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  • 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.

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