploitation of workers
 The loss of protection from the law
 Profit motivation will remove focus on social
responsibility
 Will support new initiatives
 Financial sector -------Contractual savings
 Looking for long term investments
 Branches may be constrained by country limits
 Skills unsufficient
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Changes in Attitudes since 2008
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Lessons Learnt in 2008
 Lack of common understanding
 Lack of co-ordination
 Planning capacity must be improved to handle PPPs
 Lack of expertise and structuring support
 Lack of capital and business training for outsourced
ex-employees
 Potential inability for local participation
 Dangers of a natural monopoly
 Political commitment to cost recovery tariffs
 Sovereign Risk
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PPP Policy
High Level Policy Principles
 Government and private sector play a complementary
role in the economy
 Inappropriate government intervention in private
entities must be avoided
 The role of the public sector in the provision of goods
and services should diminish over time
 Performance contracts will play a critical role and must
be monitored
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High Level Policy Principles
(cont)
 The process will be transparent and equitable
 Broad ranging consultation will be promoted
 A thorough analysis will be undertaken
 An appropriate regulatory and supervisory authority will
be created
 Measures will be taken to safeguard employee interests
as far as possible
 Government will drive the process
 Environmental safety will be considered
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High Level Policy Principles
(cont)
 Any negative impacts on society minimized
 The process will be conducted for the benefit of all, not
for the privileged few
 Concrete strategies to ensure citizen empowerment, and
to maximise the participation of Swazi citizens, will be
adopted
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Prerequisites for successful
implementation of PPPs
 Strong political commitment
 An appropriate legal framework
 Ensuring that private sector participants are able and
willing to participate.
 Effective regulatory authority(ies) where necessary,
especially when private sector monopolies are expected
to exist;
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Prerequisites for successful
implementation of PPPs (cont)
 Appropriate management and information systems,
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including the introduction of generally accepted
accounting practices in the private sector;
The appreciation of the rationale behind reform by
employees and clients of public enterprises, and support
for the implementation of such reform;
Explanation of the potential benefits (and costs) of such
reforms to the general public, including labour;
Full transparency and accountability
Avoidance of inappropriate Government interference.
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Definitions of PPPs
Projects funded by government capital
contributions
Projects which are implemented by private companies
with state funds. These range from Build, Operate,
Transfer (BOT) to Design, Build, Operate and
Maintain (DBOM, or DBO). The private companies in
these cases receive a fee for their services.
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Definitions of PPPs (cont)
Projects funded by private capital but with annual
repayment from government
 Projects financed by the private sector and
remunerated by the state on an annual basis for the
costs of operation as well as repayment of the capital
expenditure. These are known as Design Build
Maintain and Finance (DBMF) or Design Build
Operate, Maintain and Finance (DBOMF).
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Definitions of PPPs (cont)
Management contracts where the private sector is
given responsibility for maintenance and operation of
a specific facility, such as a water or sewage treatment
works or a service like catering
Not everywhere defined as a PPP
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Definitions of PPPs (cont)
Concession projects partly or fully financed by the
private sector and fully remunerated by user charges –
this is common in the roads sector where tolls are
charged to meet the costs. Management includes
responsibility for meeting the demands of new
customers, maintenance of the whole network,
collection of user fees etc. Concessions are typically for
a period of over 20 years to allow the cost of
investment and of good maintenance to be recovered.
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Institutional arrangements
 Create a Technical Assistance Unit with a consultants
budget not tied to a financial year budget
 Establish an approval committee of senior officials
 Custodian of the policy shall be the Ministry of
Economic Planning and Development
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Principle 1 Public Interest
PPPs must be designed in the public interest. This
means that they must stand the test of good value, and
must provide an enhanced service to the public.
Over the life of the contract, the PPP should provide
better value than the current public sector
arrangement. In order to establish this, good practice
requires that the current costs of providing the service
should be established in advance.
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Principle 2: Value for money
This requires comparison between the cost of
providing a service through public sector channels and
the PPP. It must take the long term view (for example,
not just the first year of operation), and look at the
totality of expenditure and income. Such calculations,
however, must be undertaken with an understanding
of the difficulty of making financial forecasts far into
the future.
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Principle 3 Transparency
PPPs must be designed and operated with the maximum
transparency compatible with good business practice
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Principle 4: Stakeholder consultation
PPPs must recognise the interests of all stakeholders,
and full consultation must be undertaken. PPPs must
be equitable as far as long-term pension and similar
arrangements after consultation with the employees
concerned. Public sector employees must be informed
at the earliest possible stage and have the opportunity
to contribute positively to the development of projects.
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Principle 5: Consumer rights
PPPs must be regulated to ensure that consumer rights
are protected in any potentially monopolistic situation
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Principle 6: Consumer access guaranteed
PPPs must be designed so that no consumer is unfairly
excluded from receipt of a service. This does not
prevent charges for services being made, but requires
that the charges are fair and reasonable.
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Principle 7: Measurable performance
Contracts must be structured so that payments are
made on measurable performance, and performance
specifications. Intervention rights and penalties will
be important components of the contract
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Principle 8 : Creation of an appropriate regulatory
framework
 An appropriate regulatory framework must be created,
including monitoring and regulation of the project
after closure.
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Principle 9: Appropriate sharing of risk
Although the principles regarding risk allocation
should be clearly established in the guidelines, the
final balancing of risk and reward has to be the subject
of negotiation. Among these is to ensure that bids are
dealt with fairly, transparently and speedily.
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Principle 10: Structuring contracts to manage future
uncertainty
 Contracts should be drafted to permit unforeseeable changes in
circumstances without jeopardising the fundamentals of the
contract, or exposing either party to undue risks. It is therefore
desirable for the legislative and administrative framework to:
 Give public entities flexibility in the types of agreements they
may enter into, and the procurement process
 Allow contracts to be awarded on the basis of best value, not
just lowest price.
 Provide a procedure for dealing with unsolicited proposals
 Avoid the need for legislative or regulatory change in the
implementation of a contract
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Principle 11: Provide specific mechanisms for future
price adjustments
Mechanisms must be provided for the mutually
equitable adjustment of the fee or the structure of user
charges in such a way as to prevent profiteering at the
cost of either the public entity or the private sector.
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Principle 12 : Participation by Swazi Citizens must be
facilitated
Provision must be made for the participation of local
citizens in both small and large contracts whether
through prescribed sub-contracting or equity holding
in the SPV, or both
Suggestion:
 Must add value otherwise deteriorates into
individual enrichment
 Not a PPP issue needs to be addressed in SME policy
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Applicability
Applicable to
 Ministries
 State Owned Enterprises
 Local Authorities
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Regulations to be formulated
 To ensure line departments operate within the policy
guidelines and that due process is followed;
 To ensure that acceptable processes are followed,
which will include, inter alia, including the project in
the public entity’s budget according to normal
planning and budgetary guidelines, and the
completion of a proper Feasibility Study
 To create a PPP technical assistance unit and
secretariat
 To allow for the use of transaction advisors
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Regulations to be formulated
 To mandate the auditor general to monitor projects on
a random to ensure the application of the value for
money principle
 Create opportunities for the local private sector and
stipulate requirements for the involvement of local
firms and private individuals.
 To regulate the approval process and delegations
 To ensure appropriate training is initiated
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Pilot projects
 First couple of projects have to be succesful
 Criteria to be used for identifying pilot projects are:
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Projects which do not result in job losses, or the necessity
for substantial changes in conditions of service.
Projects with strong support from all stakeholders.
Projects with viable income streams
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