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Overcoming technical hurdles of infrastructure PPPs

The drive for high-impact initiatives has led a few sub-Saharan countries including South Africa, Nigeria, Kenya and Uganda to partner with the private sector on some infrastructure projects. Despite the ample opportunities for public-private partnerships (PPPs) – and their obvious benefits – governments have been slow to drive this agenda.

Africa needs infrastructure improvements to open doors to trade and create opportunities for economic investment. As the implementing arm for the African Union’s 2063 development strategy, the New Partnership for Africa’s Development (Nepad) focuses on incubating high-impact projects that demonstrate proof-of-concept. These are intended to translate the AU’s strategic development frameworks into national priorities.

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Southern Africa

Despite the ample opportunities for public-private partnerships (PPPs) – and their obvious benefits – governments have been slow to drive this agenda.

According to SRK Consulting partner and principal environmental consultant Darryll Killian, this may be the result of prior bad experiences with ill-prepared PPPs or even with less-than-competent PPP project sponsors. However, there are well-proven strategies and lessons that can pave the way for efficient, cost-effective and manageable infrastructure-building.

Manageable infrastructure-building

“Experience shows it is necessary to start small before embarking on larger PPPs,” said Killian. “Ensuring a higher risk allocation to the government in the first generation of PPP projects can help to unlock the flow of private capital – as investors and lenders develop enough comfort with the PPP environment of a country.”

There is also a range of technical and regulatory risks to all infrastructure projects that need to be well managed, he emphasised, especially with ever-stricter environmental and social regulations.

“Due diligence reviews of infrastructure deals are vital to ensure that there are no fatal flaws and material risks and liabilities,” he said. “With many financial institutions subscribing to the Equator Principles, risk management has become a key consideration in the funding decision-making process. Funders want to know if there are any issues that can place the project at risk, or pose reputational damage.”

It is vital to prioritise proper planning, permitting and cost efficiency in a project – and will examine how the project plans to deal with social licence issues like compensation and resettlement. Climate change and its impact on a project are also on funders’ agendas, as climate change becomes a key cross-cutting issue for proponents of infrastructure projects to address.

Taking a systematic approach

To address possible misalignment of a project with funders’ requirements, project champions need to involve funders early in the project development process; it is difficult to achieve bankable feasibility if potential funders are not satisfied with the way that project risks are addressed. Such lack of alignment can disrupt the schedule or even de-rail the whole project.

“This can be avoided by taking a systematic approach to infrastructural projects,” said Bruce Engelsman, SRK partner and principal civil engineer. “This means setting out a clear process through the stages of initiation, feasibility studies, planning, execution, monitoring and control, and closure.”

Engelsman highlights that planning and budgeting for maintenance is often underestimated. In the initiation stage, the project’s value and feasibility are measured.

“This includes assessing the project’s goals, timeline and costs to determine if the project should be executed,” he said. “Feasibility studies balance the requirements of the project with available resources, ensuring that there is a business case, that risks are adequately catered for and that it makes sense to pursue the project.”

In addition, funders stress the importance of independent due diligence reviews and reporting, said Steve Bartels, partner and principal engineering technologist at SRK.

“It is vital that third-party experts – who do not have any vested interest in the project – give their professional view on all aspects, to confirm the veracity of the technical studies, business case and plans,” said Bartels.

He argued that Africa certainly has the need and capacity to accelerate its infrastructure development – but this needs a greater commitment to best practice in initiating and pursuing infrastructural projects. Considerable potential remains for leveraging PPPs in doing just that.