QUICK REVIEW OF ACCOUNTING FOR PUBLIC-PRIVATE PARTNERSHIPS [PPPs]
1.1. Introduction
According to the Government of Ghana National Policy on Public-Private Partnership Agreement, “Public-Private Partnership is a contractual arrangement between a public entity and a private sector party, with clear agreement on shared objectives for the provision of public infrastructure and services traditionally provided by the public sector”.
The World Bank Public-Private Partnerships Reference Guide, 2012 also defined Public Private Partnership as “a long –term contract between a private party and a government agency, for providing a public asset or service, in which the private party bears significant risk and management responsibility”.
Usually, in a PPP arrangement, the private sector party performs part or all of a government’s service delivery functions and assumes the associated risk for a significant period of time. In return, the private sector party receives a benefit or financial remuneration (according to predefined performance criteria), which may be derived:
- Entirely from service tariffs or user charges;
- Entirely from Government budgets, which may be fixed or partially fixed, periodic payments (annuities) and contingent; or
- A combination of the above
1.2. Objectives of the PPPs
The key objectives of this policy are to:
- Leverage public assets and funds with private sector resources from local and international markets to accelerate needed investments in infrastructure and services
- Encourage and facilitate investment by the private sector by creating an enabling environment for PPPs where value for money for government can be clearly demonstrated.
- Increase the availability of public infrastructure and services and improve service quality and efficiency of projects;
- Protect the interest of all stakeholders including end-users, affected people, government, and the private sector.
- Ensure attainment of required and acceptable local and international social and environmental standards
- Provide a framework for developing efficient risk-sharing mechanisms.
1.3. The benefits of PPPs include the following:
a) Accelerated delivery of needed infrastructure and public services on time and within budget.
b) Encouraging the private sector to provide innovative design, technology, and financing structures.
c) Increased international and domestic investment.
d) Risk sharing by a government with private sector partners.
e) Ensuring good quality public services and their wider availability.
f) Real financial benefits are reflected in a reduction in the initial public capital outlay and better utilization and allocation of public funds.
g) Economic growth and increased and wider employment possibilities.
h) Technology transfer and capacity building
i) Improved operation and maintenance of public infrastructure
1.4. Guiding Principles for PPPs
All PPP arrangements in Ghana shall be guided by the following principles:
(a) Value for money: Value for money is paramount and PPPs should give greater value for money than the best realistic public sector project designed to achieve similar service outputs. Achieving value for money is a key requirement of government at all stages of a project’s development and procurement and is a combination of the service outcome to be delivered by the private sector, together with the degree of risk transfer and financial implications for the government. Value for money is the driver for adopting the PPP approach, rather than capital scarcity or the balance sheet treatment.
(b) Risk allocation: An efficient risk allocation is vital in determining whether value for money can be achieved in PPP projects. GoG’s principle with regards to risk allocation shall be used to optimize, rather than maximise, the transfer of project risks to the private party. Risks will therefore be allocated to the party best able to control and manage them in such a manner that value for money is maximised. The allocation of risk will therefore determine the chosen method of private sector involvement and allocation of responsibilities, which shall take into account the protection of the public interest.
(c) Ability to pay: End-user ability to pay shall be a key consideration for all PPP projects. The PPP option must demonstrate long-term affordability to the public and overall Government budgetary sustainability, forward commitments in relation to public expenditure, and the potential for returns on private sector investment, given other priorities and commitments.
(d) Local content & technology transfer: PPP projects shall be structured to encourage the maximum use of local content and technology transfer. As much as possible, the PPP arrangement shall facilitate the promotion of local industries and the private sector in Ghana.
(e) Safeguarding Public Interest and Consumer Rights: GoG is committed to ensuring that each PPP project shall have a positive impact upon the public interest. The following principles shall be addressed in PPP transactions:
– Safeguards to users particularly vulnerable groups;
– Setting affordable user charges and tariff structures
(f)Environmental, Climate and Social Safeguards: The Government shall ensure that PPP activities conform to the environmental laws of Ghana and the highest standards of environmental, climate and social safeguards.
Furthermore, all PPP projects shall be governed in accordance with the following:
(a) Clear objectives and output requirements: PPP projects shall take into account the expected outputs of each project, allowing for optimal risk transfer to the private party and thereby ensure greater value for money for the public sector.
(b) Accountability: As a means of good governance PPP projects must ensure accountability:
- Every stage of the PPP arrangement shall follow laid-down procedures and regulations.
- Decisions must be objective and in consonance with law and government policies.
- Public sector entities undertaking PPPs must follow prescribed processes for decision-making within their organizations.
(c) Transparency: Principles of transparency shall guide all PPP projects:
- There must be a well-defined procurement process for the PPP. Instructions to bidders must be clear and unambiguous to prevent manipulation or abuse of the process. The bid conditions and evaluation criteria must lead to the attainment of value for money, economy, and efficiency and must be made available to all interested private sector parties.
- Where a decision is taken to consider an unsolicited bid, there must be clear and objective reasons supporting the decision which shall be in conformity with this policy.
- The process shall be accessible to the public to the extent allowed by law except where national security would be prejudiced.
- Equal opportunity and access to information must be given to all interested bidders.
(d) Competition: As much as feasible all PPP projects should be subjected to a competitive process so as to obtain value for money and efficiency.
(e) Contracting Authority, ownership, and commitment: Contracting Authorities shall have the primary responsibility for managing the process and implementing the project.
(f) Stakeholder Consultation Process: Contracting authorities shall ensure adequate stakeholder consultation, understanding and support in advance of entering into a PPP arrangement and shall endeavour to identify relevant stakeholders and undertake comprehensive consultation and awareness of PPP projects under consideration.
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