Over the past 10 years, the government has been pursuing policies aimed at encouraging the private sector to invest resources to provide an accelerated delivery of public infrastructure and services. The government admits it lacks the resources to bridge the gap and needs the private sector to play a major role. Accordingly, in 2011 the government adopted the National Policy on Public-Private Partnership (PPP), pending the passage of a draft PPP bill, defining it as “a contractual arrangement between a public entity and a private sector party with clear agreement on shared objectives for the provisions of public infrastructure and services traditionally provided by the public sector”.
The government has held road shows to attract investors to the priority areas, including airports, railways, roads, seaports, hospitals and social infrastructure. The response from both local and foreign investors has been very encouraging; however, the key question often arises as to whether Ghana’s current legal regime allows the private sector to invest in public sector projects and whether said investments are safe.
The answer to both questions is yes. Article 36 (2) of the Constitution enjoins the government to promote private sector involvement in the economy. There is also an entrenched constitutional guarantee against expropriation and nationalisation of private sector assets. In addition, many state agencies are empowered to enter into arrangements, albeit using different terminology (like BOT or BOOT, which are essentially subsets of PPPs). The Ghana Highway Authority, the Ports and Harbours Authority, the Railway Development Authority, the National Identification Authority and several state-owned companies, like the power distributor, are empowered to do so.
Government's Dual Role
The Ministry of Finance (MoF), through its Public Investment Division (PID), and the inter-ministerial PPP Approval Committee perform the core functions of oversight. Although the government promotes PPPs, it must also protect the public interest. Accordingly, the MoF has the additional role of ensuring that projects that fail to meet all the key requirements do not go through the pipeline. This is because PPPs elsewhere have led to governments shirking their responsibility to provide public sector goods and services and creating huge national debts resulting from non-viable projects. The PID has two units, the PPP Advisory unit, which provides technical expertise, and the Project Financial Analysis unit, which, with the support of other units, acts as a gatekeeper.
Amortisation Of Investment & Profit
While there are no legal restrictions on the rate of return of projects, most sectors have tariff regulation mechanisms to ensure balance between end-user affordability and private sector profit. Investors must recognise that this is especially relevant for power and water.
A private sector partner may be selected either through a competitive process or through an unsolicited proposal; however, there is a general requirement that processes be fair, transparent, cost-effective and have the maximum local content and eventual technology transfer. Additionally, unsolicited proposals must be subjected to value-for-money assessment. Under the draft bill there is a proposal to introduce a mini competitive process at the end of an unsolicited bid, similar to a Swiss challenge.
Sovereign Guarantee & Public Sector Support
The question of sovereign guarantees is often asked by investors, and the answer remains the same: the government may provide sovereign guarantees on a case-by-case basis, subject to final approval by Parliament, as required by law. Ghana is currently facing challenges with its debt-to-GDP ratio, which limits the frequency with which guarantees can be granted.
The government is exploring the World Bank’s partial risk guarantee and escrow account mechanisms as alternatives. The recently enacted Ghana Infrastructure Fund Act, 2014, may provide cushioning and help create more success stories. Clearly, multiple issues are emerging and the government and investors will have to work together to achieve a true win-win situation.
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