Unpacking the public private partnership concept
The Privatisation Commission (PC) recently transformed into the Public Private Partnership Commission (PPPC) to reflect its new and broader mandate. In this interview The Nation Deputy Editor AUBREY MCHULU engaged PPPC chief executive officer JIMMY LIPUNGA to get more details and unpack the PPP concept. Excerpts:
We have noted the change in the name of your organisation from the Privatisation Commission (PC) to ‘Triple Ps and a C’, standing for the Public Private Partnership Commission (PPPC). What necessitated this change?
It was all about evolution of the process. It also stands for progression. You will recall that through the privatisation process the government relinquished control over businesses for the private sector to enter the market. That was dovetailed with liberalisation to facilitate new businesses in the economy. In other words, there was divesture i.e. conveying the idea of the release of control of enterprises by the State.
However, one area that was not listed in the divesture plan, that was not opened to the private sector were the natural monopolies and infrastructure such as water and energy due to their high cost of entry. These needed a different framework to stimulate new investors. PPP, on the other hand, was progression. Having dealt with privatisation, it was thought that well, why not involve the private sector in other sectors as well as to areas that were traditionally managed by the State.
Basically, what is the PPP concept all about?
PPP is a contractual relationship in which the private sector is allowed to invest and deliver service in areas that traditionally have been a responsibility of the government. You will appreciate that whereas the government manages political risk, the private sector, on the other hand, manages commercial, financial and operation risks. Through the PPP concept, therefore, we are developing a synergy between the two sectors.
The Malawian Airlines deal where the Malawi Government holds a 51 percent stake and the Ethiopian Airlines (ET) has 49 percent is one PPP deal that stands out. However, some critics have faulted this deal, claiming that the Malawi Government’s 51 percent stake only exist on paper as ET is in total control, including most of the crew members as well as route codes bear the ‘ET’ tag. How do you explain this transaction and the accusations?
Malawian Airlines is a major deal PPPC has facilitated. We are currently in the process of putting together information to help Malawian nationals participate in the national airline through share ownership. It is a misunderstanding of the process to say that in the Malawian Airlines deal, the Malawi Government’s 51 percent stake only exist on paper.
It is worth appreciating that the deal was a complex one in a complex industry, which makes it worse [for people to easily understand]. In the aviation industry, the conventional norms of business do not apply. What do I mean? For example, in normal transactions or cases, a strategic investor holds majority shareholding. But in the aviation industry, that [arrangement] is not allowed. This is because there are issues such as air traffic rights which belong to the State as stipulated in the Chicago Convention. In fact, [in the Malawian Airlines and Ethiopian Airways deal] it was the desire of the Malawi Government that the operations be led by the strategic partner.
How do you respond to accusations that Ethiopian nationals were preferred at the expense of Malawian nationals with expertise and qualifications in the aviation industry in the new airline?
We settled for Ethiopian Airlines as a strategic partner because it already had the expertise in terms of management and operations. In the early stages [of Malawian Airlines], most pilots were Ethiopian because of regulatory challenges. You will recall that we [Malawi] did not have the Boeing 737-800 series and the Bombardier. There was, therefore, need to train our pilots [who worked in the liquidated Air Malawi] on how to use the new equipment. Because of that, an impression was created that Malawian nationals were sidelined.
However, for the record, the original staff number for Malawian Airlines was 65, out of which eight were Ethiopians and the rest [57] were Malawians. Being a strategic partner, Ethiopian Airlines keeps sending people from time to time to build the capacity of the Malawian Airlines team in form of skills transfer. It is more or less like what Standard Bank Africa does by sending staff from its headquarters [in South Africa] to build local capacity.
What difference is there in your tasks as Public Private Partnership Commission compared to when you were The Privatisation Commission?
The major difference between privatisation and public private partnership is that under privatisation we [the Commission] were 100 percent in charge of the ball. We kicked it, marketed it until the transaction was finalised. With PPP, however, most projects are developed within line ministries. For example, if a prospective transaction relates to a power station, then it will be under the Ministry of Energy. Likewise, if it is a hospital to go the PPP way, then it will be the Ministry of Health.
Sometimes people tend to get puzzled that they do not hear about our name. But, trust me, we [the Commission] are working with them. PPPC’s prominence comes in when a tender is initiated, but, by then, we will have worked with relevant ministries or departments through the feasibility study, analysis of the project’s affordability, risk allocation and compliance, among other steps.
What are challenges have you faced under the PPP concept so far in Malawi?
There are several. First is that awareness of the PPP concept is still very low. I am pleased to say, however, that in October [2014] we are embarking on a campaign, explaining what it is. We are running an enhanced public awareness campaign. Second is the issue of resources. To develop a PPP project requires a lot of resources to conduct technical analysis. For example, in the energy sector, it is not strange for such an exercise to cost as much as $2.5 million (K1.1 billion). We rely on donors to come in. But for some straightforward projects, as the PPPC, we have decided to process them ourselves to overcome the issue of resource-constraints.
To some extent, this raises the issue of objectivity. So, whatever we do, we subject the findings to stakeholder assessment to critique and ensure that the outcome is objective and based on best practices. The other challenge is the issue of unsolicited bids. These have posed problems across the world, not only in Malawi. Unsolicited bids are very risky in the sense that government has no time to do required analysis. It accepts financially-viable projects require a lot of time and commitment by ministries. Under such deals, you end up accepting an investor but have no opportunity to verify their competencies and demands.
Normally, bids should come when they have been solicited through adverts. Of course, it doesn’t mean we should ignore unsolicited bids, but we can create too much pressure. We need to balance the two. There is also need for strong property rights. The courts need to provide confidence to investors that if disputes arise in the course of negotiating or processing the deal, judgement will be issued fairly, speedily and sustained. The macro-economic environment should also be stable. If interest rates fluctuate frequently, it generally erodes confidence in the economy.
Your final comments and insights?
PPP is here to stay. We will continue to engage the general public and stakeholders. The emphasis is that let us do good analysis of services to make them affordable from the eyes of the government and to consumers they should constitute value for money.
