Côte d'Ivoire budget concerns affect infrastructure plans

 

Public-private partnerships (PPPs) have a long and varied history in Côte d’Ivoire, dating back to at least 1960. To date, PPP projects have occurred almost exclusively in the infrastructure sector, and have been carried out under a variety of models, such as private sector management, leasing, concession, build-own-operate and build-own-transfer.

Early Model

According to the World Bank, the contract for the management of water resources in the country is the oldest and largest of its kind among all emerging economies. It is often used as a case study for the expansion of such projects in other regions, with the World Bank’s “Doing Business” report lauding the “pragmatic partnership between a committed government and an efficient private operator [as a means to] produce tangible and sustained benefits for the population”.

Another of the largest domestic PPPs was the landmark 1994 electricity project with Compagnie Ivoirienne de Production d’Electricité, a subsidiary of French-owned Eranove. This $902m initiative saw the construction of the 1716-MW Vridi Gas-Fired Power Plant, 83% owned by Eranove (formerly known as Finagestion) with a 24-year contract for power provision. The project was supported by a range of loan and equity arrangements from both multilateral financial institutions and bilateral lenders over the first 20 years of its existence.

Other important infrastructure projects delivered using PPPs include the Abidjan Port expansion, which began in 2000 with a $140m investment; the CI-11 gas pipeline beginning in 1995 on $37.6m; Abidjan International Airport in 1996 ($28m); the Abidjan-Ouagadougou Railway, also in 1996 ($63.3m); and phases one to three of the Azito Power Project in 1999 ($273m). Although PPP activity slowed markedly during the 2002-11 period of civil strife, there were still two notable projects around Abidjan: the Port of Vridi had works beginning in 2004 on $36.4m, and the Aggreko Vridi temporary power plant had plans forged in 2010, with $11m invested.

Recent Developments

With the return of political stability and a strong economic recovery in the post-2011 period, PPPs have been used extensively to deliver infrastructure projects aiming to make up for years of degradation and underinvestment. One of the largest PPP projects to emerge in this period is the €270m Henry Konan Bedié (HKB) bridge traversing the Abidjan lagoon, which opened in December 2014. This long-awaited development – for which a concession was originally signed with French firm Bouygues in 1997, before work on the project was suspended in 2000 due to the political crisis – has greatly alleviated traffic congestion in Abidjan, thus significantly reducing journey times. Funding for the project comprised a €76m government subsidy, €28m in equity provided jointly by the concessioner and the government, a €58m loan from the African Development Bank, and loans from private and development banks totalling a further €108m.

Recent years have also seen a number of demandand supply-side measures to stimulate the PPP sector. On the demand side, May 2016 saw the launch of the National Development Plan 2016-20, entailing investments of CFA30trn (€45bn), of which approximately one-third was expected to be financed through PPPs. Supply-side measures have included broad-based efforts to improve the business environment for private investors, as well as a modernisation of the regulatory and institutional framework governing PPPs in particular.

Updated Frameworks

December 2012 saw the promulgation of two decrees modernising and formalising the PPP regulatory and institutional frameworks, under Decree No. 2012-1151 (the PPP Law) and Decree No. 2012-1152 (later amended by Decree No. 2014-246), respectively. The PPP Law comprises 33 articles across six chapters, covering the type of projects that can be undertaken, which activities authorities are permitted to engage in, procurement and tendering procedures, contract design and dispute resolution.

As outlined by the PPP Law, and detailed in the two institutional decrees, the National Steering Committee on PPPs (Comité National de Pilotage des Partenariats Public-Privé, CNP-PPP) was established, supported by an executive secretariat and support unit. The CNP-PPP is chaired by a representative of the President of the Republic, and composed of others representing the Prime Minister and heads of key ministries and government agencies. This serves to ensure that relevant ministries are involved when PPPs under their jurisdictions are under consideration. The committee is charged with setting and developing the country’s overall PPP strategy, approving individual PPP projects and overseeing their implementation, as well as guiding dialogue with external funding partners.

Based on the five years of experience and established international best practices, the authorities are already preparing to further upgrade the regulatory framework governing PPPs. “We expect that UEMOA will issue a region-wide directive on PPPs in 2018, after which the CNP-PPP will consider new PPP legislation that will outline, clean up and clarify elements of the original law,” Esther Lodugnon, deputy executive secretary of the CNP-PPP, told OBG. “It is also likely to introduce new features, such as the formalisation of legal requirements to establish memoranda of understanding, confidentiality clauses and guidance on how to deal with spontaneous proposals from potential investors.”

Broad Portfolio

By mid-2017 Côte d’Ivoire’s portfolio of PPP contracts amounted to 124 projects across seven sectors and some CFA11.5trn (€17.3bn) in investments. The transport and energy sectors had the largest number of PPPs, with 24 projects each. Energy schemes were at the head of the pack in terms of value of investment, accounting for CFA3.9trn (€5.9bn), more than one-third of the total, while transport came in second with CFA2.8trn (€4.2bn), just under one-quarter of total investment.

A further 58 projects were in the preparation phase, while 30 had reached the transaction phase; 11 were in the investment or construction phase and six were already in operation. Of those in the transaction phase, not all will evolve into fully fledged PPPs if private sector investors are not forthcoming, or if another delivery mechanism is chosen by the authorities. “A lack of public resources, even to carry out feasibility studies, can constrain the advancement of PPPs,” Lodugnon told OBG. “In addition to financial resources, there is a need for the relevant expertise to carry out such studies. This is not always present in the contracting authorities.”

Fiscal Dimension

One of the most attractive aspects of PPPs is their capacity to deliver big infrastructure projects without the government needing to provide funding for the entire project up front. Instead, the private investor is paid over the course of a long-term contract, which can be several decades in duration, either through availability or other contractual payments from the government, or by end-users through usage fees such as tolls or tariffs.

On the one hand, fiscal pressures on the government to meet the deficit target of 3% of GDP by 2019 (see analysis) is likely to further increase the attractiveness of delivering capital investment projects off the balance sheet through PPPs. On the other hand, however, there are fiscal commitments relating to past PPP projects which will continue to weigh on public finances over the coming years, reducing the available fiscal space for financing new capital projects or undertaking new PPPs. Commitments relating to past projects can include scheduled availability payments or, as was the case for the HKB bridge, payments arising from contingent commitments, in which the government agreed to reimburse the concessioner in the event of traffic or usage – and therefore revenue – falling below pre-agreed thresholds. Disagreements over the structuring of such contingencies are a key reason for the delays that occurred during negotiations for the Abidjan Metro PPP project.

As evidenced by government efforts to curtail expenditure and meet fiscal targets, the postponement or cancellation of capital projects is often the line of least political resistance (see analysis). Further fiscal adjustments equating to 0.5% of GDP are envisaged in both 2018 and 2019, while any overspend or shortfall in tax revenue relating to underperformance of economic growth, for example, could necessitate even greater adjustments to meet the 3% of GDP deficit target for 2019. This would put capital investment, including new PPPs, at risk of further postponements.

Future Partnerships

PPPs are sure to remain central to the government’s efforts to develop the quantity and quality of the country’s stock of infrastructure. In the shorter to medium term, the extensive pipeline of projects at various stages of delivery is likely to see more progress, especially in the investment, construction and operational phases as they successfully reach completion. Over the longer term, the large number of potential PPP projects at the preparation phase, including those foreseen under the National Development Plan, should ensure a steady supply of investment opportunities through 2020 and beyond. Flagship projects include the Abidjan Metro system.

Abidjan Metro

In November 2017, construction on the 37.9-km Abidjan Metro Line was launched by French President Emmanuel Macron and President Alassane Dramane Ouattara. The €1.4bn project will be fully financed by a loan from the French government, and will be a crucial part of the commercial city’s landscape. While the development has faced a number of delays since its first call for tender in 2013, the first phase looks set to become operational by 2021. The consortium chosen to lead the project includes French firm Bouygues, SNCF subsidiary Keolis and Alstom. The latter replaced South Korean Hyundai and Dongsan. It is estimated that the urban train will to transport approximately 500,000 passangers a day and will link the north and south of the city of Abidjan.

However, the fiscal pressures facing the government are likely to cause further delays in capital projects, including those delivered through PPPs. Assuming strong and steady growth over the longer term, one would expect fiscal constraints to ease somewhat by 2020, once the deficit target has been achieved, while the need for infrastructure will remain substantial. Therefore, PPPs can be expected to continue playing a central role in the country’s economic development for the foreseeable future.

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The Report: Côte d'Ivoire 2018

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