Question Tag: PPP

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  • 10 Marks

PSAF – May 2017 – L2 – Q5b – Public sector financing initiatives

This question evaluates the feasibility of a public-private partnership (PPP) for constructing and managing libraries in rural areas and identifies associated risks.

The Ministry of Education is currently considering public-private partnership as a means of improving educational infrastructure in the rural areas. The Ministry intends to use Public-Private Partnership to construct and manage modern libraries in rural areas to increase access to quality reading materials in a serene environment. The project would be fully financed by the private sector and will be built on lands secured by the government from the chiefs of the communities.

The private sector requires government guarantee to borrow externally to execute the project. Currently, public library services are free; however, the new project when executed through Public-Private Partnership would be on a “user-pay” basis. The average fees payable per user are estimated at GH¢20 per week and will be subject to an upward review from time to time. In order to stimulate private sector interest in the project, the Ministry intends to immunize the private sector against risks associated with the project. Meanwhile, the Ministry would insist that local materials and skills are employed in the construction and management of the library project. The project is also environmentally friendly as there will be little or no destruction of the forest vegetation. The project when completed will be of great benefit to the country as a whole.

Required:

i) Based on FOUR guiding principles of Public-Private Partnership under the national Public-Private Partnership policy, explain the feasibility or otherwise of the proposed library project by the Ministry of Education. (6 marks)

ii) Explain TWO sources of risks associated with the library project that should be allocated between the public sector and the private sector in the Public-Private Partnership arrangement. (4 marks)

i) Feasibility of the Library PPP Project Based on Guiding Principles:

  • Value for Money: The project is fully financed by the private sector, potentially ensuring value for money if it proves more cost-effective than public sector execution. However, the “user-pay” basis may impact accessibility, raising concerns about affordability and equity.
  • Risk Allocation: Immunizing the private sector against risks contradicts the PPP principle of optimal risk allocation. Risks should be shared between the public and private sectors to align incentives and ensure project success.
  • Affordability: The project introduces user fees, which may limit access for low-income individuals. This could undermine the principle of ensuring that services remain affordable and accessible to all.
  • Local Content and Environmental Considerations: The use of local materials and labor, along with the environmentally friendly nature of the project, aligns with PPP principles, promoting sustainability and local economic development.

ii) Sources of Risks and Their Allocation:

  • Financial Risk: The private sector’s reliance on external borrowing introduces financial risks such as exchange rate fluctuations and interest rate variability. These risks should be shared between the public and private sectors, with the government potentially providing guarantees.
  • Demand Risk: The risk that user fees may not generate sufficient revenue due to lower-than-expected demand should be carefully assessed. This risk could be shared, with the private sector bearing some responsibility for managing and promoting the service to ensure its viability.
  • 8 Marks

PSAF – May 2016 – L2 – Q4c – Public sector financing initiatives

This question explores the objectives and guiding principles of Public Private Partnership (PPP) agreements in Ghana.

i) State ONE objective of a public private partnership agreement?

ii) Explain THREE factors that the Government would consider before entering into a public private partnership agreement?

iii) Explain the following terms used as guiding principles in IPSAS 13 and 32 – Accounting for Public Private Partnership:

  • Service Concession Arrangement
  • Lease
  • Recognition of Revenue
  • Economic Life of an Asset

i) Objective of PPP Agreement: Leverage public assets and funds with private sector resources to accelerate investment in infrastructure and services.

ii) Factors considered before entering into a PPP include:

  • Value for Money: Ensuring the PPP gives greater value than the best realistic public sector alternative.
  • Risk Allocation: Optimizing risk transfer to the party best able to manage it.
  • Ability to Pay: Considering end-user affordability and government budgetary sustainability.

iii) Explanation of terms:

  • Service Concession Arrangement: A binding arrangement where the operator provides a public service on behalf of the grantor using the service concession asset.
  • Lease: An agreement where the lessor conveys the right to use an asset to the lessee in return for payment.
  • Recognition of Revenue: Revenue is recognized evenly over the term of the arrangement as a reduction of liability.
  • Economic Life of an Asset: The period over which an asset is expected to yield economic benefits or service potential.
  • 6 Marks

PSAF – Mar 2023 – L2 – Q4b – Public sector financing initiatives

Explains key principles of Public-Private Partnership, including value for money, risk allocation, ability to pay, and competition.

Explain the following principles of Public-Private Partnership:

i) Value for money
ii) Risk allocation
iii) Ability to pay
iv) Competition
(6 marks)

i) Value for Money:
Value for money is paramount in Public-Private Partnerships (PPPs). It ensures that the PPP arrangement provides better value than the best realistic public sector project designed to achieve similar service outputs. Achieving value for money is a key requirement at all stages of a project’s development and procurement, balancing service outcomes with the degree of risk transfer and financial implications for the government. Value for money drives the adoption of the PPP approach, beyond reasons like capital scarcity or balance sheet treatment.

ii) Risk Allocation:
Efficient risk allocation is vital to achieving value for money in PPP projects. Risks should be allocated to the party best able to control and manage them to maximize value for money. The government’s principle in risk allocation aims to optimize rather than maximize the transfer of project risks to the private party, ensuring that the allocation of responsibilities aligns with protecting the public interest.

iii) Ability to Pay:
End-user ability to pay is a key consideration for all PPP projects. The PPP option must demonstrate long-term affordability to the public and ensure overall government budgetary sustainability. The financial implications of PPP projects should be assessed in terms of forward commitments, public expenditure, and the potential for returns on private sector investment, considering other government priorities and commitments.

iv) Competition:
Competition is essential in PPP procurement processes to ensure value for money and efficiency. PPP projects should be subjected to competitive processes unless justified otherwise by regulations. The competitive selection criterion ensures that the best proposals are chosen, promoting transparency and fairness. In cases of unsolicited proposals, the government must regulate them consistently with the principles of PPP, maintaining competition and value for money.

  • 20 Marks

PSAF – Nov 2018 – L2 – Q5 – Public Procurement

Discuss corporate governance issues in the public sector and best practices for PPP arrangements.

a) Good corporate governance is an important way of ensuring accountability and value for money in the public sector.

Required:
i) State and explain FOUR (4) corporate governance problems in the public sector of Ghana. (6 marks)

ii) Discuss FOUR (4) principles of corporate governance that ensure effective accountability and value for money in the public sector. (6 marks)

b) Public-Private Partnership (PPP) is one of the strategies governments can adopt to bridge the infrastructure gap in developing countries. To account effectively for a PPP arrangement, best practices are recommended in executing the arrangements.

Required:
Discuss FOUR (4) best practices that ensure effective PPP arrangements in the public sector. (8 marks)

a) i) Corporate Governance Problems in the Public Sector:

  1. Lack of adherence to rule of law and due process: Public sector entities often fail to strictly follow the rule of law and due process, leading to corruption, inefficiency, and lack of accountability.
  2. Ineffective boards: Many boards in the public sector are dominated by a single individual or a small group, resulting in a lack of independence and poor decision-making.
  3. Conflict of interest: Public officials frequently face conflicts of interest, where personal gain may take precedence over public good, undermining trust and accountability.
  4. Lack of internal and external scrutiny: Insufficient scrutiny from both internal auditors and external watchdogs leads to unchecked power and potential misuse of resources.
  5. Lack of transparency.

ii) Principles of Corporate Governance:

  1. Organizational structure and process: Effective corporate governance requires a clear organizational structure, including defined roles, responsibilities, communication channels, accountability, compliance, and controls. The board should include independent directors and have appropriate committees to oversee various functions.
  2. Controls (risk management, audit, M&E): A robust system of risk management, internal control, and monitoring and evaluation is essential for identifying and mitigating risks, ensuring that resources are used efficiently and effectively.
  3. External reporting: Transparent and timely reporting of financial and performance data is critical for accountability. The board should ensure that these reports are fair, balanced, and understandable to stakeholders.
  4. Audit and accountability: An independent internal audit function and transparent relationships with external auditors ensure that public funds are used as intended, and that any discrepancies are identified and addressed promptly.
  5. Responsibility (towards stakeholders, avoiding conflict of interest, etc)
    The board should be responsible for ensuring that an appropriate dialogue takes place
    among the organisation, its shareholders and other key stakeholders. The board
    should respect the interests of its shareholders and other key stakeholders within the
    context of its fundamental purpose.
  6. Value for money
  7. Rule of Law
  8. Board Independence

b) Best Practices for PPP Arrangements:

  1. Transparency and competition: Ensuring transparency and fostering competition in the procurement process are critical for maintaining public trust and ensuring that PPP arrangements deliver value for money.
  2. Favorable legal framework: Establishing a comprehensive legal framework that governs PPP projects is essential for protecting the interests of both the public and private sectors. This framework should include clear guidelines on contract management, risk allocation, and dispute resolution.
  3. Right project identification: Selecting projects that are technically, socially, and economically viable is crucial for the success of PPP arrangements. The project should align with national development goals and demonstrate clear benefits to the public.
  4. Capacity building: Developing the skills and knowledge of public officials involved in PPP projects is vital for ensuring that these projects are managed effectively. This includes training on negotiation, contract management, and financial analysis.
  5. Extensive stakeholder engagement
    External stakeholders play crucial role in the successful implementation of PPP
    projects. Essentially, stakeholders such as civil society groups, local communities, and
    trade unions should be engaged right from the beginning of the project. Local
    practitioners should desist from engaging external stakeholders at the later stage of
    the project development because it irritates the public and fuels the negative public
    perception on PPP transactions.
  6. Appropriate risk allocation
    Proper risk identification and allocation cannot be undermined when practitioners
    want to achieve success. Risks must be properly identified and allocated to the best
    party. Essentially, contracting authorities should neither retain excessive risks nor
    transfer too many risks to investors. In fact, risk sharing must be balanced. It should
    not be a way of favoring one party since this can result in conflict at a later stage.
  7. Local content and safeguard of consumers rights
  8. Value for money
  • 10 Marks

PSAF – May 2020 – L1 – Q4b – Public sector financing initiatives

Explain different types of Public-Private Partnership arrangements.

A Public-Private Partnership (PPP) is a contractual arrangement between a public entity and a private sector party, with a clear agreement on shared objectives for the production of public infrastructure and services traditionally provided by the public sector. PPPs can have many different forms.

Required:
Explain the following types of Public-Private Partnership arrangements:
i) Operating and Maintenance Contract
(2.5 marks)

ii) Rehabilitate Operate and Transfer
(2.5 marks)

iii) Service Concession
(2.5 marks)

iv) Joint Venture
(2.5 marks)

i) Operating and Maintenance Contract
In this type of PPP arrangement, the public authority contracts with a private partner to operate and maintain a publicly owned facility or infrastructure. The private sector is partially involved, typically providing a service or managing the operation of the facility. Services or management contracts allow the private sector to provide infrastructure-related services for specified periods of time, ensuring the facility operates efficiently.

ii) Rehabilitate Operate and Transfer
Under this arrangement, the initial worn-out asset is provided by the public agency, and the private partner is required to invest in revamping the asset. The private partner is allowed to operate the rehabilitated asset for a specified period, during which they can recover their investment, and eventually, the residual asset is transferred back to the public sector or consolidated fund.

iii) Service Concession
Service concession arrangements involve contracts under which a public sector entity (the “grantor”) grants a private entity (the “operator”) the right to operate the grantor’s infrastructure (e.g., an airport, toll road, bridge, hospital, or power distribution). The infrastructure may already exist or may be constructed by the operator. The concession arrangement may also require significant upgrades to the infrastructure, with the operator allowed to recoup its investment over a specified contract period, after which the infrastructure is returned to the grantor.

iv) Joint Venture
A joint venture occurs when both the private and public sectors jointly finance, own, and operate a facility. In this arrangement, both parties share the risks and rewards associated with the venture, with clear agreements on the roles and responsibilities of each party.

  • 5 Marks

PSAF – May 2018 – L2 – Q5a – Public Procurement

Explain five guiding principles for Public-Private Partnerships (PPP) in the health sector.

The Minister of Health and his Chief Director attended an international conference on health administration and discovered that most countries around the world are leveraging the private sector in the provision of health infrastructure and the management of operations of existing facilities to secure value for public money.

Upon their return, they decided to explore avenues for Public-Private Partnerships (PPPs) in the areas of construction of health facilities on build-operate and transfer options and management of regional and teaching hospitals on maintain and operate basis or rehabilitate and operate basis. The Minister is passionate about the move and wants to implement it as quickly as possible. However, the Chief Finance Director has drawn his attention to the National Public Private Partnership Policy of the country and advises that they consider it seriously. The Minister has ordered the Chief Finance Director to furnish him with the guiding principles of the PPP arrangements to ensure compliance.

The Chief Finance Director has asked you to critically examine the national PPP policy document and furnish him with key guiding principles on feasible PPP arrangements he can enter into.

Required:
Explain FIVE guiding principles that the Ministry should observe in the proposed PPP projects in the health sector.

The five guiding principles under the National Public-Private Partnership (PPP) Policy that the Ministry should observe in the proposed PPP projects in the health sector are:

  1. Value for Money:
    Value for money is paramount, and PPPs should deliver greater value than the best realistic public sector project designed to achieve similar service outputs. The focus should be on the service outcome, the degree of risk transfer, and the financial implications for the government. Value for money is the driver for adopting the PPP approach, not capital scarcity or balance sheet treatment.
  2. Risk Allocation:
    Efficient risk allocation is vital in determining whether value for money can be achieved in PPP projects. Risks should be allocated to the party best able to manage them, optimizing value for money rather than maximizing risk transfer. This principle also ensures that the public interest is protected in the process.
  3. Ability to Pay:
    The end-user’s ability to pay is a critical consideration in all PPP projects. The PPP option must demonstrate long-term affordability to the public and overall government budgetary sustainability. This principle ensures that the financial burden on the government and the public is manageable.
  4. Local Content and Technology Transfer:
    PPP projects should encourage the maximum use of local content and promote technology transfer. The arrangements should facilitate the promotion of local industries and the private sector within Ghana, ensuring that the benefits of the PPPs extend beyond just the infrastructure provided.
  5. Safeguarding Public Interest and Consumer Rights:
    The government must ensure that PPP projects positively impact the public interest. This includes safeguarding users, particularly vulnerable groups, and ensuring that user charges and tariff structures are set at affordable levels. This principle ensures that PPP projects serve the public good without exploiting consumers.

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