In Public Private Partnerships (PPPs), public and private sector actors collaborate to execute an infrastructure project. Understanding who these participants are and their specific roles and responsibilities is essential in grasping how PPPs function. The second part of our #PPPSeries delves into the key PPP actors. For an overview, definition and scope of PPP Projects, refer to our first instalment of the #PPPSeries here.
Who are the key Public Sector Actors in a PPP?
Under Ethiopia’s PPP Proclamation No. 1078/2018, four critical public sector entities play distinct roles in PPP projects. Firstly, the Contracting Authority is responsible for conceptualizing, identifying, and implementing the project. Secondly, as the procuring entity, the PPP Department (“PPPD”) within the Ministry of Finance ( “Ministry”) manages the procurement process. Thirdly, the PPP Board plays a decisive role in approving essential project milestones. Fourthly, the Ministry provides necessary guarantees and government support to ensure the project’s bankability, alignment with public interests and financial viability. Collectively, these entities embody the public interest and are integral to the successful execution of PPP Projects in Ethiopia.
- The Contracting Authority
The Contracting Authority is a public entity that concludes the PPP agreement with the private party. The Contracting Authority can either be a public body or a public enterprise. A public body is an organ of the Federal Government fully funded by its budget, while a public enterprise is a commercial entity fully owned by the Federal Government. To be a Contracting Authority, the public body or the public enterprise must legally be mandated to provide the service or infrastructure selected for PPP. For instance, Ethiopian Electric Power (EEP) would be the Contracting Authority for an independent power generation project under PPP as it is the legally mandated entity for power infrastructure in Ethiopia. Being a public body or enterprise alone will not be sufficient; the entity must have the legal authority for the infrastructure and service to be delivered through PPP. When a PPP project involves infrastructure or services under the jurisdiction of more than one public entity, the PPP Board will select the most suitable Contracting Authority for the project. This decision is made among the relevant public entities, ensuring the chosen Contracting Authority is best aligned with the specific requirements and responsibilities of the project.
The Contracting Authority is tasked with the initiation, conceptualization, identification and implementation of PPP projects. Its responsibilities include carrying out preparatory activities such as feasibility studies and financial analyses, submitting project proposals to the PPPD for necessary approvals, forming a project management team for transaction oversight, signing PPP agreements, and supervising the private party to ensure adherence to the terms of the PPP agreement.
The Proclamation obliges the Contracting Authority to consider the strategic and operational benefits of entering into a PPP compared to the development of the facility or the provision of the service by itself. To this end, the Contracting Authority is required, as part of its feasibility study, to determine the viability of the project and ensure that a PPP approach is the most economically advantageous.
To fulfil its tasks, the Contracting Authority must establish a dedicated project management team (PMT) consisting of financial, technical, and legal experts. This team is crucial in ensuring the Contracting Authority effectively fulfils its obligations throughout the project’s lifecycle. Collaborating closely with the procuring entity, the PMT is responsible for various critical aspects of the project, ensuring its smooth execution and alignment with project goals and legal requirements. These include assessing the project’s viability across legal, regulatory, social, financial, and commercial aspects, preparing the tender documents and monitoring the PPP agreement’s implementation and the private party’s adherence. Additionally, the PMT maintains records of all related documentation and agreements, oversees the asset transfer upon the agreement’s expiry or termination, and collaborates with all stakeholders throughout the project cycle.
Therefore, the Contracting Authority is the most important player in a PPP project, acting as the project’s “owner.” It is the party that initiates the project, oversees its implementation, and upon completion, takes control of the project to continue its operation.
2. Public Private Partnership Department (PPPD)
The PPP Department (formerly known as the PPP Directorate General), was established under the PPP Proclamation within the Ministry. It is the central procuring entity for all PPP projects in Ethiopia. Its primary aim is to implement PPPs in a manner that supports the nation’s development goals. This includes initiating the bidding process, managing prequalification requests, preparing proposals, negotiating, and selecting qualified bidders. The PPPD acts as the Secretariat of the PPP Board and submits all decisions and approvals required by the PPP Proclamation to the Board. Contracting Authorities are not directly involved in the procurement of PPP Projects. However, the PPPD and the Contracting Authority work closely in identifying, conceptualising, and categorising the projects, as well as the qualification and evaluation of bidders.
3. The PPP Board
The PPP Board (“Board”) is a body established by the PPP Proclamation, having 9 members, of which seven are from the public sector and the remaining two are from the private sector. The Board plays a decisive role in the implementation of PPP projects in Ethiopia, as key project milestones necessitate the Board’s approval. These include:
- approving the PPP project structure (including any feasibility study related thereto) before the commencement of the tendering process.
- identifying the appropriate Contracting Authority when required for specific projects.
- approving significant changes to the risk allocation or expected cash flow from the project that was at envisioned under the initial structure (for instance changes to tariffs)
- approving any significant amendment to a Project Agreement.
- recommending specific tax or other incentives for a particular project to the relevant authority.
- approving the tender or negotiation results carried out to select the private sector which can participate in the Public Private Partnership
- Recommending government support in a certain PPP project.
- Approving the implementation of PPP through direct negotiation if it is believed to benefit the public interest and ensure quick financing.
4. Ministry of Finance
Under the Proclamation, the Ministry is empowered to provide government support to PPP projects. Based on the Board’s recommendations, the Ministry may offer economic support through various methods, ensuring that each project aligns with the government’s strategic goals and financial parameters. Article 47 of the Proclamation lists the key government support that the Ministry may provide to PPP projects. These include:
- Direct payments to the private party as a substitute for, or in addition to, tariffs or fees for the use of the facility or its services. These may include availability payments, cash subsidies, capital grants, minimum trafficking or revenue guarantees and minimum off-take or capacity payments and purchase guarantees
- Contributions in-kind, including asset transfers and land usage rights
- Payment guarantees, securities, undertaking or binding letters of comfort
- Guarantees for the performance of obligations of the Contracting Authority under the Project Agreement (Providing implementation guarantee to the private party that would give security to it in cases where the contracting authority fails to perform its obligations under the PPP agreement)
Typically, government support extended by the Ministry is executed through a separate agreement with the private party. This agreement may be called an Implementation Agreement (“IA”) or a Government Support Agreement. (“GSA”). Under an IA/GSA, the Ministry will undertake to provide government support to the private entity directly.
Who are the key Private Sector Actors in a PPP?
The Private Party in a PPP is the entity that enters into the PPP agreement with the Contracting Authority. After the bid process concludes and a PPP project is awarded, the winning bidder establishes a project company under Ethiopian law to implement the project. This project company is the key actor responsible for executing the PPP Agreement with the Contracting Authority and any supplementary agreements, such as an implementation agreement with the Ministry.
The project company will typically engage with various external actors and sub-contractors. Although these actors may not be directly engaged with the Contracting Authority, they play a critical role in the successful implementation of PPP projects. These include external financiers, insurance companies, Engineering, Procurement, and Construction (EPC) contractors, and Operation and Management (O&M) contractors. In particular, external financiers (lenders) that provide financing are closely involved in PPP projects. In projects financed through project finance schemes, lenders are heavily involved through a comprehensive evaluation of the project’s agreement, project structure, cash flows, construction and operation milestones. The financing of the project may also necessitate direct agreement between lenders and the Contracting Authority.
In conclusion, PPPs are complex arrangements where multiple actors from both public and private sectors collaborate. Key public entities like the Contracting Authority, PPPD, the Board, and the Ministry play central roles in initiating, managing, and implementing these projects. On the private side, the project company, along with lenders, insurance companies, EPC and O&M contractors, contribute significantly, each managing specific risks and aspects of the project. This collaborative ecosystem is essential for the successful delivery of PPP projects, driving forward national development goals through shared risk, expertise and resources.
