PPPs to be closely monitored to ensure output requirements
Windhoek – To ensure that public private partnership (PPP) initiatives are successful and are in the public interest, government will plan and communicate detailed output requirements from projects upfront and will adhere to the principles of value for money and genuine risk transfer to provide optimal protection for private investors.
This is according to Finance Minister Calle Schlettwein, who at the Invest in Namibia International Conference said that during the planning and feasibility stage of a PPP initiative the relevant public entity shall ensure that requirements or outputs from a proposed project are articulated in sufficient detail such that different private sector organisations interested in investing have a clear and uniform understanding of development requirements and required performance parameters.
“For instance, in case of the affordable housing initiative detailed guidance shall be provided on development and quality specifications as well as expected completion timeframes; in case of the water desalination project water quality, initial supply and production ramp-up requirements shall be specified, and in case of the concentrated solar power (CSP) project, rated production capacity and dispatch profile are likely to be specified upfront,” said Schlettwein.
This clear and upfront articulation of project output parameters is a pre-requisite to ensure that PPP initiatives are aligned to the public needs. This is also important to facilitate competitive procurement, such that financial offers from various competing bidders are truly comparable.
“A clear articulation of project requirements is essential for inclusion in a PPP agreement, such that responsibilities of the private sector are unambiguous,” said Schlettwein when participating in a panel discussion on Namibia’s PPP framework.
Schlettwein elaborated on three specific PPP initiatives and important infrastructure projects that were identified before the start of the conference. These are the pilot PPP initiative for the development of affordable houses, CSP generation along with thermal storage and possible development of a water desalination project along the coast.
In terms of affordable housing, Schlettwein noted that increased urbanisation in the country has led to a pronounced deficit in affordable serviced land and housing, and also a deficit in opportunities for investment and operations in this field. As well as increasing house prices, limited supply of new property in urban centres has resulted in a sizeable shortfall in formal housing, which means that many families that would otherwise be willing and able to afford formal housing are unable to do so and thus end up in informal housing.
Now, a joint working group of the Ministry of Urban and Rural Development and the PPP Unit is working on preparing a project for the development of ‘affordable houses’ through private financing. The detailed project concept and execution approach has been approved by Cabinet, and the processes of identifying two pilot project sites and appointment of transaction advisors are underway. It is planned that over 1 000 affordable housing units shall be built at each of the planned project sites through this PPP initiative.
“The selected private developers for the various projects shall be responsible to design, finance and build the project facilities – i.e. servicing of the site, building housing units and any required allied infrastructure in line with pre-decided development specifications; and recuperate investments through direct sale of houses to end users. The emphasis of the procurement process shall be to qualify technically and financially capable developers and invite them to submit financial proposals. Also, the final selection shall be in part based on the lowest prices at which the various competing developers commit to sell a typical housing unit to the intended beneficiaries,” Schlettwein explained.
Concentrated Solar Power (CSP) Generation
While the demand for power has steadily grown in Namibia, supply sources have not kept pace. As a consequence, at present Namibia imports over 60 percent of power requirements from neighbouring countries. To rectify this imbalance, the Ministry of Mines and Energy and Nampower have proposed to develop a CSP project with substantial investment from the private sector.
“This is a compelling development choice for us, given that Namibia is endowed with some of the best solar resource sites in the world, and a CSP project along with thermal storage – as is planned – shall provide a high degree of dispatch flexibility, which is needed to manage the peak demand and supplies from non-firm sources of power,” the finance minister stated. As per present plans, the tender process for selection of private partners is likely to commence in the first half of 2017, and the tender award is expected for the last quarter of 2017.
Water Desalination Project
Being the driest country in sub-Saharan Africa and with water resources subject to extremely variable rainfall and high evaporation losses, fresh water sources are still unevenly spread and only to be found at the perennial rivers on the northern and southern borders.
“With the backdrop of persistent drought conditions and continuing expansion of economic activities in the western and central regions of the country it is clear that sources of supply of potable and industrial use water need to be expanded. In line with this requirement, the Harambee Prosperity Plan has mandated the development of a 25 million cubic metre per annum capacity desalination plant at the coast of Namibia on a PPP basis. The Ministry of Agriculture, Water and Forestry is presently leading an initiative to undertake a comprehensive feasibility assessment for the proposed desalination project for potential development through private investment,” said Schlettwein.
He added that there are sound reasons to target the development of the desalination project on a PPP basis. “Development of a water desalination project shall be a sizeable investment, where the suitability of design and quality of build shall play an important role in the long-term efficiency of water production from the plant. In this scenario, it will be useful to have a project arrangement where the design, construction and operations risks are allocated to a competent private firm, and Namwater or alternative consuming entity shall have a water purchase relationship with the desalination facility,” Schlettwein noted.
Overall, Namibia has made steady progress towards its PPP agenda as the National PPP Policy was approved in 2012. In line with this policy, the Public Private Partnerships Directorate (or the PPP Unit) was established in the Ministry of Finance and already formulation of PPP legislation is at an advanced stage with the draft bill finalised and due for tabling in parliament.
“The overarching intent of the PPP legislation is that we target that best practices are followed during all phases of a PPP project development cycle. To ensure this, the legislation contemplates that a sequence of reviews are made and corresponding approvals provided by a PPP committee that is constituted as per provisions of the legislation,” Schlettwein added.