Pinsent Masons bolsters its Competition, EU & Trade Group with appointment of Hans Jürgen Meyer-Lindemann in Düsseldorf
Out-Law Analysis | 11 Oct 2017 | 11:37 am | 9 min. read
The Public Private Partnership Bill 2016 was laid before Ghana's parliament in 2016 and had reached the consideration stage when the elections were held, but will now have to pass through the legislative process again.
The new government has, however, signalled its commitment to pass the Bill quickly, and any amendments are likely to be minor as the Bill is in line with international best practice, and with other PPP legislation in Africa. A procurement process is currently underway for consultancy services for preparing the regulations under the Act, with work expected to begin in October.
Current status of PPP in Ghana
The Ministry of Finance is using the Ghana PPP programme to attract public and private sector resources and expertise to close the country's infrastructure gap, estimated at $40 billion, or between $3.9 billion and $5.5 billion each year until 2026.
Ghana has an existing policy on PPPs, launched in October 2011 as part of the Ghana PPP programme. The policy defines a PPP as a contractual arrangement between a private sector party and public entity, which provides public infrastructure and services that are traditionally provided by the public sector. A PPP must involve a transfer of risk to the private party in return for remuneration based on service tariffs or user charges, government budget, which may be fixed, partially fixed, periodic payments or contingent, or a mix of these.
The policy acknowledges that PPPs may take several different forms and apply to a range of state functions from the outsourcing of a routine operation to more complex arrangements where the private sector party may be responsible for designing, building and operating large-scale infrastructure. The policy makes it clear that pure privatisation does not constitute a PPP, nor does any transaction where there is no significant risk transfer to the private party.
The Ghana PPP programme identifies two phases to promote PPP development in Ghana.
The first phase aims to create the capacity and project evaluation for Ghana to be able to enter into PPPs. It focuses on the legal, institutional, financial and technical capabilities of the country, the framework for a pipeline of bankable projects, and the establishment of a project implementation unit.
The second phase looks to establish a few more concrete results. These include creating the appropriate regulatory environment to encourage PPPs – specifically, a PPP Act and attendant regulations, as well as creating an initial project pipeline. The PPP Bill was drafted as part of this second phase.
The initial wave of pipeline projects includes five pre-feasibility studies and issuing an expression of interest for a 'first mover' transaction. Current pipeline projects include the Accra-Takoradi highway dualisation and the Boankra inland port / eastern railway line project, which are both at the full feasibility stage, the model markets project in the western region of Ghana and the development of the Securities and Exchange Commission complex, for which expressions of interest have recently been issued. [A1] [A2]
Scope of the Bill
It is necessary to establish which type of projects will fall under the definition of a PPP, to give a clearer idea of what sorts of project structures will be viable under the PPP Act, and an indication of how closely the new regime accords with that under the PPP policy.
The PPP Bill contains a more detailed definition of PPPs than the PPP policy, and applies to any "public sector project undertaken in the form of a partnership arrangement between a public authority and a private entity".
The concept of a "public sector project" refers to projects identified in one of several government infrastructure planning documents, including the National Infrastructure Plan. This will provide investors with confidence, knowing that a project has been sanctioned as part of a broader infrastructure planning process.
A private entity is defined as a "person from the private sector" who enters into a PPP. A public authority, on the other hand, encompasses a wide range of entities which would traditionally be considered state institutions, including state-owned enterprises and government departments, ministries and agencies.
A "partnership arrangement" is the key concept in the definition of a PPP, defined as "the legal, regulatory, contractual, financial, administrative and other arrangements for and in respect of [public private] partnerships". PPPs, in turn, are defined as "a form of contractual arrangement between a public authority and a private entity for the provision of public infrastructure or public services traditionally provided by the public sector, as a result of which the private entity performs part or all of the service delivery functions of government, and assumes the associated risks over a significant period of time".
Accordingly, the applicability of the PPP Act remains effectively similar to the PPP policy and accords with regional best practice, as it remains focussed on the same key elements of public infrastructure or public services, provided by the private sector, with significant risk transfer over a long term.
The Bill identifies certain set forms of project structures to which it will apply. These range from infrastructure development arrangements such as the simpler "build and transfer" agreements to more complex "build, own, operate and transfer" contracts. The Bill also describes more specialised arrangements such as indefinite length "rehabilitate, own and operate" contracts, management contracts for the management of PPPs, and "supply, operate and transfer" contracts for the provision of equipment and machinery as well as training on their operation.
Another important aspect is to identify which projects will not amount to PPPs.
Projects where the functions of one institution are provided by a state-owned enterprise or other public authority will never be considered a PPP. This is clear from the use of the term 'private party', either directly in the application section, or in the definition of a partnership agreement.
Projects where technical, operational and financial risk is not transferred to a private entity for a sufficiently long period of time will not be considered PPPs. This remains consistent between the PPP policy and the PPP Bill, and is one of the fundamental purposes of a PPP. This excludes short term projects, where the "sufficiently long period of time" criterion is not met, and small procurement contracts such as those where the term is less than 15 years.
It will also exclude traditional outsourcing arrangements, where a contractor merely performs a public function for remuneration but does not take on risk, such as a security contractor at a public building.
Ordinary lending by the government, except where it relates to a PPP, will not be considered a PPP.
Privatisation, in the form of complete divestiture of a state function, and joint ventures between the public and private sectors, are also not considered PPP.
Interface with public procurement legislation
Ghana has existing legislation dealing with public procurement in the Public Procurement Act, 2003, which was amended by the Public Procurement (Amendment) Act 2016. As PPPs are a form of procurement, it is necessary to establish what crossover exists between the Public Procurement Act and the PPP Bill to avoid conflict between different regimes and ensure the correct framework is applied.
The Public Procurement Act applies to the procurement of goods, works and services, financed in whole or in part from public funds, as well as related functions. It also applies to the disposal of certain public assets as well as procurement using aid or loan funding taken or guaranteed by the state.
However, the PPP Bill specifically anticipates that unless provided under the PPP Act, PPPs will be handled separately from procurement under the Public Procurement Act, stating that the Bill does not apply to "the procurement of goods, works and services primarily with the use of public funds by any public authority under the Public Procurement Act". Implicitly, a PPP would need to be fully financed from private funds; that is, funds that are not regarded as "public funds".
The Bill also contains an express provision regarding the "application of procurement procedures" in which it is states that the PPP Bill will take preference in respect of the procurement of partnership arrangements, although the Procurement Act will apply to the extent that any aspect of procurement is not covered by the Bill.
The PPP Bill recognises that a transitional regime is needed to ensure investor confidence and to provide certainty for the private sector on the treatment of projects entered into under the PPP policy when the PPP Bill is enacted.
The transitional provisions identify three categories of partnerships agreements which have been entered into at the time the Bill becomes an Act:
Ghanaian Infrastructure Investment Fund
The Ghanaian Infrastructure Investment Fund (GIIF) is a sovereign investment fund established under the Ghana Infrastructure Investment Fund Act 2014, with its primary mandate being to mobilise, manage, coordinate and provide financial resources for investment in infrastructure projects in Ghana for national development. The fund was allocated $250 million in seed funding from the $1bn Eurobond in 2014.
The GIIF Act identifies and earmarks sources of public and other finance to provide capital to the Fund including:
The GIIF’s business model is either to invest directly in infrastructure through debt, equity or other financial instruments, or to partner with investors through PPPs or other investment platforms. However, the fund will not offer guarantees to any party involved or participating in or related to an infrastructure project, other than a wholly owned subsidiary or affiliate of the fund.
In order to comply with the PPP Bill which, as discussed above, states that the PPP Bill does not apply to procurement primarily through the use of public funds, the GIIF will have to ensure that any PPP deal is structured in such a way that the PPP is still funded through private, rather than public, funds.
Project life cycle analysis
The project life cycle will firstly depend on the origination of the project. It may be an unsolicited bid, whereby a private sector entity will propose the project, or it may have been identified as needed by a public authority, including projects identified in the National Development Plan, National Infrastructure Plan or District Development Plan. These are typically in accordance with the sector plans and programmes of that public authority.
For projects originating from a public authority, the life cycle will be as follows:
Registration of the project with the Ghana Partnerships Agency: This first step is an administrative threshold requirement and a potential PPP project may not proceed to the feasibility study without first being registered.
Feasibility study: A feasibility study must be conducted in respect of the proposed project, including an investigation into the costs, long-term affordability for users, sustainability of the budgetary commitments, and potential for returns for private sector investors.
Project compliance: The project’s documentation must demonstrate and comply with the requirements for risk allocation, stakeholder consultation, and adherences to the principles of fairness and transparency as well as procurement processes.
Competitive bidding process: Following the preliminary steps, the project will undergo a competitive bidding process. This typically begins with a request for qualification to pre-qualify bidders, followed by a request for proposals from pre-qualified bidders. This may take place in a two-stage process in order to clarify or narrow down the scope of complex projects. The proposals will then be evaluated on a competitive tender basis.
Contracting: Once the bid has been awarded, the Bill prescribes the contracting process that must be complied with for any partnership agreement, using standard documents produced by the PPP agency. The contracting arrangements must ensure adequate risk transfer, govern the private entity's remuneration, and allow for fair compensation should cancellation occur. Contract management procedures must be put in place by the public authority.
Approvals: Each phase of the process will be subject to approvals by a relevant public authority, detailed in the schedule to the Bill.
For unsolicited bids, certain requirements must be met. The proposal must be in line with the National Development Plan and Sector Development Strategy, and must be subjected to a competitive selection process. The requirements for this will be contained in guidelines or regulations that are still to be published, so the full scope of the requirement is not clear. It will probably include an evaluation of the value for money or market-relatedness of the costs relating to the unsolicited bid, including full assessments of the technical, financial and economic aspects of the proposal. The PPP policy does not provide clarity on the content of a 'competitive process', as it also cross-refers to an as-yet unpublished PPP manual or guidelines.
Reuben Cronjé is a projects expert with Pinsent Masons, the law firm behind Out-Law.com. Elizabeth Ashun is a construction, infrastructure and transport expert with Benti-Enchill Letsa & Ankomah in Ghana and has prepared this article in collaboration with Reuben Cronjé
Pinsent Masons bolsters its Competition, EU & Trade Group with appointment of Hans Jürgen Meyer-Lindemann in Düsseldorf