Law Firm Ghana | n. dowuona & Co

We believe in cultivating strong & lasting client relationship...

Dowuona Law Logo
Menu

Recently there has been a lot of talk about bridging Ghana’s infrastructure gap through Public Private Partnerships (“PPPs”). The 2017-2019 Budget Guideline, prepared and issued by the Ministry of Finance recommends the allocation of funds for such PPPs and the new administration has expressed a keen interest in using PPPs to develop critical infrastructure projects. But do we have the enabling regulatory framework for PPPs to work and to thrive?

 

What is a Public Private Partnership (PPP)?

A Public Private Partnership (“PPP”) is a contractual arrangement between a public authority and a private sector party, with shared objectives for the provision of infrastructure for the public.  The arrangement usually involves the private sector party assuming part or all of the government’s traditional service delivery functions and its associated risks for a significant period of time. A non-negotiable feature of PPPs is that the project or service to be provided must be for the benefit or in the interest of the public.

 

What are the benefits associated with PPP agreements?

For the public authority, the collaboration with the private party increases the financial resources dedicated to a project, which in turn accelerates delivery of results. A more important benefit of PPPs, especially for Ghana, is its potential to provide opportunities for local private businesses. Particularly, PPPs present a platform for local businesses to participate in projects that they ordinarily could not competitively bid for.

For the private entity engaged in a PPP, the benefit comes in the form of the financial remuneration it receives for its involvement in the project.

 

PPP regulatory framework in Ghana

The implementation of a workable PPP plan for the development of infrastructure in Ghana has been gradual. In June 2011, the Ministry of Finance adopted the National Policy on Public Private Partnerships (the “Policy”) in an attempt to provide a clear and consistent process for all aspects of PPP project development and implementation. The Policy, as at 2016, remains the framework governing PPP agreements in the country. A PPP draft bill  (the “Bill”) has recently received parliamentary approval and is currently going through the process for a presidential assent to bring the Act into force.

Institutions Responsible For PPP Arrangements In Ghana

The primary institutions responsible for the oversight of PPP projects in Ghana is the Public Investment Division (PID) of the Ministry of Finance and Economic Planning; specifically, the Project and Financial Analysis (PFA) unit and the PPP Advisory Unit (PAU) of the Division; the PPP Approval Committee and Cabinet.

 

How Does A PPP Project Commence in Ghana?

There are two ways by which a PPP project may commence in Ghana.

• PPP projects originating from a public authority; and

• PPP projects originating from Unsolicited Proposals presented by a private entity.

 

Stages for Government Originated PPP Projects

1. The public authority interested in undertaking a PPP project first identifies the project it intends to carry out.

2. The public authority develops and submits a project brief or concept note to the PID.

3. The PID registers the project.

4. The public authority appoints a Project Officer and Transaction Advisor.

5. The public authority conducts a pre-feasibility study to determine whether the proposed project is in the best interest of the government. The results of the study must be submitted to the sector ministry for approval and thereafter, for review by the PID. This is Approval Stage 1.

6. The public authority conducts a full feasibility study also to be approved by the PID. The full feasibility study must among other things, demonstrate the affordability of the project, set out the allocation of technical, operational and financial risk between the local government authority and the private party and demonstrate the anticipated value for money to be achieved by the PPP project.

 

Where the PPP involves a project with estimated costs between Two Million Ghana Cedis (GH₵2,000,000) and Fifty Million Ghana Cedis (GH₵50,000,000) the public authority shall proceed with the procurement phase only upon the written approval of the PPP Approval Committee; and where the project exceeds Fifty Million Ghana Cedis (GH₵50,000,000), Cabinet shall be the appropriate approval authority. For projects below Two Million Ghana Cedis (GH₵2,000,000), the PID shall be the proper approval body. Approval given by any of these three institutions of the full feasibility study is Approval Stage 2.

 

7. Once the full feasibility study is accepted, the public authority prepares and submits procurement documentation to the PID for approval (Approval Stage 3a).

8. Upon approval, the public authority issues the procurement documentation to the business public, inviting proposals. It evaluates these proposals and a report is submitted to the PID for approval. This is Approval Stage 3b.

The procurement procedure carried out by the public authority, must be in accordance with a system that is fair, transparent, competitive and cost-effective; encouraging the maximum use of local content, transfer of technology and conducted in accordance with the Public Procurement Act.

9. At the final stage of the PPP process, the public authority submits a draft PPP Agreement or concession to the PID for approval before it can award the contract to the most deserving bidder for the PPP project to commence.

 

Unsolicited Proposals Presented By A Private Entity

An unsolicited proposal is a proposal made by a private party to undertake a PPP project where the proposal is submitted at the initiative of the private entity rather than in response to a request from a public authority through an open competitive tendering process.

Procedure For Submitting An Unsolicited Proposal

1. A private entity (the proposer) interested in initiating a PPP project submits an unsolicited proposal in the form of an initial business case regarding the proposed project to the appropriate public authority.

2. The public authority shall review and prepare a report establishing that the Unsolicited Proposal is in accordance with the guiding principles of PPPs.

3. The public authority may reject the proposal by notifying the proposer in writing and returning to it all documents received in the unsolicited proposal. In such a case, the public authority shall not make use of the proposer’s intellectual property in the unsolicited proposal.

4. If the public authority decides to consider the unsolicited proposal, it shall notify the proposer in writing attaching the review report prepared at stage 2 of the procedure. The public authority then registers the project with the PID and recruits a Technical Advisor to conduct pre-feasibility and feasibility studies.

5. The Transaction Advisor further assists the public authority to plan and structure a competitive procurement process in respect of the project.

 

Ghana’s Public Private Partnerships Bill, 2016 (An Overview)

• The purpose of the Bill is to establish a legal framework for the development, implementation and regulation of PPPs in Ghana.

• A PPP arrangement cannot be executed in respect of the grant of a mineral right in Ghana, petroleum exploration, and divestment of a state owned enterprise; or in respect of activities that are the exclusive preserve of the military, police, defence and other justice institutions in the country.

• The Bill makes provision for various forms of PPP arrangements that may be executed by a public authority and a private entity. There are fifteen variations of PPP arrangements indicating the extent of the private entity’s involvement in the PPP project.  PPP projects in Ghana may be commenced in respect of not only infrastructure projects but also for service provision.

• The Bill establishes the PPP Fund with an object to provide financial resources to support partnership agreements for the development of infrastructure in Ghana; and it also establishes the Ghana Partnerships Agency as a body corporate to promote and regulate the development and implementation of partnership agreements.  The Agency takes over the role of the PPP Approval Committee but with extended functions.

• The Bill limits the projects which public authorities can carry out to projects stated in the National Infrastructure Plan or the Public Investment Plan, or other government plans.

• The Bill requires every public authority involved in a PPP arrangement to designate a unit in its office for the sole purpose of coordinating the activities relating to the project. By so doing, the public authority shall have proper oversight of each phase of the project from identification of the project to implementation.

• The governing law for all PPP agreements is the law of Ghana. The parties shall however determine the place of arbitration in respect of the agreement.

• All PPP agreements shall be prepared by the public authority with the help of the Attorney General .

• The public authority shall assist the private entity, where necessary, in the acquisition  of or to the enjoyment of an easement  in land for the purpose of the project.

• The parties shall agree in the partnership agreement on matters such ownership of project assets  and payment of compensation . The revenue from PPP arrangements, such as charges, levies, tariffs from end users, which may accrue to the private entity  shall be indicated in the PPP agreement and shall be subject to approval.

• The Bill further makes provision for complaint procedures  and the settlement of disputes relating to the PPP project; allowing a public authority and private entity to determine in their agreement, the dispute resolution mechanism by which all disputes arising between them shall be settled. Furthermore, the private entity which provides services in a PPP project directly to the general public is required to set up a complaints and claims mechanism for the lodging of complaints by the public and end users.

• According to the Bill, a Special Purpose Vehicle (SPV) shall be created and incorporated in Ghana by the private entity if its sole business purpose is to carry out the PPP project.  The Bill further allows a public authority to grant a margin of preference  to a private entity which is incorporated in Ghana with Ghanaians having a majority ownership of the private entity.

• A public authority is permitted to hold an equity stake in an SPV’s involved in the PPP project subject to conditions provided under the Bill and the Regulations.

 

 

Challenges with Ghana’s PPP system and commentary on the Bill

Ghana has had its PPP Bill in draft form for a number of years. Passing and implementing it has however been very slow; a factor which can diminish investor interest in the country’s PPP program.

 

Ghana’s PPP laws, although reaching international standards, are stronger on paper than in practice, according to a 2015 study by the Intelligence Unit of the Economist, (2015 Infrascope) . The country has strong rules concerning project preparation, but there is a shortage of skills for managing such processes. This is so because the local government and public authorities are poorly equipped to carry out PPP projects. Furthermore, the country lacks sufficient financial market depth to fully enable PPP financing because the local banks are not fully capitalised to provide infrastructure finance and hedging instruments; thus compelling private parties to rely heavily on external funding.

 

Delays in judicial and dispute resolution processes under the PPP cycle pose a challenge to the development of Ghana’s PPP system. Recent Supreme Court decisions place a burden on private parties to ensure that cabinet approval has been sought prior to the commencement of the project where the contract relates to an international business transaction with the Government of Ghana.

On one hand, the Policy and the Bill put a cap on the agreements that will trigger article 181; and on the other hand, the Supreme Court has stated that the article will be triggered for “major”  international agreements (which PPP projects below the cap may fall). The question that arises is, in instances where article 181 of the Constitution is triggered, that is, where the project involves an international business or economic transaction , whether the interest of non-Ghanaian entities will be safeguarded or whether the public authority can release itself from the agreement relying on the absence of parliamentary approval.

The uncertainty of the outcome, in light of Supreme Court decisions, remains a valid concern for international private investors.

 

Under the Bill, a private entity interested in engaging in a PPP project need not be incorporated in Ghana. However, where the private entity is a SPV set up for the sole purpose of undertaking the project, or where the private entity seeks to take over the rights of an entity that previously participated in the PPP process, that entity must be incorporated in Ghana. A foreign company interested in Ghana’s PPP program will not enjoy the margin of preference open to local companies.

To enjoy the margin of preference, the company must not only be incorporated in Ghana, majority ownership of the company must be held by Ghanaians. This majority stake requirement is onerous and may deter established foreign-owned companies from embarking on PPP projects in Ghana. This provision ought to be reconsidered to allow a reasonable percentage of Ghanaian ownership which is more acceptable and less deterrent.

 

The Bill purports under section 76, to have an effect on existing PPP projects, that is, projects that will be arranged prior to the coming into force of the new legislation. The PPP agreements entered into before 3rd June 2011  remain valid. Those entered into after the introduction of the Policy, and which were formulated in accordance with the Policy also remain valid; however, those PPP projects which were formulated after 3rd June 2011 but not in accordance with the Policy must be regularised by the Agency within 180 days after the coming into force of the Act. The Bill further provides that a project which is required to be regularized but which is not regularized within the specified period, must be re-initiated in accordance with the procedure specified under the Bill.

This provision under the Bill raises many concerns because it is not clear what the process of “regularization” will entail. It may involve the Agency requiring amendments to the existing PPP agreement, or even requiring the parties to go through the PPP process again. Whatever the process may entail, it is not provided for in the Bill.  What status would be given to those contracts which are declined, or where the amendments proposed are not acceptable to the private party? This would mean that a failure to receive approval during the regularisation stage would create an unfair situation most likely against the private entity who may have invested heavily into the project. As the Bill has not yet been passed, there may be time to make provisions to smooth out the regularization process.

There is an urgent need for Regulations to be issued to give force to a number of provisions under the Bill such as the equity participation of public authorities in PPPs and the specific margin of preference in favour of local businesses. The coming into force of the Act must be accompanied with Regulations in order to facilitate the enforcement of Ghana’s PPP laws.

The National Infrastructure Plan (NIP) is currently being put together by the National Development Planning Commission (NDPC) and projected to be completed by the end of 2016.  The effectiveness of the Act once passed is contingent on a number of factors such as a feasible NIP from which project ideas will be sourced. Thus, if the plan is not completed or the regulations issued before the Act is passed, implementation may present challenges.

 

It is important for the Government to invest more in the facilitation of PPPs through financial support. Specifically, the Government must provide for the channeling of more funds towards PPP efforts through national budget allocations, and the channeling of more human resources through the establishment of committees dedicated to the evaluation, approval and oversight of PPPs. The Government must also make efforts to strengthen the implementation of PPP projects in Ghana by providing better training and resources for public servants and local government workers.

 

 


References

[1] Ghana’s National Policy on Public Private Partnerships (2011)

[2] The Supreme Court of Ghana has provided a definition for “public interest or benefit” as follows, “If the condition is in the interest of a considerable part of the public, then it is true to say that it is in the interest of the public, of which that is a part. It would, I think, be fantastic to argue that a condition cannot be in the interest of the public unless it is in the interest of every part of the public … If it is in the interest of the public concerned, then it is in the interest of the public as a whole”. per Acquah JSC  in  R v. Yebbi & Avalifo (12/4/2000) quoting Lord Hewart LCJ.

[3] Public Private Partnership Bill, 2016

[4] The project must be approved under the National Infrastructure Plan.

[5] These figures have been revised in the PPP Bill, 2016 under the 3rd Schedule. It also makes provision for projects that trigger articles 174 and 181 of the 1992 Constitution.

[6]Section 2(2) of the Bill

[7] First Schedule of the Bill

[8] Section 9 of the Bill

[9] Section 75 of Bill; definition of “public sector project”

[10] Section 32 of the Bill

[11] Section 50 of the Bill

[12] Section 46 of the Bill

[13] Section 52 of the Bill

[14] Section 53 of the Bill

[15] Section 51 of the Bill

[16] Section 54 of the Bill

[17] Section 55 of the Bill

[18] Section 56 of the Bill

[19] Section 60 of the Bill

[20] Section 64 of the Bill

[21] Section 66 of the Bill

[22] Section 69 of the Bill

[23]The study evaluates the PPP in Africa.

[24] 2015 Infrascope, prepared by the Economist Intelligence Unit pg.10

[25] In Attorney General v Faroe Atlantic Co. Ltd. [2005-2005] SCGLR 287 and Attorney General v. Balkan Energy Ghana Ltd & Ors (Ref. No. J6/1/2012), the SC held that an agreement with the Government of Ghana involving an international business transaction does not come into operation until approved by a resolution of Parliament.

[26] Attorney General v Balkan Energy

[27] The 1992 Constitution of Ghana

[28] In the Balkan Energy case, the SC construed the phrase international business transaction to which the Government is a party purposively to mean not only agreements between entities resident abroad and the Government of Ghana but also transactions of such a clear international nature that they should come within the reasonable defintion of the term. This means that a private party to a PPP even if incorporated in Ghana is not exempt from the international transaction classification, if the contract is of a clear international nature.

[29] The date on which the PPP Policy was issued

[30] 2016 Review of Budget and Economic Policy presented by the Minister of Finance on 25th July 2016.