Question Tag: Public-Private Partnerships

Search 500 + past questions and counting.
Professional Bodies Filter
Program Filters
Subject Filters
More
Tags Filter
More
Check Box – Levels
Series Filter
More
Topics Filter
More
  • 10 Marks

BCL – Apr 2022 – L1 – Q3b – Types of capital and the financing of companies

Suggest financing methods for AirQuick Ghana office and explain advantages and disadvantages of each method.

b) AirQuick is one of the world’s leading aerospace companies. AirQuick and the Ghana Civil Aviation Authority have conducted a feasibility study in Ghana with the intent of setting up a subsidiary in Ghana. The study which ran for two years has been concluded and a new subsidiary office of AirQuick has just been established in Ghana to serve the West African hub. You have been given a two-year contract in the legal department.

Required:

i) As a business law expert, you have been asked to suggest TWO (2) ways to finance or sustain the activities of the AirQuick Ghana office. (6 marks)

ii) Explain ONE (1) advantage and ONE (1) disadvantage of each financing source identified in i) above. (4 marks)

i) Ways of financing a company Companies are financed using either share capital or loan capital Shares are measured in terms of interest. A shareholder is not a creditor of the company for the money he has invested in the company Shares are of no-par value. (Section 43 of Act 992), meaning the shares have no particular amounts or value attached to it in the Constitutions of the company. A company may raise a loan capital and, or long-term funds by the issue of a debenture or of a series of debentures or of debenture stock in order to finance the business without increasing its share capital. A company shall, within two months after the allotment of any of its debentures, or after the registration of the transfer of any debentures, deliver to the registered holder of the debentures, the debentures or a certificate of the debenture stock under the common seal of the company or as certified by two directors and the Company Secretary of that company. Debentures may be secured by a charge over the company’s property or may be unsecured by any charge. With recent Public-Private-Partnership arrangements, government is encouraging private sector investments and sometimes subsidies or tax reliefs are granted. Section 60 of the Central Securities Depository Act, 2007 (Act 733) provides as follows: a) Debentures, shares bonds or notes issued or proposed to be issued by a corporate body and any right, warrant or option in respect of them b) Bonds, treasury bills or other loan instrument of the Government of Ghana or any country c) Rights or interest, whether described as units or otherwise under a collective investment scheme. d) Other rights or instruments as the Minister responsible for Finance may, by notice in the Gazette, prescribe. (6 marks)

ii) Advantages and Disadvantages of financing methods

Financing Method Advantages Disadvantages Shares Flexibility over the use of its finance. The use of shares makes the company determine the type of shares to float. Shareholders ordinarily want the company to continue into the foreseeable future and will reluctantly be driven to press for bankruptcy. Makes the company appealing and saves it from the payment of initial investment or interest. Reduces the likelihood of the company becoming bankrupt. Issuing shares calls for the disclosure of critical financial and non-financial information to the public. Initial stages of offering shares involve elaborate proceedings which can shift the focus of the company. Management of the company determines dividend payout to shareholders. Need to constantly update shareholders on the activities and performance of the company. Management can hide behind any negative events and decisions not to declare dividends. Debentures Encourages long-term funding of the company. It’s cost-effective compared to other funding options. Holders can secure their investment by securing a charge. Control of shareholders and profit share ratios are maintained. Can reduce growth as there is no flexibility in the payment of interests. Reduces management’s control and use over assets used as charges. Bank Loans Opportunity to negotiate for a repayment holiday. Company knows the rate of interest as it is fixed for the term of the loan. Loans do not affect the shares in the company. Difficult requirements that companies need to satisfy. Strict repayment schedules. Payment of penalties by defaulting companies. Huge processing fees. Loans are not repayable on demand. Bonds Helps retain more cash in the company. Does not dilute the value and holdings of existing shareholders. Offers are means of stabilizing the finances of the company at a fixed interest rate. Flexible way of raising debt capital. Constant payment of interests even if the company makes a loss. Potential reduction in the company’s share value if net profit declines. Liking imposition of strict and unfavorable convents by investors Rigid compliance with listing rules and regulations. (4 marks)

  • 10 Marks

PSAF – Nov 2019 – L2 – Q4c – Public sector financing initiatives

Discuss the benefits of Public Partnerships and explain guiding principles for Ghana's Public Private Partnership Arrangements.

c) Public Partnerships (PUPs) is a partnership between a government body or public authority and another such body or a non-profit organization to provide services and/or facilities, sometimes with a goal of transferring technical skills and expertise within international development projects.

Required:
i) State and explain any FIVE (5) benefits the Government of Ghana can derive from Public Partnership.
(5 marks)

ii) Explain any FIVE (5) guiding principles of any good arrangement you think the Government of Ghana should enter into Public Private Partnership Arrangement.
(5 marks)

i. Benefits the Government of Ghana can derive from Public Partnership

  • It will provide better infrastructural solution than initiative that is wholly Public
  • It will result in faster project completion and reduce delay on infrastructural project by including time to completion as a measure of performance.
  • Greater efficiency of the Public Public Partnership will reduce government budget and budget deficit.
  • High quality standard are better obtained and maintained throughout the life cycle of the project
  • P3s that reduced costs potentially can lead to lower taxes since the government can have options of financing its expenditure than burdening its citizens through increase taxes
  • PUPs allows 2 or more public or non-governmental organization to join forces and leverage their shared capacities
  • PUPs allows multiple public organization to pool resources and technical expertise in achieving Government objective.

(1 mark for 1 point each = 5 marks)

ii. FIVE (5) guiding principles of any good arrangement you think the Government of Ghana should enter into Public Private Partnership Arrangement.

  • 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 government. Value for money is the driver for adopting the PPP approach, rather than capital scarcity or the balance sheet treatment.
  • 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 maximize, 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 maximized. 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.
  • 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.
  • 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.
  • Safeguarding Public interest and consumer Rights: GoG is committed to ensuring that each PPP project shall have positive impact upon the public interest. The following principles shall be addressed in PPP transactions: Safeguards to users particularly vulnerable groups and Setting affordable user charges and tariff structures
  • 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.

(1 mark for 1 point each well explained = 5 marks)

  • 10 Marks

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

Discuss the limitations of PPPs and identify and explain different types of PPP arrangements in Ghana.

b) Public-Private Partnership (PPP) has been identified as a good source of mobilizing resources to support development at both national and sub-national levels. Before approvals of Public Private Partnerships (PPPs) are considered by governments, there are many important economic, social, political, legal, and administrative aspects, which should be carefully assessed. PPPs have various limitations which should be taken into accounts while they are being considered.

Required:

i) Identify FOUR of such limitations. (4 marks)

ii) Identify and explain FOUR different types of PPP arrangements a public sector institution can enter into allowable by the PPP regulations of Ghana. (6 marks)

i) Limitations of Public Private Partnership

  • Not all projects are feasible (for various reasons: political, legal, commercial viability, etc.)
  • The private sector may not take interest in a project due to perceived high risks, lack of technical, financial, or managerial capacity to implement the projects.
  • A PPP’s projects may be more costly unless additional costs (due to higher transactions and financing costs) can be offset through efficiency gains.
  • Change in operations and management control of an infrastructure asset through a PPP may not be sufficient to improve its economic performance unless other necessary conditions are met. These conditions may include appropriate sector and market reform, and change in operational and management practices of infrastructure operations.
  • Development, bidding, and ongoing costs in PPP projects are likely to be greater than for traditional government procurement processes – the government should therefore determine whether the greater costs involved are justified. A number of the PPP and implementation units around the world have developed methods for analyzing these costs and looking at Value for Money, e.g., UK Treasury. For a broader discussion of Value for Money, go to Financing.
  • There is a cost attached to debt – While the private sector can make it easier to get finance, finance will only be available where the operating cash flows of the project company are expected to provide a return on investment (i.e., the cost has to be borne either by the customers or the government through subsidies, etc.)
  • Some projects may be easier to finance than others (if there is proven technology involved and/or the extent of the private sector’s obligations and liability is clearly identifiable), some projects will generate revenue in local currency only (e.g., water projects) while others (e.g., ports and airports) will provide currency in dollar or other international currency, and so constraints of local finance markets may have less impact.
  • Some projects may be more politically or socially challenging to introduce and implement than others – particularly if there is an existing public sector workforce that fears being transferred to the private sector, if significant tariff increases are required to make the project viable, if there are significant land or resettlement issues, etc.
  • There is no unlimited risk bearing – private firms (and their lenders) will be cautious about accepting major risks beyond their control, such as exchange rate risks/risk of existing assets. If they bear these risks, then their price for the service will reflect this. Private firms will also want to know that the rules of the game are to be respected by the government as regards undertakings to increase tariffs/fair regulation, etc. Private sector will also expect a significant level of control over operations if it is to accept significant risks.
  • Private sector will do what it is paid to do and not more than that – therefore incentives and performance requirements need to be clearly set out in the contract. Focus should be on performance requirements that are output-based and relatively easy to monitor.
  • Government responsibility continues – citizens will continue to hold government accountable for the quality of utility services. Government will also need to retain sufficient expertise, whether the implementing agency and/or via a regulatory body, to monitor and evaluate the PPP arrangements, to carry out its own obligations under the agreement, to monitor the performance of the private sector, and to enforce its obligations.
  • The private sector is likely to have more expertise and after a short time have an
    advantage in the data relating to the project. It is important to ensure that there are
    clear and detailed reporting requirements imposed on the private operator to reduce
    this potential imbalance
  •  A clear legal and regulatory framework is crucial to achieving a sustainable solution
    (for more, go to Legislation and Regulation)
  • Given the long-term nature of these projects and the complexity associated, it is difficult to identify all possible contingencies during project development and events and issues may arise that were not anticipated in the documents or by the parties at the time of the contract. It is more likely than not that the parties will need to renegotiate the contract to accommodate these contingencies. It is also possible that some of the projects may fail or may be terminated prior to the projected term of the project, for a number of reasons including changes in government policy, failure by the private operator or the government to perform their obligations or indeed due to external circumstances such as force majeure. While some of these issues will be able to be addressed in the PPP agreement, it is likely that some of them will need to be managed during the course of the project.

(Any 4 points for 4 marks)

ii) Types of PPP

  • Build Operate and Transfer: Here the private sector invests in the asset and will be granted the right to operate the asset for a specified period after which the residual asset is transferred to the public agency.
  • Build Own and Transfer (BOO): Under BOO the private sector builds, possesses, and operates the facility and has control over profits and losses generated by the facility through time. This is similar to a privatization process except that the goods and services rendered remain public goods and services. For example, a private sector builds a bridge across a river, owned and operates it. The residual asset remains that of the private investor.
  • Build Transfer and Operate: Under this arrangement, the private partner invests in building the asset and immediately concedes ownership to the public agency (usually because of the restricted nature of the asset) and the public agency transfers exclusive right of use to the private partner.
  • Rehabilitate Operate and Transfer: The initial worn-out asset is provided by the public agency requiring the private partner to invest in revamping the asset and allowed to operate it for a specified period and residual asset transfer to the consolidated fund.
  • Design Build Operate and Transfer: The private sector provides financing and design, then builds, possesses, and operates the project. The public partner only provides funding while the project is being used or is active.
  • Service Concession: In this arrangement, the public agency engages a private company to operate and maintain the facility for a specified period of time under certain contract terms. Here the public agency concedes all exclusive ownership rights to the private company without transfer of ownership. While ownership remains with the public agency the private partner possesses owner rights over any addition incurred while being its own and operated under its domain.
  • Maintain and Operate: Under this arrangement, the public agency invests and owns the project and the private company is responsible for operating and maintaining the project or asset for an agreed consideration. The residual asset remains the property of the government agency.

(1 ½ marks (½ for stating and 1 for explaining) each for any 4 types = 6 marks)

  • 3 Marks

PSAF – May 2018 – L2 – Q5c – Public Procurement

Identify two financial risks in Public-Private Partnership (PPP) arrangements.

Public-Private Partnership (PPP) has become a major vehicle through which the government is leveraging private resources and technology in the provision of public services. However, PPP could become a vehicle for plunging public resources and taking public services out of reach of ordinary citizens. This concern has led to the creation of National PPP policy that provides a framework for effective PPP arrangements.

Required:
Identify TWO financial risks in PPP arrangements.

The two financial risks in Public-Private Partnership (PPP) arrangements are:

  1. Failure to Obtain Funding:
    There is a risk that the entity or the private partner may fail to secure the necessary funding for the project. This could occur due to the entity’s credit status, debt limitations, or investors’ perceptions of the risks involved in the project, leading to delays or project cancellation.
  2. Rising Interest Rate Risk:
    Another significant risk is the potential for rising interest rates, particularly if the debt secured for the PPP project is in foreign currency. Fluctuations in interest rates can increase the cost of borrowing, making the project more expensive and potentially leading to financial strain on both the public and private partners.
  3. Inflation and Exchange Rate Risk:
    Inflation and exchange rate fluctuations can pose challenges, especially in projects where costs are denominated in foreign currencies. Hyperinflation or a significant depreciation of the local currency could increase the project’s costs, making it less financially viable and putting pressure on the public finances.
  • 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.

Take control of your business data with insight and in-depth understanding by taking this course. 

Services

Contact Info

  • +233203701923
    +233543919232
  • info@noohrabusiness.com

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope