Public-Private Partnerships – opportunity or pitfall?

Addis Ababa, 12 December 2005- In recent years, the term public-private partnership (PPP) has become quite popular in Africa as governments start looking for new ways of financing basic infrastructure and social services.

The search has been prompted by low credit ratings and constraints imposed on public finance by macroeconomic stability programmes.

The term PPP suggests complementing the need for governments to deliver services by using the strengths of the private sector such as efficiency, cost-effectiveness and responsiveness to consumer needs. But what is the reality on the ground? Is PPP just a catchy term or do such partnerships have the potential to help achieve the Millennium Development Goals (MDGs)?

Experiences have been mixed. If properly implemented, PPPs have a great potential to help expand infrastructure and social services. In Mauritania, for example, a scheme was developed enabling independent suppliers to provide water for small towns. The government decided to decentralize the water supply management system in small towns and consequently the new rules now give local governments the possibility to bring in private operators. Today, just over 70 percent of water provision in small towns comes from the private sector, and this has resulted in more informal checks and balances between the community and the provider.

The advantages of small local public-private partnerships are numerous. Local involvement creates a sense of ownership amongst the community. And this translates into willingness to take part in the cost of extending networks. Furthermore, local concessions are a key driver of local economic empowerment as they permit a build-up of local capacity and capital.

But the beneficial link between private sector projects and public infrastructure is still relatively untapped. An obvious area for such partnerships is in the tourism industry, where infrastructure for tourist facilities can be extended to the local communities, often at low cost. Integrating the local communities and sharing economic prosperity with them has obvious benefits for the tourist industry as well.

And it’s not enough just to bring the private sector into a project and hope it will get on with the job. Governments must also build capacity within their own institutions, carefully negotiating PPP contracts, and involving all stakeholders throughout the entire process.

An example of a less successful public-private partnership is an electricity purchasing agreement in Tanzania. The state owned electricity company Tanesco signed a 20-year contract with a private power supplier in 1995. The contract included clauses that guaranteed the private supplier minimum sales or, in case of insufficient demand, compensation payments. At the time, Tanesco had enough generating capacity but was facing limits in its grid lines. The obligations contained in the contract led to increased costs in electricity production, which meant Tanesco suffered considerable financial losses.

Developing infrastructure and boosting services are key if the MDGs are to be reached. PPPs can certainly help, but they are not a panacea and governments must be selective when implementing such partnerships.