BY JACK ASSA
Last
week, we briefly looked at the definition of public private partnership (PPP)
and why it was important to use it as a strategy to deliver much needed public
services in the country. Now we will look at how PPP can be implemented, the
crucial issues in reforms, the best practices in the field by SOEs, and the specific
PPP models that may be considered by the SOEs in the country.
The
implementation of PPP requires a win-win solution
between two seemingly conflicting premises. On one hand the government has a
mission to keep provision of public services remain as a social function, while
(logically) on the other hand the private sector when given the opportunity
would do it on the basis of normal business terms in order to secure investment
returns and the ability to reinvest. To deliver services through PPP
successfully a great change in perception on how public services are made
available with respect to these two opposing premises has to prevail.
In effect, adopting PPP concept implies a
change of vision, namely a shift from security oriented to prosperity oriented one; however
still in proportional balance between the two. This leads to the need for reform in legislative,
institutional and regulatory frameworks governing economic sectors related to
public service activities. Indeed, the reform constitutes the strategic element
in approaching towards successful PPP implementation. In today’s globalized
economy, the reform should also be aimed at attracting foreign development
investment (FDI) or private sectors.
Since
PPP is designed to satisfy public needs, the strategy in achieving it must
be guided by a number of general public domain principles. Firstly, the state
must remain natural the monopoly holder of public services, in the sense that
it remains the guardian of public interests while simultaneously adopting a
pro-business vision in playing this role, by positioning itself as an
affirmative regulator and facilitator. Secondly, the
government, despite sharing with the private sector, will not shift the ultimate
responsibility and accountability with respect to the public from the state to
the private sector. Thirdly, the public will be the eventual decision maker in
choosing what utility services that they need, with the quality and at price
that they can afford to pay. (This is why PPP can be referred to as an agent of public empowerment).
Thirdly, PPP will
enhance new development and expansion of the public service
utilities to meet the growing public demand. This will also promote skill development and technology transfer especially
in the management, operation and maintenance of public service utilities. And
finally, transparency and best practice towards public accountability are
to be most important code of conduct of both the government and the private
sector. How far can the reform be a pro-business one,
and yet still subscribes to these principles will really determine
the success of PPP.
Nevertheless,
PPP will face some crucial issues. The first issue is ownership right on
assets. By nature, the state is very much concerned about sovereign right on
the public assets. Investment in public infrastructure development is a
considerably high risk undertaking, thus ownership is a principle issue to
investors (and their money lenders). Actually their main concern is that assets
need to be placed under their control during operational period in order to
be bank collateralable to
safeguard their investment against major risks. However, in PPP concept
asset ownership is shared between the government and the investors. Normally the
government owns and control assets which are already existing (including land),
while investors provide capital and technology. As natural monopoly on public
services is still lies with the state, in PPP it is an absolute necessity that
the government plays a role as a strong but credible regulator, while at the same time a
good facilitator to
investors. In whatever business format adopted, the main aim concerning
ownership is eventually how to come up with a legal framework which will ensure
bank collateralability of assets by investors (or the like, one way or the
other), but politically also gain public acceptance. By exercising more
prosperity rather than security mentality in the reform process, the issue of
sovereign right on assets in this variety of possible business formats should
no longer hold relevance and could be comfortably resolved.
The
next issue facing PPP is operation and management of assets. As the government is natural
monopoly holder of the provision of public services, commonly it will
give concessional rights to
one or more of its state companies to operate and manage public assets. Private
sector may then be given a role as sub-contractor to the state company to do
the job, or given delegation authority to manage and operate, on behalf
and under the flag of the state company. With today’s need for massive
investments in public infrastructure development, government’s application of
this principle is no longer attractive to investors. They would be reluctant to
invest if not given right to directly control assets. Since PPP is a concept of
sharing risks, responsibility and accountability, based on the prevailing
social and business environment a number of possibilities can be explored
to solve this dilemma with a win-win proposition to both sides through a joint-operation scheme. This is
where the entire business operation and management of assets are jointly
executed by both the state company and the investors, but with the state
company still bears the main responsibility and accountability to the public.
The third issue is risk sharing
and mitigation. Since the investment is highly capital intensive,
investors would definitely need maximum mitigation of non-commercial risks, and
to a certain extent also commercial ones, in form of reliable investment
protection regime with credible judicial and arbitration systems adhering to
international standards and institutions. Commitment of the government to
provide back-ups or guarantees, or at least its accommodative attitude to
affirm support in solving these private investor’s concerns, would be another
concrete manifest of sharing of risks-responsibility-accountability on the side
of the government.
The
final crucial issue is concerning tax. One major consideration before investors
decide on investing in infrastructure development is whether there are tax and
other fiscal incentives provided by the government, at least during the
operational years before reaching break-even-point. These include income tax
holiday, reliefs from VAT, witholding taxes and other levies
as well as tax discounts. Such incentives will speed up investment returns,
encourage investors to further reinvest in new as well as expanded
infrastructure networks, enhance skill development and transfer technology.
Moreover, reforms need to be accompanied by best practices in SOEs. Very
importantly, the function of state institutions is to regulate and facilitate public service
delivery. IPBC need to be in synergy to ensure effectiveness and
efficiency beginning from the planning
stage, devising of project tender & contracting procedures down
through supervision on their
execution stage. In addition to be efficient and productive, SOEs which
are involved in the PPP need to change their culture and business ethics, from
traditionally closed and
accountable only to shareholder to more open, transparent,
environmentally aspired and accountable to the public. With such ethics enterprises will
have a greater sense of public responsibility. They will look at the public not
just as an object, but rather as a subject, thus empowering the public as a
market, not just the enterprises themselves as such. Such a change in corporate culture is a
prerequisite for the success of PPP where win-win settlements with the state
will be much more likely achieved and open the flood gate for service delivery.
Furthermore, SOEs need to decide as to what specific
PPP Models to use. The following are some of the models that can be applied. Build-Operate-Transfer
(BOT) is the most common model applied in many institutions today. This model is normally
suitable for PPP in new projects to develop non-moving basic infrastructure
networks such as toll-roads, electric power transmission & distribution lines,
main airports and seaports etc. Private sector with or without equity
partnership in a joint-venture with state owned company, may develop the
infrastructure. The operation however is to be jointly performed with the
licensed state company. After a number of years as specified in the
BOT-contract, ownership of assets is transferred to the state company. The
joint-venture company may then continue developing new projects, so in effect
it operates like a developer company.
Secondly,
the Build-Transfer-Operate (BTO)
model is suitable for upgrading or modernization of existing non-moving basic
infrastructure. The investors with or without equity partnership in a
joint-venture with state owned company, develop the project but after
completing the construction ownership of new assets is transferred to the
licensed state company and the system may be jointly operated for a
specified/unspecified period of time.
The third model is Build-Own-Operate (BOO). This model is suitable for
the development and operation of the rolling stocks utilizing the non-moving
basic infrastructure such as roads, Independent Power Plants, etc. Investors
with or without equity partnership with state owned company, may develop, then
own and operate the system with no obligation to transfer the assets to the
state. With BOO model competition is stimulated and service quality improved.
Let
me conclude by saying that private sector has huge potential to deliver public
service. Therefore, the state and its entities need to partner with the private
sector through one of the PPP models.
This will not only result in a “win-win” solution, but deliver much
needed public services effectively and efficiently to the people. Next
week, we’ll look at the issue of “conjugal bail of prisoners for sex to curb
sex crime” in Papua New Guinea. Wish
you God’s blessings for now.
The writer is undertaking postgraduate studies and living in Indonesia.
For comments and feedbacks, he can be contacted on jackassa945@gmail.com
(email) / +081273238217 (Mobile Phone).
Source: Sunday
Chronicle Newspaper Papua New Guinea 30th June 2013
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