Recourse to PPP

Reasons for opting for PPP for the proposed Dakar-Diamnadio toll highway.

PPP, what does it mean?

Public Private Partnership is an infrastructure financing technique whereby the State enters into a partnership with the private sector to provide public services to the populations.

The concept which stemmed from the traditional concession contracts used in France since 1950, was introduced in England, in the 90s.  

In effect, it was in 1992 that the British Government faced, on the one hand with severe budgetary constraints, and on the other with numerous criticisms of privatisation had to reflect on a new public investment financing formula. Thus, the Public Finance Initiative (PFI) policy which consisted in an acceptable compromise was launched by the Government of Prime Minister John Major and led to the financing of construction of public buildings and provision of equipment thanks to private capital such that public expenditure was spread over several decades in the form of monthly payments for the provision of services.

Tony Blair ‘s Government came into office with an ambitious social infrastructure construction programme but in the face of deepening budgetary constraints, decided to pursue the PFI policy, but then to underscore its departure from PFI developed the concept of Public Private Partnership (PPP).

Thus the concept of Public Private Partnership was launched and has since started to spread worldwide, both in the developed and developing countries.

 

A Public-Private Partnership (PPP) can be considered as a contract:

  • In the long term through which a public authority, be it central (State) or decentralised (Municipality) enters into a partnership with the public sector for the design and/or implementation and/or operation of public services.
  • A contract which stipulates expected outcomes for improved service delivery to citizens.   
  • A contract which makes provisions for sharing of responsiblities, risks, and profits between public and private partnerships.

A PPP is therefore different from privatisation, compared to traditional systems of State-Private collaboration such as service contracts. Management contracts or leasing contracts, PPPs are indeed innovative.  
PPPs, depending on the level of sharing of risks and participation of the private sector can be in various forms, the most common being BOT (Build-Operate-Transfer).

Since 2004, when Senegal passed laws 2004-13 and 2004-14, a legislative and institutional mechanism has been put in place for the development of this funding mechanism for public investment.  

 
Why should States resort to PPP?
Recourse to PPP is both advantageous for the State and for end users. The main benefits of PPP include:
  • Easing of the infrastructure burden on the National budget : PPP helps the State face up to its budgetary constraints. Due to its high cost, the financing of social infrastructure affects the financial capacity of the State considerably. Recourse to PPP may also make it possible to vire funds for social expenditure which is not likely to be funded under a PPP partnership. For example, in the road sector which concerns us here, the State can choose the PPP option to finance urban road works which are financially viable and take on board in the national budget the construction of low traffic but economically important agricultural earth roads. Traffic studies and economic studies on the Dakar Diamniadio Motorway have shown that this project will be very profitable.  
 
  • Improvement of the quality of public service : Often for legitimate reasons, public authority is governed by a set of rules and procedures which far from flexible. These rules sometimes lead to poor adaptation of resources to the expected objectives, engendering inefficiency.  Engaging the private sector and its dynamism and know-how in the area of technology and creativity, through PPP, allows the Public sector to place at the disposal of user better quality of services.  In effect, applied research, technological discovery, and innovation are increasingly becoming the preserve of private firms and quality, a requirement for consumers. Furthermore, the private sector has an incentive and sanctions system (peer pressure from the competition, fear of bankruptcy) which incites it to be more disciplined and efficient than the public sector which is oftentimes motive by the general interest of the public. Recourse to PPP can therefore lead to better quality services for users. Recourse to PPP can also be motivated, for example, by the recurring problems of maintenance dogging our roads.
 
  • Investment promotion : Public Private Partnership makes it possible to boost private investment and the quality of the business environment. Considering the fact that there is a clear correlation between investment and infrastructure, PPP should justifiably be considered as a means of boosting investment, economic growth and development.
 
 
  • Transfer of the State’s risks : provision of public goods and services, just as any production activity comes generally with its share of risks of a technical or commercial nature. In totally public systems with traditional financial techniques, the State bears the totality of risks linked to the execution of these projects. PPP entail the transfer to private partners certain risks which they are in a better position to manage than the State. For proposed the Dakar-Diamniadio Toll Motorway, a sizable proportion of the risk linked to the design, construction and operation of the highway is transferred to the private partner.
 
These different elements justify the relevance and timeliness of Public Private Partnerships which are a win-win proposition for the users, the State and the Private sector.  

  
The reasons for opting for PPP in the implementation of the Dakar Diamniadio toll highway project.  

 

By passing law n°2004-13 on 1st March 2004, on BOT Contracts, Senegal opted for a new legal instrument which expanded the spectrum of public contracts in Senegal.
 
Before the adoption of this law, our country lacked the appropriate tools for PPP in its own legal arsenal whereas the latter constitutes a popular option in the implementation of major infrastructure in the public interest.
 
The Dakar-Diamniadio Motorway Project is the first project developed within the framework of this law. The reasons for this option are, among others: 
  • The strategic orientation espoused over the years by the Government of Senegal to boost private investment. Recourse to Public Private Partnership for the implementation of the Dakar Diamiadio motorway project and its operations will contribute to increased private sector investment in Senegal;
  • This motorway project has a high priority rating in view of the important role it is bound to play :
  • profitability of the Dakar Diamniadio route attested to by the traffics studies and toll acceptability studies ;
  • The willingness of the State to minimise the impact of major works in view of their size, on the State budget.