Infrastructure development through the PPP projects in Africa
Africa Focus
Africa embraces PPPs for infrastructure with PIDA. Mega projects drive regional growth. Countries adopt guidelines like UNCITRAL, World Bank PPP Reference Guide to facilitate partnerships.
Law Update: Issue 360 - Africa and Transport & Logistics
Khaled AttiaPartner, Head of Dispute Resolution - Egypt
As infrastructure developments in Africa gain momentum, Public-Private Partnerships (PPPs) is considered a leading method for executing large-scale projects. PPP finds their value in encouraging innovation and keeping infrastructure projects off the public sector balance sheet. The Programme for Infrastructure Development in Africa (PIDA) serves as a continental initiative focused on mobilizing resources to effectively expand and maintain infrastructure in Africa which will be financed by multiple sources, public, private or a combination of the two.
Africa is currently engaged in multiple mega projects accelerating regional economic growth with projects valued at over 3.3 billion $USD. Examples of such projects include the “Makurdi Hydropower” Project in Nigeria that is currently one of the largest PPP projects in the energy sector in Africa, the “Halele Werabersa I & II Hydropower” project in Ethiopia valued at 1.2 billion $USD. There are also several mega projects that focus on infrastructure such as the “Monorail” project in Egypt, and the “Rusozi-Nyamugali-Mahama Refugee Camp Road” in Rwanda.There are general guidelines that govern PPP across various regions, such as the UNCITRAL Guidance on Public-Private Partnership/Concession Laws (2000) and the World Bank PPP Reference Guide (2017). Several African Countries adopted PPP laws following these guidelines including Egypt (the PPP Law No. 67 of 2010), Ethiopia (Proclamation No. 1076/2018), Ghana (The Public Private Partnership Act, 2020, Act 1039), Nigeria (Infrastructure Concession Regulatory Commission Act "ICRCA"), and Rwanda (legislation No. 14/2016). All of these various regulations seek to decrease the amount of confusion around PPP projects, thus ensuring more efficient management and defined rights and obligations for both project participants.The most common method in engaging private sector in public projects is public tendering, in which governments select private individuals to implement large infrastructure projects which are then referred to as PPP projects, Build-Operate-Transfer (BOT) or Build-Own-Operate-Transfer (BOOT) contracts.
PPP procurements require extensive negotiations during which the PPP contract shall be discussed and refined. A proper PPP selection process shall ensure fair competition between investors and full transparency between the tendering authority and the bidders. one important aspect of PPP projects is risk allocation. The adopted risk allocation policy for PPP shall allocate the risks to those best able to manage them. This variation of risk level happens mainly due to the fact that the powers, influence and information available for the public and private sectors are distinct from each other, hence each of them will control the risk differently. Therefore, a goal of a well-designed PPP risk allocation policy is to pick out the strengths of both parties and allocate the risk to the party who can efficiently and timely manage them. Moreover, due to the scarce financing resources of African Developing Countries, large-scale PPPs in infrastructure tend to adhere to the project finance technique, implicating that, lenders look for cash flows of an investment for repayment. The advantages of this method are the cutback of financial risk of investors and the higher control of the project governance / performance by the lenders. Therefore, even though the private partner may be responsible for the financing of the project, yet the public partner must understand the financing structure and consider possible implications on the government fiscal budget and the government ability to take part in financing the project.COVID-19 has impacted the public and private sectors by minimizing financial stability and increasing investment risk. Consequently, some initiatives such as the Infrastructure Consortium for Africa (ICA) aim to facilitate the financing of infrastructure projects. Furthermore, Development Finance Institutions (DFIs) on both international and continental levels play a critical role in connecting development funding to African infrastructure needs. Additionally, The African Development Bank (AfDB), Africa’s premier DFI, recently launched 50 Infrastructure vehicle with the aim to mobilize private financing in the energy, transport and water sectors. During March 2020 the Bank committed 10 US$ billion to support African governments and the private sector.
PPP projects can take the lead in achieving African states aspiration for development and integration.
As the PPP contracts tend to be complex long-term agreements involving multiple stakeholders and including changing legal regimes, disputes are almost unavoidable. Therefore, defining dispute resolution process helps ensuring disputes are dealt with and resolved efficiently and without interruption of performance of the project. Dispute resolution mechanisms can stem from international treaties or national PPP legislations or can be agreed upon in the PPP contract.
Taking Egypt as a starting point, disputes arising out of PPP contract may be resolved amicably through various committees established under the PPP Law. In case not resolved amicably, the Law provides that both parties may have recourse to litigation or alternative dispute resolution mechanisms, including arbitration, provided that the competent authority has approved the agreement to arbitrate pursuant to the PPP Law No.67/2010. The said Law requires that in all cases, the applicable law to the dispute shall be the Egyptian Law.
ICRC Act of 2005 does not provide for how disputes shall be resolved. Recourse would, therefore, be made to the Nigerian Arbitration and Conciliation Act of 2004.
In Nigeria, dispute resolution methods in PPP infrastructure contracts include Arbitration, Litigation, Negotiation, Conciliation, and Expert Determination. ICRC Act of 2005 does not provide for how disputes shall be resolved. Recourse would, therefore, be made to the Nigerian Arbitration and Conciliation Act of 2004.
Considering South Africa, the Arbitration Act No.42/1965 and the National Treasury Standardized PPP provisions encompass a lengthy multi-staged dispute resolution process. First, disputes should be referred to project officers to proffer solutions (internal referral). If the latter failed, disputes should be referred to mediation. Lastly, parties may resort to litigation or arbitration.
One important conference that is taking place annually is the Africa PPP event aiming to examine infrastructure challenges and new approaches. The 12th Africa PPP Conference took place virtually in 2020, under the theme “Partnering on public infrastructure projects for sustainable development and economic growth”. The 13th Africa PPP Conference will be held in October 2023 in Morocco.Some other developments are taking place under the Economic Community of the West African States (ECOWAS) to coordinate power exchange among 15 member countries of ECOWAS and to integrate the national power of the states into a unified regional electricity market. Another example of cross-border infrastructure projects in Africa is the East African Railway Master Plan for rejuvenating existing railways serving Tanzania, Kenya, Uganda and extending them initially to Rwanda and Burundi, to South Sudan, Ethiopia and beyond.
With all these developments in Africa and the evolving aspiration of African states for more integration, PPP projects in infrastructure sector cannot be underestimated. Efforts should be aligned to have clear vision on how to benefit from the available resources in each African country and how to engage the private sector in all developmental plans. Expertise in drafting PPP contracts and managing them throughout the life of the project in any African country can be done with the support of the international community such as the World Bank, the UNCITRAL and the Development Finance Institutions.
For further information,please contact Khaled Attia.
Published in August 2023
