Abstract

Public private partnerships have become new normals in today’s business landscape across many countries. If properly managed, governments could benefit in mobilizing financial resources, technical knowhow, innovation and efficiency gains from the private sector in the delivery of public goods and services by effectively partnering with them.

Since 2017, Ethiopia has publicly announced that it would leverage PPPs as one of its strategic tools in its development agenda. The accompanying thesis make an assessment of the theoretical and historical developments of PPPs in general and its stage of development and application in the Ethiopian context.

In the assessment, it is learned that the government of Ethiopia has committed resources by formulating a PPP policy, enacting a separate PPP law (Proclamation no 1076/2018) and outlining the institutional roles and responsibilities albeit an early development stages demanding further clarity and maturity.

For Ethiopia to achieve value for money in the PPP engagements, there are factors more of operational in nature that need to be tackled beyond setting the policy, legal and institutional frameworks. Regulatory issues; public institutions slow bureaucracy; low access to finance; low implementation capacity in the private sector, and the low capacity in the public institutions to identify priority projects, manage the PPP transactions and PPP contracts in their lifetimes are some of the constraints that would hold back the PPP development in Ethiopia as identified by this assessment.

This assessment suggests that understanding the importance and role of leadership and political commitment at the highest level of government and sustaining it during the life time of PPPs through supervisions, oversights and regular stakeholder interventions and discussions would help push achieve a successful partnership in PPPs.  Moreover, it also points out that PPPs will be implemented within the overall business constraints of the economy. Hence, improving the overall business and investment environemnts will help tackle most of the constraints in PPP development and implementation in the country.

The assessment further indicates that there is a good chance for the private sector to play a significant role in helping close the infrastructure gap Ethiopia is facing today working with the public institutions benefiting themselves and the government in the longer term. It is, however, going to be realized if they are in the best form and shape building both technical and financial capacity. 

This high level and quick research is an assessment of the status of public private partnerships and its implementation in Ethiopia. The paper assessed the historical and the current status of PPP development and implementation in Ethiopia; identified the gap in knowledge, the potential benefits and downside risks, the current drivers and the role of leadership; and highlighted better insights, to a successful development and implementation of PPP in the country.

Theoretical Framework of PPPs and Literatures review

The 1990s has seen the establishment of public private partnerships, PPPs, as a key tool of public policy across the world. Not only have they become seen as a cost efficient and effective mechanism for the implementation of public policy across a range of policy agendas, they have also been articulated as bringing significant benefits in their own right particularly in terms of developing socially inclusive communities. PPPs do offer exciting opportunities to achieve a number of public policy outcomes including a means to combat social exclusion by integrating the public and private components of the communities; the chance to reform public services making them more accessible; the opportunity to develop cost efficient ways of providing services to meet social needs; more responsive and flexible public policy making; and a route both to the reform of the political basis of the government and to the creation and sustenance of civil society (P.Osborne, 2000).

Osborn realizes that despite those important potential community gains from PPPs, their successful realization is a significant challenge. He identified five theoretical and empirical literatures on the challenges of PPPs. First, there is the theoretical literature on the nature of organizational collaboration, which raises, among other issues the significance of structural issues on collaboration, the resource dependence thesis on collaboration and the institutional paradigm. Second, there is the public management literature which has developed within Anglo American experience. This has emphasized the significance of management arguments and focused upon issues of the contractual relationships, their management and costs and the impact of trust upon them. Third, there is the public governance perspective on public private partnerships within networks and the importance of the interrelationship between the political and social context of such networks. Fourth, there is a substantial community development literature which explores public private partnerships within the context of the needs of the local community as well as the impact of the former upon the self-learning capacity of local communities. Finally, there is an empirical literature which has sought to describe the process and impact of public private partnerships upon the provision of local services and upon the development of the local community.

Osborn argues that all these literatures are significant in their own right but identified a weakness in that each has often been developed in isolation of the others. These weaknesses he argues has limited both the extent to which lessons can be learned across these approaches and also the extent to which new syntheses can be developed which surmounts their narrow disciplinary basis. He further states that there has been a narrow national focus to much of the literatures.

Historically Public-private partnerships are not new. As a matter of fact, concessions, the most common form of PPPs – where the private sector exclusively operates maintains and carries out the development of infrastructure or provides services of general economic interest – date back thousands of years. During the time of the Roman Empire, concessions served as legal instruments for road construction, public baths and the running of markets. Other famous examples include medieval Europe, where as early as 1438, a French nobleman named Luis de Bernam was granted a river concession to charge the fees for goods transported on the Rhine. Examples abound since the turn of the seventeenth and eighteenth century with many infrastructure facilities (water channels, roads, railways) in Europe and later in America, China and Japan privately funded under concession contracts. While the practice has been around for millennia, the term “Private-Public Partnership” or PPP was coined and popularized in the 1970s, when neo-liberal ideas began questioning the previously dominant Keynesian paradigm and the role of the state in the context of poor economic performance. Instead of ascribing poor economic performance to the failures or inadequacies of the market, government failure or inefficiency was blamed. New ideas, such as New Public Management (NPM), became the new vogue. In this context, PPPs were often invoked as alternatives to bureaucratic public services and inefficient state owned enterprises, often for the promotion of privatization. It was argued that handing over public tasks to private actors, (i.e., to privatize them, or to contract them out, or at least to carry them out in partnership with private businesses) was the main means to downsize the role of the state, to enhance the efficiency of the public administration and public service provision, and to reverse previously alleged crowding out of the private sector by state owned enterprises (Jomo KS, 2016).

A research paper by (Anthony E. Boardman, 2016) noted that the popularity of Public-Private Partnerships (PPPs), as a way for governments to get infrastructure built, continues to grow. But while the public is often led to believe that this is because they result in a more efficient use of taxpayer funds and a more streamlined process, this is not necessarily the case. In fact, the clearest advantage that PPPs offers is to politicians, who are able to transfer to private partners the risks of miscalculated construction costs and revenue projections (as with a toll road, for example). For taxpayers, the deals can often work out worse than if the government had simply pursued a fixed price design-build Public Sector Alternative (PSA) arrangement. Even from the very start of the process, there are often a limited number of private consortia equipped to bid on major PPPs, which already leads to the potential for bidders to build in higher profits, and thus, higher costs for taxpayers. Nor are these private consortia oblivious to the risks they assume; they must therefore build into their bid an effective “insurance premium” to account for unforeseen delays and increased costs. The use of private debt to finance construction further inflates prices over a government’s lower cost of capital. To an incumbent government, a key advantage of PPPs is the ability to avoid upfront costs, and let the private consortium arrange financing until the project is complete, allowing politicians to take the credit for new infrastructure while passing future maintenance and operating costs off onto future politicians, taxpayers and/or users. This, however, only provides both the incentive and bookkeeping artifice — since costs are incurred off the government’s current balance sheet — for governments to build more infrastructure than might otherwise be justified.

The paper further explains that advocates of PPPs would argue that one clear benefit PPPs do offer the public is an impressive record of bringing in projects on time and on budget. It is true that the inflexibility of contracts and the financial risk transferred to the private partners have a powerful effect in keeping projects on track. However, the yardsticks by which the on-time and on-budget criteria are measured are typically flawed. The “start dates” of PPPs are marked after the conclusion of a lengthy negotiation and project-planning process between a government and a private consortium, making project completions seem more efficient than they really are. Meanwhile, the estimated cost of a project has a tendency to increase during that preliminary process. In other words, the delay and cost inflation that so often characterize traditional PSAs are not magically eliminated in a PPP: they just tend to occur prior to the first shovel breaking ground, rather than incrementally over the course of the project’s construction. Ultimately, several of the problems common to traditional government PSA projects, and supposedly absent from PPP arrangements, are still there, only much harder to discern. The costs can be just as high, if not higher than with a fixed-price PSA, the timeframes can be just as lengthy, when the entire process is accounted for, and the amount of government resources tied up in the negotiation and planning process will often rival that of traditional procurement methods. Furthermore, all those risks that are supposedly transferred to private players are never truly transferred: The government is always the residual risk holder should the consortium somehow fail. From a policy standpoint, the measure of whether PPPs are worthwhile should be based not on whether they come in on time or on budget, but whether they increase social value relative to a PSA. There is, currently, no convincing evidence that they do, as the paper argues.

(UNDP Ethiopia:Prospects of Public- Private Partnership (PPP) in Ethiopia, 2015) Highlights that the investment in infrastructure and public service delivery has traditionally been the sole domain of governments around the world. This is partly due to the huge cost of investment and the fact that the returns on such investments take a longer time to be realized. The state of infrastructure in many developing countries tends to be poor and inadequate to meet the rising demand. This reveals the constraints that governments in developing countries and especially in sub-Saharan Africa (SSA), face in terms of scarcity of funds, corruption, poor planning and project formulation, as well as inefficient capacities. Public Private Partnerships (PPPs) have emerged as one of the ways to overcome these constraints. By tapping into private sector finance and ingenuity, governments are able to finance critical infrastructure, improve project preparation, execution and management and deliver efficient services to the citizens.. Many governments around the world have engaged in PPPs with the aim of improving infrastructure and enhancing public service delivery. Tapping into private resources is an ideal form of financing public developmental plans when faced with budget constraints. The growing use of PPPs is premised on efficient allocation of resources and better value for money for taxpayers.  The selling point of PPPs is that they combine the strength of the private sector (board efficiency, local innovation, cutting edge technology and finance) with the strength of the public sector (regulatory authority, budget support, capacity development support) to effectively and efficiently delivers public services.

Despite their benefits as the study found out, PPPs have their fair share of critics. Most public sector unions view them as vehicles used by government to shift work to the private sector in order to pay lower wages and offer inferior quality of services.   PPPs come with costs such as the lack of transparency and accountability, and they potentially contribute to badly designed contracts. Despite the criticism, there is overwhelming support for PPPs in the public sector, private sector, and international community and the benefits far outweigh the cost.

Public Private Partnerships in Ethiopia

(Asubonteng, 2011) Made an assessment of the potential of public private partnerships, PPPs, in Ethiopia. In the report, it was noted that although PPPs had been rapidly growing in several countries in Europe, Asia, Latin America and parts of Africa, its implementation in Ethiopia was limited; the situation was made worse as divestiture and privatization seemed to have hijacked most of the private sector interventions created by the government through the market-based approach articulated in the plan for Accelerated and Sustainable Development to End poverty (PASDEP), the Growth Transformation plan (GTP) and other development plans.”

This same report demonstrated that Government dominance and monopoly in the industry and some service sectors was crowding out the private sector. Besides, the market-based approach had resulted in the crowding in of the private sector in the infrastructure and utility sectors where the incentives for private sector to invest and engage in the provision of those services were not attractive. PPP arrangements in Ethiopia could undoubtedly establish the appropriate balance between the crowding in and crowding out business syndrome prevailed in the market-based approach to strengthen private sector development and ultimately bridge the demand and supply gap in infrastructure and service delivery. This is achievable in the short to medium term, depending on the type of projects prioritized and the way and manner projects are formulated and implemented to achieve win-win results for the public and private sectors as well as the citizens who are the ultimate beneficiaries. This arrangement can be developed and promoted in Ethiopia by putting in place a partnership framework that will facilitate the pooling of local innovation, efficiency, risk management, cutting edge technology and application of guiding principles from the private sector. The partnership also needs to be complemented by public sector authority, asset ownership, budget support, public education powers, capacity development support and application of relevant PPP guiding principles among other things, to achieve positive synergies.

Despite the interests and recommendations of development partners, consultants, private sectors and to some extent the government to develop, promote and implement PPPs in Ethiopia, there has not been any significant improvement made over the years only until recently where the government enacted a PPP proclamation (PPP Proclamation no 1076/2018). The attention given to the public sector led development in Ethiopia constrained the need to study alternative mechanisms of development including PPPs. Most of the literatures available on public private partnerships in Ethiopia are oriented where development partners are involved and the contribution of PPPs to the larger infrastructure development is so far insignificant. Following the government’s permission of the private sector to participate in energy generation in 2013, the country has witnessed a relatively momentous activity for PPPs in the form of PPA. The best example could be the first ever Power Purchase and Implementation Agreements Ethiopia signed with Reykjavik geothermal, the later to develop, finance and operate geothermal power plants that has become effective after a long and costly process of negotiations, with the intervention and support of the development partners.

(UNDP Ethiopia:Prospects of Public- Private Partnership (PPP) in Ethiopia, 2015) again asserted that in spite of a growing interest in the use of the PPP model around the world, its adoption in Ethiopia remained limited. Previous efforts at public divestiture and privatization were not adequate in addressing the unmet demand for infrastructure and public services. There have been attempts to tap on PPP initiatives however these have been few and fragmented. These include the pilot projects in irrigation and the running of an exhibition center owned by Addis Ababa City Administration in the form of management contracts and service contract modality.

(Beyene, 2015) assessed the policy, legal, and institutional frameworks for public private partnership (PPP) implementation in development process based on the perspectives of stakeholders in Ethiopia and his findings revealed that prevalence of specific legal framework for PPP, prevalence of PPP dedicated public agency, and government guarantee are the most important factors to be put in place to implement PPP in the development process of the country. The assessment further indicated an inclusion of PPP as part of the development policy, devising a specific legal framework and establishing an independent public agency for PPP was the suggestion forwarded by the stakeholders. Based on the output of the assessment, the study recommended incorporating PPP in the existed development policy as one of the development strategies, devising PPP strategy of the country and specific legal framework of PPP, and establishing a federal PPP agency with the full mandate of undertaking PPP related issues under the Prime Minister’s office.

Although there are multiple sporadic sectorial studies conducted on PPPs in Ethiopia, a comprehensive study on a country level is still quite limited and necessitates a further research to promote PPPs in the country.

(ALSF, Procuring Infrastructure Public -Private Partnerships, 2018), the most recent study in the subject highlights a low score in the four thematic areas of: preparation of public-private partnerships (PPPs), procurement of PPPs, contract management, and unsolicited proposals (USPs). The 15, 69, 41 and 25 scores indicated below respectively for Ethiopia out of the hundred bench mark score in each category suggest a lot of room for improvement to benefit from the partnership.

Factors holding back PPP development in Ethiopia so far?

According to (Asubonteng, 2011), the main constraints holding back PPP development in Ethiopia were: lack of clear-cut policy, legislative, institutional and operational challenges; high investment requirements; high perceived risks; and Lack of political and leadership commitment.

What is Public Private Partnerships, PPPs?

(World Bank Group:PPP Knowledge Lab, 2018) Defines PPP as “a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance”. It stated that ”PPPs typically do not include service contracts or turnkey construction contracts, which are categorized as public procurement projects, or the privatization of utilities where there is a limited ongoing role for the public sector; in some jurisdictions, and in particular civil law counties that follow the tradition of the Code Napoleon, a distinction is made between public contracts such as concessions, where the private party is providing a service directly to the public and taking end user risk, and PPPs, where the private party is delivering a service to a public party in the form of a bulk supply, such as a Built-Operate-Transfer (BOT) project for a water treatment plant, or the management of existing facilities (e.g. hospital facilities) against a fee, and in other countries, specific sectors are excluded from the definition, particularly those sectors which are subject to effective regulation or where there is extensive private sector initiative, such as in ICT and Telecoms. In some countries arrangements involving more limited risk transfer such as management contracts are excluded from the definition for institutional reasons as the authorities prefer that they fall under traditional procurement processes for goods and services.

It further elaborates that “Public-private partnerships (PPPs) are a mechanism for government to procure and implement public infrastructure and/or services using the resources and expertise of the private sector. Where governments are facing ageing or lack of infrastructure and require more efficient services, a partnership with the private sector can help foster new solutions and bring finance. PPPs combine the skills and resources of both the public and private sectors through sharing of risks and responsibilities. This enables governments to benefit from the expertise of the private sector, and allows them to focus instead on policy, planning and regulation by delegating day-to-day operations. In order to achieve a successful PPP, a careful analysis of the long-term development objectives and risk allocation is essential. The legal and institutional framework in the country also needs to support this new model of service delivery and provide effective governance and monitoring mechanisms for PPPs. A well-drafted PPP agreement for the project should clearly allocate risks and responsibilities”.

Given the growing demand in infrastructure facilities and provision of basic services, the private sector will design, finance, build and operate a public facility bringing speed, efficiency, local innovation and etc. for a financial return in the form of user fees or direct payment from the government through public private partnership arrangements, which would otherwise be difficult to satisfy only with the latter’s pocket.

What is Power Purchase Agreements, PPAs?

Power purchase agreements, PPAs, are essentially public private partnerships uniquely designed to the energy industry for commercial supply and purchase of electricity between a private developer and an entity, usually a state utility in Ethiopia’s case.

(Understanding Power purchase Agreements v1.3, 2014) stated PPA as “ an agreement that governs the sale and purchase of power; a contract between two parties, one who produces or generates power for sale (the seller/producer/project company) and one who seeks to purchase power (the buyer/offtaker); an offtake agreement and  an instrument intended to facilitate the sale and purchase of electrical power. Which comes into being once the prospective buyer (the offtaker) has made a series of important decisions. These decisions can include the need for power, the available sources of power, the buyer’s economic ability to purchase power, the power generating technology desired, and the location of the power plant”.

Public Private Partnership, PPP, Framework

Many researchers suggest that there is no a universal and clear cut PPP framework that would work across countries. Pertaining to the legal jurisdiction and local context, countries adopt different PPP frameworks that could best suited the opportunities and address the challenges facing them. To succeed in Public Private Partnerships, as drawn from multiple countries’ experiences, , PPPs need first be enabled- often involving introduction of PPP specific policies, processes, rules, and institutions.

As indicated in (World Bank:Public-private partnerships:reference guide version 2.0, 2014), “PPPs can be implemented on a one-off basis, without any specific supporting policy framework. However, most countries with a successful PPP program have built that program on a sound PPP framework. The ‘PPP framework’ means the policy, procedures, institutions, and rules that together define how PPPs will be implemented—that is, how they will be identified, assessed, selected, budgeted for, procured, monitored, and accounted for. Establishing a clear PPP framework publicly communicates the government’s commitment to PPPs. It also defines how projects will be implemented, helping ensure good governance of the PPP program—that is, promoting efficiency, accountability, transparency, decency, fairness, and participation in how PPPs are implemented. PPP frameworks should be comprehensive enough including the components of policy, legal, processes and institutional responsibilities, public financial management approaches, and broader governance arrangements.”

As per the reference guide, a typical comprehensive PPP framework includes the Policy, the Legal framework, the Processes and institutional responsibilities, Public financial management approaches and broader PPP Program Governance (The public, supreme auditing institutions, the legislature and independent regulators).

(World Bank:Public-private partnerships:reference guide version 2.0, 2014), stresses that ‘’the executive branch of government is largely responsible for implementing PPP projects. The processes and institutional responsibilities described in PPP Processes and Institutional Responsibilities  aim to create checks and balances within the executive branch on how those decisions are made. A cornerstone of these accountability mechanisms is the timely and comprehensive disclosure of information about PPP programs. The entities and groups outside the executive with a role to play in ensuring good governance of the PPP program include’’.

Similarly, (ALSF, Procuring Infrastructure Public -Private Partnerships, 2018) reinforced that “given the complexity and relative novelty of PPPs as an approach to deliver infrastructure, governments may need to create specific institutions to support their development. In many economies, the creation of these institutional arrangements is a relevant component of the PPP regulatory framework. While the economies assessed have adopted diverse institutional arrangements to support the development of PPPs, the creation of PPP units is a common trend. Such units can facilitate the development of PPPs by centralizing PPP expertise in a single government agency. However, as with stand-alone PPP laws, the creation of a PPP unit is not in itself a guarantee of success. Furthermore, the practicality of establishing a single centralized PPP unit is contingent on the size and administrative structure of each economy”.

(UNECE:Guidebook on Promoting Good Governance in Public-Private Partnerships, 2008) States “Governance matters in PPPs if governments are to climb the maturity curve. And the process requires putting into place the enabling institutions, procedures and processes surrounding PPPs in order to fully benefit from PPPs. This means also helping governments to play a critical role in the process and involving citizens as well as other stakeholders. Many governments, regional, international organizations and NGOs now recognize the importance of governance for economic development. Governance refers to the processes in government actions and how things are done, not just what is done. It covers the quality of institutions and their effectiveness in translating policy into successful implementation. Institutions are in general understood to be the bodies setting formal rules (property rights, rule of law etc.) while taking into account informal constraints (beliefs, traditions and social norms) that shape human interactions.” As per the guide, Good governance involves some key principles: Participation: the degree of involvement of all stakeholders; Decency: the degree to which the formation and stewardship of the rules is undertaken without harming or causing grievance to people; Transparency: the degree of clarity and openness with which decisions are made; Accountability: the extent to which political actors are responsible to society for what they say and do; Fairness: the degree to which rules apply equally to everyone in society; and Efficiency: the extent to which limited human and financial resources are applied without waste, delay or corruption or without prejudicing future generations.

Potential Benefits of Public Private Partnerships

According to (Public-Private-Partnership Legal Resource Center, 2016), the financial crisis of 2008 onwards brought about renewed interest in PPP in both developed and developing countries. Facing constraints on public resources and fiscal space, while recognizing the importance of investment in infrastructure to help their economies grow, governments are increasingly turning to the private sector as an alternative additional source of funding to meet the funding gap. As per the center, while recent attention has been focused on fiscal risk, governments look to the private sector for other reasons:

• Exploring PPPs as a way of introducing private sector technology and innovation in providing better public services through improved operational efficiency
• Incentivizing the private sector to deliver projects on time and within budget
• Imposing budgetary certainty by setting present and the future costs of infrastructure projects over time,
• Utilizing PPPs as a way of developing local private sector capabilities through joint ventures with large international firms, as well as sub-contracting opportunities for local firms in areas such as civil works, electrical works, facilities management, security services, cleaning services, maintenance services,
• Using PPPs as a way of gradually exposing state owned enterprises and government to increasing levels of private sector participation (especially foreign) and structuring PPPs in a way so as to ensure transfer of skills leading to national champions that can run their own operations professionally and eventually export their competencies by bidding for projects/ joint ventures,
• Creating diversification in the economy by making the country more competitive in terms of its facilitating infrastructure base as well as giving a boost to its business and industry associated with infrastructure development (such as construction, equipment, support services)
• Supplementing limited public sector capacities to meet the growing demand for infrastructure development
• Extracting long-term value-for-money through appropriate risk transfer to the private sector over the life of the project – from design/ construction to operations/ maintenance

Potential Risks of Public Private Partnerships

(Public-Private-Partnership Legal Resource Center, 2016), describes that there are a number of potential risks associated with Public Private Partnerships as much as the benefits including:

• Development, bidding and ongoing costs in PPP projects are likely to be greater than for traditional government procurement processes – the government should therefore determine whether the greater costs involved are justified. A number of the PPP and implementation units around the world have developed methods for analyzing these costs and looking at Value for Money.

• There is a cost attached to debt – While private sector can make it easier to get finance, finance will only be available where the operating cash flows of the project company are expected to provide a return on investment (i.e., the cost has to be borne either by the customers or the government through subsidies, etc.)
• Some projects may be easier to finance than others (if there is proven technology involved and/ or the extent of the private sectors obligations and liability is clearly identifiable), some projects will generate revenue in local currency only (eg water projects) while others (eg ports and airports) will provide currency in dollar or other international currency and so constraints of local finance markets may have less impact
• Some projects may be more politically or socially challenging to introduce and implement than others – particularly if there is an existing public sector workforce that fears being transferred to the private sector, if significant tariff increases are required to make the project viable, if there are significant land or resettlement issues, etc.,
• There is no unlimited risk bearing – private firms (and their lenders) will be cautious about accepting major risks beyond their control, such as exchange rate risks/risk of existing assets. If they bear these risks then their price for the service will reflect this. Private firms will also want to know that the rules of the game are to be respected by government as regards undertakings to increase tariffs/fair regulation, etc. Private sector will also expect a significant level of control over operations if it is to accept significant risks,

• Private sector will do what it is paid to do and no more than that – therefore incentives and performance requirements need to be clearly set out in the contract. Focus should be on performance requirements that are out-put based and relatively easy to monitor

• Government responsibility continues – citizens will continue to hold government accountable for quality of utility services. Government will also need to retain sufficient expertise, whether the implementing agency and/ or via a regulatory body, to be able to understand the PPP arrangements, to carry out its own obligations under the PPP agreement and to monitor performance of the private sector and enforce its obligations
• The private sector is likely to have more expertise and after a short time have an advantage in the data relating to the project. It is important to ensure that there are clear and detailed reporting requirements imposed on the private operator to reduce this potential imbalance
• A clear legal and regulatory framework is crucial to achieving a sustainable solution,
• Given the long-term nature of these projects and the complexity associated, it is difficult to identify all possible contingencies during project development and events and issues may arise that were not anticipated in the documents or by the parties at the time of the contract. It is more likely than not that the parties will need to renegotiate the contract to accommodate these contingencies. It is also possible that some of the projects may fail or may be terminated prior to the projected term of the project, for a number of reasons including changes in government policy, failure by the private operator or the government to perform their obligations or indeed due to external circumstances such as force majeure. While some of these issues will be able to be addressed in the PPP agreement, it is likely that some of them will need to be managed during the course of the project

Current Status of PPPs in Ethiopia

(MoFEC:Policy for the Use and Implementation of PPPs, 2017) Formulated in 2017 by Ministry of Finance and Economic Cooperation of Ethiopia reads the government’s intent and desire as “ the Government of Ethiopia has targeted the achievement of middle income status by 2025 through the application of development policies and strategies that enable rapid, broad-based, sustainable and equitable economic growth. This is achieved due to the fact that several development projects planned under the first phase of the GTP have been completed successfully through government financing. Similarly, the government paid the same attention for the execution of the projects and programs under the second phase of the GTP by allocating a huge amount of resources. However, the GTP2 implied that government financing alone cannot meet the growing demand for public services sustainably. The government understands the need for mobilizing resources from different sources other than the traditional government financing in order to meet the growing demand for public services. Particularly, involving the private sector in partnership with the government has been planned by the government to fill the gap in infrastructure financing. Public Private Partnership (PPP) is used as one of the tools to improve infrastructure services and if appropriately utilized gives the opportunity to use the private sector investment potential as required.”

Based on the policy objective, the government of Ethiopia enacted a PPP proclamation in 2018 (proclamation no 1076/2018) setting the legal and institutional basis for the development and implementation of PPPs. In essence, the government showed its commitment to PPPs by introducing a separate law for managing PPPs.

The policy document further elaborates the role of PPPs and the desire of the government to close the infrastructure gap through increasing an economy’s competitiveness and enabling higher private sector productivity; Support the investment policy through attracting the necessary FDI; and create economic stability through prudent management of public debt; by using PPPs as an additional tool in the development process.

(IMF:Country Data, 2018) Forecasts an 8.5 percent real GDP growth for Ethiopia in 2018. Although the inflation rate stays double digit, the overall economic prospect for 2018 is positive but faced with many other unpredictable challenges. As per (WEF:Global Competitiveness Index 2017-2018, 2018), the most problematic factors for doing business in Ethiopia are foreign currency regulations, corruption, access to financing, inefficient government bureaucracy, inflation, inadequate supply of infrastructure, poor work ethic in national labor force, inadequately educated work force, tax rate, policy instability etc. to mention just the few.

(Africa Competitiveness Report 2017, 2017) also stressed that large infrastructure deficits, significant skill mismatches, slow adoption of new technologies, weak institutions, weak financial sector development and low levels of regional trade and integration, emerge as the main bottlenecks that prevent African economies from offering an environment that facilitates better employment and entrepreneurship opportunities to its citizens. The case in Ethiopia is a very good example to such a reality.

Faced with such realities, the government of Ethiopia is progressively promoting the development and implementation of PPPs in the country through an active engagement with the private sector.

It clearly stated the PPP policy goals as: expanding public service activities, reduction in project delays and cost overruns and increased utilization of resources from the private sector on public services; and objectives as: increasing the financial resources available for the development and delivery of infrastructure services by leveraging private sector investment and management, capture the benefits of private sector involvement in infrastructure development through the alignment of public and private sector incentives and the use of appropriate risk transfer, in the meantime protecting the public interest, promoting the participation of the private sector in infrastructure service delivery wherever such value can be realized, appropriately designing PPP frameworks based on infrastructure needs as well as local circumstances and constraints, maintaining the ultimate accountability and the central role in the definition of the function of the private sector in a particular project and the ongoing monitoring of performance of the private sector partner and committing to assess the use of PPPs by considering the overall benefits to the country of various PPP projects against the overall Government resources consumed to deliver these projects.

One of the basic requirements to enable PPPs in a country is setting up institutions and clearly defining their roles and authorities. (Proclamation to Provide for the PPP(draft), 2018) details the institutional set up and role of the institutions as: the Public Private Partnership Board consisting of the Ministry of Finance and Economic Cooperation (Chair), the National Bank of Ethiopia, the Ministry of Water, Irrigation and Electricity, the Ministry of Transport, the Ministry of Public Enterprises, the National Planning Commission, the Ministry of Federal and Pastoralist Affairs, and two members appointed by the Minister (Chair) from institutions representing the private sector with a responsibility of approving PPP project structure, significant changes to the risk allocation or expected cash flow, any significant amendment to a Project Agreement, the tender or negotiation results, identifying an appropriate Contracting Authority, recommending specific tax or other incentives,  government support with a power to prohibit a Contracting Authority from issuing any solicitation document and/or formalizing any agreement for any Public Private Partnership project which does not demonstrate Value for Money or meet minimum standards and instruct a Public Body or a Public Enterprise to carry out a project as a Public Private Partnership project; the Public Private Partnership Directorate General acting as  secretariat to the board; Contracting authority( Public entities and public enterprises) tasked with an overall responsibility of initiation, development, signing of Project Agreements and implementation of Public Private Partnership projects it administers.

The proclamation (draft) also outlines the procurement procedure for PPP transactions (two stage bidding, competitive dialogue, direct negotiation and admission of unsolicited proposal as deemed necessary) and the steps to be taken in each procurement procedures.

In a bid to incorporate public opinion, a survey was conducted on selected individuals in selected institutions in a structured questionnaires format. The analysis from the survey data indicated that more responders believe that the PPP proclamation’s enactment is timely to benefit Ethiopia in the PPP implementation. The majority of the responders think that PPP implementation is still in the early stages of development; the energy sector could be one of the priority sectors which is suitable to PPPs.

More respondents agreed to the government’s motive of recognizing the private sector as an essential strategy to realize the country’s development objectives, including the infrastructure system; its  desire to establish a favorable legislative framework to promote and facilitate the implementation of privately financed infrastructure projects by enhancing transparency, fairness and long-term sustainability; and the necessity in the country to further develop the general principles of transparency, economy and fairness in the award of contracts by public entities through the establishment of specific procedures for the award of infrastructure projects, in legislating the PPP law.

Given the current state of the economy, a question was raised for all the respondents if they think that Ethiopia is going to leverage PPP as a mechanism to come out of a crises as experience showed in many other countries. The majority of respondents did agree very slightly.

At the same time, most of the respondents strongly agree to the significance and relevance of PPP and PPA implementation in Ethiopia especially at this level of development. Expectedly, almost all respondents agree to the notion that PPPs would have a place and a role to play if the economic policy is shifted favoring the private sector as is happening recently. 

Despite the enactment of the PPP proclamation, most of the respondents think that there are other factors as well that would affect PPP development in Ethiopia. Even if the government formulates a policy and enacted a PPP law, most responders have doubts whether the PPP governance is sufficiently and clearly defined;  better positioned; transparent and if there is indeed a political and leadership commitment. Most respondents have also a concern in the private (local) sector in acquiring the knowledge, building the required capacity and access to finance etc.

The outcome from the survey also shows that while the most likely challenges to the private sector mentioned by the responders were regulatory burdens, limited implementation capacity and access to finance; the most likely challenge to the government quoted were managing the PPP transaction, identifying priority projects and managing PPP contrasts in their lifetimes.

Although there are few who do have a concern, overall, most agree that Ethiopia could achieve value for money if the country continued the PPP engagement.

Conclusion

The main constraints mentioned by (Asubonteng, 2011) to PPP development in Ethiopia were: lack of clear-cut policy, legislative, institutional and operational challenges; high investment requirements; and high risks. (Beyene, 2015) too assessed the policy, legal, and institutional frameworks for public private partnership (PPP) implementation in development process based on the perspectives of stakeholders in Ethiopia and his findings mentioned that prevalence of specific legal framework for PPP, prevalence of PPP dedicated public agency, and government guarantee were the most important factors to be put in place to implement PPP in the development process of the country.

This assessment finds out that there has been a lot of progress in the making in the development and implementation of PPPs in Ethiopia which became apparent since 2017. A separate policy, legal and institutional frameworks that will govern PPPs in Ethiopia are already put in place. The government has shown its intent and commitment to work with the private sector to meeting its PPP and overall development policy objectives using PPPs as one of its strategic tools. Regulatory issues; public institutions slow bureaucracy; low access to finance; low implementation capacity in the private sector, and the low capacity in the public institutions to identify priority projects, manage the PPP transactions and PPP contracts in their lifetimes which are all more of operational in nature are the concerns for many to achieve a success in PPP implementation in the country.

The assessment also indicates that there is a good chance for the private sector to play a significant role in helping close the infrastructure gap Ethiopia is facing today working with the public institutions benefiting themselves and the government in the longer term. It is, however, a suggestion by many to build both technical and financial capacity.

Despite the constraints, however, there is a common understanding both in the public and private institutions’ experts that Ethiopia could achieve value for money from PPPs if the operational constrains are effectively managed. (Doing Business 2018, 2017) a flag ship report of the World Bank ranks Ethiopia 161 out of 190 economies in ease of doing business across countries, a rank close to zero being the best performer, and 47^th out of 100 in the distance to fronitier measure, a score close to zero indicating the lowest performance. This ranking places Ethiopia among the poorest performers highlighting the challenges of doing business in the country in general. Added to the peculiar constrarints of PPPs and PPAs, implemeting successful partnerships could be challenging unless all the stakholders are aware of the exisitng and emerging challenges and take improvement actions on a continous basis.

Given the resource potential and the expected demand from the growing economy in the future, the energy and power sectors are found suitable for PPP and consequently to PPA, more importantly at the beginning of the PPP practices.  The breakthrough Corbeti and Tulu Moyo 1040 MW Power Purcase and Implemenetaion Agreements signed among a private developer, Ethiopian Electric Power and Ethiopian Governement is an indication of the sector’s attractiness to PPPs (Raykjavik Geothermal Press release, 2017).

Recommendations

PPPs could be viable options to meeting the investment needs of the country, help close the existing infrastructute gap and improve other bussinesses and the economic policy objectives set by the government.  For PPPs to achieve a  true value for money in Ethiopia, the following recommnedations are suggeted to be in place.

• Understanding the importance and role of leadership and political commitment at the highest level of government and sustaining it during the life time of PPPs through supervisions, oversights and regular stakeholder interventions and discussions,
• PPPs will be implemented within the overall business constraints of the economy. Improving the overall business and investment environemnts will help tackle most of the constraints in PPP development and implementation,
• The role of PPP units, implemeting authorities, their responsibilities and accountabilities need to be clearly and sufficiently defined,
• The capacity of PPP implementing units need to be strengthened financially and be sufficiently staffed with the required make up of skill sets,
• A detailed procedure for the end to end PPP transaction need to be prepared and published,
• Enable, support and treat the private sector as a genuine partner in the public goods and services delivery effort,
• Effectively control the up front costs of PPP project identification and selection and manage the fiscal implications of PPPs,
• Promote cross border trade to attract more private sector interest for PPPs,
• Build and manage IT based platforms to promote transparency of PPP projects and maintain visibility of the PPP projects’ risks in their lifetimes,
• Until the required capacity is built, the PPP directorate need to work with development and consulting agencies which have a demonstrable experience managing PPP trasactions.

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