Civil Engineering August 2022 | Vol 30 No 7

26 August 2022 Civil Engineering Q Q Encouraging more people to participate in the process by adopting diversified methods to garner public opinions, such as online surveys, public forums and face-to-face interviews Q Q Paying attention to special groups. Key features for the successful implemen- tation of PPPs include: 6 Political support: It is essential that any PPP has strong political support as well as consensus from opposition parties. Political interference: At the same time, government must resist the tempta- tion to interfere with a PPP project (for example limiting a toll concession’s ability to adjust its tolls). Sectoral reform: PPPs do not exist in isolation of the environment. Big differences between existing facilities and those pro- vided by the PPP may prove problematic. Affordability: The price for the service is key and must be affordable for the end user. Risk transfer: This is a key element of PPPs but it must be understood that all risks can never be completed transferred. Governance: Appropriate governance structures are required. Currency risk: With the exception of Nigeria and South Africa, local finance markets (in Africa) are unlikely to be able to provide the long-term financing that is required. This means that borrowing in a foreign (hard) currency will be necessary. Asset reversion: The PPP contract must clearly set out the condition that the asset must be in when it is returned. Legal, policy and institutional frameworks: The rise of infrastructure PPPs in Africa is closely linked to sector reforms that were implemented across the continent throughout the 1990s. 2 Political risk: The state is an active partner in the PPP, which means that investments respond to sovereign risks or risk perceptions. 2 Local capacity: PPP structuring requires specialist skills to undertake feasibility studies, arrange financing, draft terms of reference for contractors, bidding documents, and concession agreements, and negotiate contracts. 2 There is also a need to retain expertise to monitor contract implementation and compliance with performance targets. Financial considerations: The rev- enue derived from a PPP contract has to be calculated to cover: Q Q The design and development of the PPP Q Q The project operating and maintenance costs Q Q The investors’ required return on their investment. Payment to the PPP entity (the SPV) is usually linked to progress of the develop- ment and the achievement of key perfor- mance indicators. Project financing 6 relies primarily on cash flow rather than a corporate balance sheet of the value of the physical asset and is in two forms. The first is investments made by the project sponsors (investors) who develop the project. This is usually between 15% and 40% of the development cost. The second is loans received from lenders (debt) who receive a fixed rate of return. There is no up-side to their involvement, but they can lose their investment if the PPP goes badly. Lenders finance the balance of the project (not financed by the investors) of between 60% and 85% of the project cost. Commercial risk: 2 PPPs structured as project finance operations, for example BOTs, often seek non-recourse debt (i.e. debt guaranteed only by project cash- flows) which means that the availability and cost of financing is highly sensitive to perceived commercial risks. This includes performance or price risk, resource risk, demand risk and revenue risk, among others. Commercial risk can be managed through instruments such as government guarantees or credit risk insurance. For the same reasons that general for- eign direct investment responds to stable macroeconomic environments, PPPs fare better in countries with lower infla- tionary pressures, stable exchange rates and investor-friendly foreign exchange management policies. Private capital investments into infrastructure assets are mostly foreign currency based, given the need to source capital equipment from foreign markets. However, revenue streams are typically local currency based, introducing foreign exchange risk for private investors. In addition, because the private partner is often foreign or would have accumulated foreign currency debt to facilitate its participation in the trans- action, currency convertibility and trans- ferability are important considerations. For related reasons, so is inflation. CONCLUSION The Covid-19 pandemic has had an adverse effect on economies around the world. This has resulted in a slowing down of economic activity in general and PPP projects in par- ticular, some of which have been cancelled. Those same economic strictures will result in public funds being limited and that will, it is suggested, be good for PPP adoption across Africa, if infrastructural development is going to take place, which it must. There is therefore no reason to expect that borrowing and budgetary constraints will not remain as the main reason for adopting PPPs and that this will be the im- plementation strategy of choice since this could be the only implementation strategy available in sub-Saharan Africa.  REFERENCES 1. Kuru, K. & Artan, D. 2020. A canvas model for risk assessment and performance estimation in public–private partnerships . International Journal of Construction Management, 20:6, 704-719. Available: https://doi.org/10.1080/1 5623599.2020.1763898 . 2. Leitão, J., de Morais Sarmento, E. & Aleluia, J. (Ed.). 2017. The Emerald Handbook of Public–Private Partnerships in Developing and Emerging Economies . Emerald Publishing Limited, Bingley. Available: https://doi. org/10.1108/978-1-78714-493-420171024 . 3. World Bank. 2022. Finance Structures for PPP. Available: https://ppp.worldbank. org/public-private-partnership/ finance-structures-ppp . 4. 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