S/L PPP CONTEXT
SIERRA LEONE PPP CONTEXT
Since the end of the civil conflict, the Government of Sierra Leone’s (GoSL) economic policies have focused on rebuilding its economy and infrastructure to lay the foundations for future growth. It sets out its development objectives in the Agenda for Prosperity with a clear focus on improving energy availability, employment opportunities, and transport infrastructure, Fisheries Infrastructure, Tourism and agriculture productivity through the involvement of the private sector. However, infrastructure remains a major challenge in Sierra Leone, and this has limited private sector development and consequently held back further improvement in Sierra Leone’s Doing Business rankings.
While recognizing the challenge, the government has looked to PPP funding alternatives with a view of exploring private sector solutions to this bottleneck.
To tackle this challenge, The Government of Sierra Leone set up the Public Private Partnership Unit within the President’s Office to manage the inflow of solicited and unsolicited proposals and promote Public Private Partnership solutions. In a bid to further encourage and professionalize the process by which PPPs are established and to ensure that line Ministries have improved access to the capabilities required to evaluate and negotiate proposals, the Government determined that it needed a PPP Policy and implementation framework. This resulted in the provision of legal authority to the PPP Unit, which further strengthened the enabling environment for the Private Sector. It is important to note that in October 2014, His Excellency the President of the Republic of Sierra Leone assented the Public Private Partnership Act of 2014 after it was passed by the Parliament, to allow greater use of public-private partnerships in Sierra Leone.
Before now, the Government realised the need for additional capacity and experience in developing PPP projects and arrangements. The Act establishes a dedicated PPP Unit charged with the responsibility to manage the projects in collaboration with the relevant Ministries, Agencies & departments who have the primary responsibility for the projects from inception to the implementation phase. Development Partners have been key to establishing the PPP Unit.
A Public-Private Partnership (PPP) refers to a contractual arrangement, mostly long-term, between a public sector entity (ministry, department, agency or local council) known as the “Contracting Authority” and a private sector entity, known as “Private Partner” in which the Private Partner assumes responsibility for the delivery of a public service. It involves the sharing of risks and represents a co-operation between the public and private sectors, drawing on the relative strengths of each party, in order to establish a complimentary relationship between them.
The main benefits of PPPs is that it gives the Government the ability develop and deliver new services despite short-term fiscal constraints by harnessing private sector resources; it provides value for money through efficiencies in procurement, construction and operation; and ensures improved service quality and innovation through the use of private sector expertise and performance incentives.
There are several general forms and major categories of PPP universally. However in Sierra Leone, the following are common:
- Service Contracts
- Management Contracts
- Lease Contracts
- Concession Contracts
- Build–Operate–Transfer (BOT) Contracts
In a service contract, the public entity pays a fee to a private sector service provider to provide specific operational services. It is commonly referred to as “contracting out” and has been increasingly used as a means of reducing operating costs as well as accessing new technologies that the public sector cannot provide on its own. Under a service contract, the private partner provides little or no financing for capital investments. Since the primary benefit of such contracts is to reduce cost, they are typically short in duration.
With management contracts, the private partner assumes responsibility for providing management to an existing government delivery system. Sometimes this does not require significant institutional change and mostly affects the top level management with freedom to the private partner to make day-to-day management decisions. Under a management contract, the private partner’s remuneration is typically some combination of a fixed fee as well as performance-related pay (called “incentive compensation”) by the public sector. The goal of this type of PPP is to improve overall organizational performance.
The goal of a lease is typically to improve the overall commercial performance and quality of service of an existing public enterprise. Under a lease, the private sector service provider assumes responsibility for funding the regular operations and maintenance of the leased facilities (these facilities could be an entire enterprise such as a water distribution utility, or a portion of an enterprise such as a container terminal that is part of a larger port). Additionally, the private partner is responsible for providing working capital and funding the replacement of short-term assets and spare parts, etc. In most cases, the private operator is required to set up a special purpose vehicle (SPV) specifically to carry out the services under the lease.
These two types of arrangements are largely similar. In both cases, the private sector entity finances, designs, build, operate and maintain facilities for the public sector. The key difference is that BOTs are typically stand-alone facilities, such as water treatment facilities and electricity generation facilities, which entail GREENFIELD construction, whereas concessions generally transfer the responsibility for EXISTING facilities to the private partner. In both, the revenues generated from the services are used to pay back the private partner. In concessions, in addition to financing, the private sector is required to perform a range of services to support the realization of the revenues (e.g. billing, tolling, etc). Like leases, SPVs are also established to operate the services.
Privatization and PPPs are both forms of private sector participation in infrastructure service delivery. However, in PPPs the public sector retains underlying ownership of the asset and accountability for service delivery while physical asset provision and service delivery is provided by the private sector in line with the PPP contract agreement. Risks and rewards in PPP are shared in line with the PPP contract between the public and private sectors.
Privatization refers to the partial or full divestiture of government ownership of an asset, after which asset maintenance and service is determined and provided by the new private owners. No risks and rewards are shared between the public and private sectors in privatization. The new private owners bear all risks and rewards conferred by their full or partial ownership of the asset.
Three main reasons that motivate governments to enter into PPPs for infrastructure and service are:
- To attract private expertise and or capital investment for infrastructure and service delivery improvements.
- To increase efficiency and use available resources for infrastructure and service delivery more effectively.
- To reform sectors through a reallocation of roles, incentives and improve accountability.
The time frame for PPPs depends on the type and size of infrastructure under consideration. Service or Management contract PPPs focus on improving service delivery with limited investment and risk transfer to the private sector and can be delivered in 3 months to 3 years. While economic and social infrastructure PPPs like airports/roads delivery require detailed studies, financing, risk transfer to the private sector and often involve significant sector reforms by the public sector. They can take between one to seven years from conception, through development to implementation and service delivery.
- The PPP Act gives MDAs the legal authority to enter into PPP agreements with the private sector.
- It creates the legal framework which gives the private sector confidence to engage with the public sector.
- It allows for the continuous monitoring of signed contracts by the PPP unit for compliance.
An unsolicited bid is a proposal by a project proponent or prospective PPP partner or contractor which is not in response to an advertised ‘request’ by a public sector procuring authority.
PPP Unit collaborates with the public authority to identify, develop and package PPP projects and manage the PPP procurement process to ensure it meets the standards set by the PPP Act and PPP guidelines.
PPP Unit is involved with all economic and social infrastructure asset classes such as roads, rail, housing, ports, health, education etc.
PPP Unit is to be contacted at the inception of any project or project idea.
In addition to its core function of ensuring that PPP contracts are implemented as signed, the PPP Unit also ensures that:
- The expectations of the private investor are met with in compliance with the terms of the agreement.
- The public sector gains as much as possible from the PPP arrangement through revenue sharing, financial savings and efficiency improvements.
- Risks and benefits between the public and private sectors are clearly defined and mitigated.
