Funding Infrastructure

by Public-Private Partnerships (PPP)

and Private Finance Initiatives (PFI):
Ghana

The Project Company (Ghana) Ltd

Tony Hagan BSc MSc CEng MICE

 Contact:
TonyHagan@talk21.com
 Issues Considered

• Public-Private Partnerships (PPP)

• Ghana: Economic and Social Infrastructure
• Ghana: PPP Opportunity Areas
• The Benefits of PPP Schemes
• The Differences between the Public and Private Sectors
• Delivering Infrastructure Projects for Ghana
• Financing PPP Schemes and Role of Banks
• Keys to Successful PPP Schemes
• The Project Company (Ghana) Ltd
Public-Private Partnerships (PPP)
 What are PPPs?

Key feature of a PPP is that it involves a risk

sharing relationship between Public and
Private Promoters, based on a shared
commitment to achieve a desired public
policy outcome
 What are the aims of a PPP?

• PPPs aim to introduce Private Sector Resources

and/or Expertise in order to help provide and
deliver Public sector Assets and Services
• The term PPP is used to describe a wide variety
of working arrangements from loose, informal
and strategic partnerships, to design, build,
finance and operate (DBFO) type service
contracts and formal joint venture companies
How are PPPs Structured?
What are the steps?
What are the Steps in PPPs?

Project Service Provider Contract Management

Preparation Selection
1. Service Need 5. Bid Preparation 8. Contract Mgmt.
(Output specs over time) (EOI/ Short listing, RFP) (construction,
commissioning,
monitoring,
2. Option Appraisal Bid Doc dispute settlement,
(Report on options) Approval continuing
communications
3. Business Case 6. Bid Evaluation
(affrdblty./public (prf. bidder, value for $)
interest)

Project/ Project
Funding Finalizatio
Approval n Review

4. Project Dev. 7. Final

(team, PSC, plan) Negotiation
(sign contract, finc.
 What characteristics have PPPs got?

Characterised by the Public Sector:

• Entering into contracts to acquire services, rather than procuring an
asset
• Specifying the service requirement on the basis of outputs, not inputs
• Linking payments to the private sector to the level and quality services
actually delivered
• Often requiring a ‘whole life’ approach to the design, building and
operation of project assets
• Seeking optimal risk transfer to the private sector
• Requiring private partner to be responsible for raising some, or all, of
investment finance required
• Utilising diverse payment mechanisms, such as market revenue, shadow
tolls, capacity availability payments and so on
 What are the ingredients of a good PPP?

Contractual arrangement should be based on:

1. Substantial risk transfer

– allocation of risks to parties best able to manage
them
1. Quality of service & output specification
– focus on services associated with procured assets
1. Performance-related rewards
– payment only if performance standards met
1. M&E plan over life of contract
– achievement of whole-life performance
 PPPs and Value For Money (VFM)

• Key consideration in launching a PPP

programme should be ensuring Value For
Money (VFM)
• PPPs facilitate and create incentives for
On-time and On-budget Projects
• Achieving optimal allocation of risk is the
most important factor in structuring a PPP
 What are the Pre-requisites?

Clear policy and legal frameworks

– Rationale for use of PPPs & legal powers to contract out services
– Dispute resolution procedures
– Oversight of fiscal costs

Oversight procedures providing checks & balances

1) Project preparation – business case & value-for-money
2) Provider selection – guidelines for pre-qualification & tender
3) Contract management – M&E, performance-linked payments/penalties
Support functions
1) Information dissemination – data, networking, training
2) Guidance – model contracts, tools, case studies
3) Catalytic functions – political/advisory support, funding
Needed: Transparency, Competition, Monitoring,
Empowered Public
 PPPs Need:

• Appropriate selection of projects ( a PPP

will never cure a weak project)
• A clear and stable legal framework
• Skilled and experienced people in the
public sector
• Experienced and creditworthy private
sector partners
 What are the Benefits of PPPs?

• Risk transfer to private sector

– Commercial know-how & managerial skills
– Best-practice technologies & innovation
• Enhanced government accountability
• Entrepreneurship & local enterprise development
• Private finance
– Government payments can be leveraged by citizen user fees
and/or government cost savings

Result: Faster deployment of better services

 How have PPPs developed elsewhere?

• New investment in public infrastructure via PPPs has

included:
- Airports
- Railways
- Roads
- Bridges
- Tunnels
- Environmental facilities (waste incinerators and water
treatment plants)
- Public Buildings (offices, schools, hospitals and prisons)
 The PPP Outsourcing Path

Policy
Policy

Legis.
Legis. Judic.
Judic.

Reg.
Reg. Enfor.
Enfor.

Electoral
Electoral
n
tio
Natural Outsourcing Path

W
ac

eb
er

Taxation Services

sit
Taxation Services
Int

Procur.
Procur.

e
n
tio

Da
ca

tab
Citizen Company Land Vehicle Legal Other
fi

Citizen Company Land Vehicle Legal Other

nti

as
Ide

e
Infrastructure
Infrastructure Provision
Provision and
and Management
Management
 Pattern of PPPs and Experience to Date

• PPPs sectorally concentrated – transport

(road, rail, estuarial crossings) as well as
Education and Health
• Other sectors (waste, environment, ports,
energy and social housing) yet to reach
‘critical mass’ for competitive market to
emerge
 Experience to Date

• Most countries commence PPP in the

transport sector but develop into other
scetors as VFM is proven and PPP
expertise established
• PPP structures demonstrate considerable
national variations – PPP techniques
succeed because they can be adaptable
to specific financial, political and socio-
economic priorities of each country
Ghana: Economic and Social Sector Infrastructure
 Agriculture and Infrastructure: Priority Policies and Targets, 2007 – 2009…1

• Agriculture modernization: The aim is to go beyond subsistence agriculture

and increase agricultural productivity

• Close the Infrastructure Gap:

– Roads; The target is to have more than 55% of the entire national
road network in good condition by 2009 up from the current (2006)
indicator level of 45%
– Energy; The target is (I) to install a total of about 300 Megawatts of
additional capacity (approximately 17% of installed capacity) in 2007;
(II) To develop and construct new power stations, (II) Explore
alternative sources of energy

– ICT; Increase teledensity by at least 27% annually, and increase

internet access by an annual rate of not less than 2%.
 Education: Priority Policies and Targets, 2007 – 2009…2

• In Education the objectives are:

– increase access to and participation in education and training at all levels
– bridge gender gaps in access to education in all districts
– improve the quality of teaching and learning;
– improve efficiency in the delivery of education services
– promote science and technology education at all levels with particular
attention to increased participation of girls.

Consequently, the target is to:

- achieve literacy rate (i.e. proportion of adult population able to read and
write) of about 68.20%;
- Gross Enrolment Rate (GER) at the Primary level of 97.80%, JSS of 80.40%
and SSS of 31% by 2009.
- In doing this, effort will be made at achieving Gender Parity Index (GPI) for
gross enrolment of 1 at all levels (i.e. KG, Primary, JSS and SSS)
 Health: Priority Policies and Targets, 2007 – 2009…3

• Health
– Expand and sustain high coverage of quality interventions and services,
particularly malaria, infant & maternal mortality, HIV/AIDS etc
– Target for HIV/AIDS: 50% ARVs coverage from the current 3.2%;
– HIV/AIDS prevalence reduced to 2.0% by 2009 from 3.2% now

• Water supply: The target is to increase access to above 60% by 2009.

• Good Governance: The focus will be on

- Strengthening the process of decentralization
- Improve existing institutional capacities including Parliament
- Fostering greater civic responsibility
Challenges to the attainment of the Overall Objective of the Medium Term
Development Framework (GPRS II)…1

• One of the key assumptions underlying the attainment of the

minimum GDP growth of 8% and per capita GDP of US$686 over
the medium term (by 2009) is increased investment in the key
sectors of the economy, particularly in the area of infrastructure
(i.e. energy, roads and railways, ICT, etc)

• The recent analysis of the investment needs for the key sectors of
the economy indicates a total investment requirements of about
US$10,555.5 million over the period 2007-2009, of which GOG
revenue projections amounts to US$3,115.7 million (about 30% of
the estimated requirement).
• This leaves an average financing gap of about US$3,518.5 million
per annum.
 Challenges to the attainment of the Overall Objective of the
Medium Term Development Framework (GPRS II)…2

This gap is expected to be filled by:

• Resource mobilization through grant finance and budget
support.
• external loans on concessional terms with a minimum
grant element of 35%.
• Non-concessional loans to be limited by specific projects
in any specific year.
• The implication of this is that development partners have
to scale up resource support to Ghana which currently
stands at about US$1,306.25 million per annum.
 Global Partnership for Development...1

• Strengthening the partnership between Ghana and her Development Partners has been
central to the formulation, implementation and monitoring of the GPRS.
• The principles of the partnership are based on the Paris Declaration and include:
• strengthening country’s ownership of the development process,
• ensuring the alignment of development partner support on national priority,
• ensuring harmonisation of donor procedures and country systems
• and use information to improve decision making.
• ensuring mutual accountability in relation to resource flow and results achieved through
the implementation of national strategy
 Global Partnership for Development...2

• Within this framework GOG expect an increased in the

current level of donor support over the next 3 years.
• The GOG expect more loans on concessional terms with
a minimum grant element of 35% as against non-
concessional loans.
• The GOG expects more budget support instead of
projects loans which is difficult to coordinate and
manage. This will allow for integration of aid flows into
the planning, implementation, monitoring and evaluation
phases of the budget cycle.
 Conclusions

• Achieving an accelerated growth, with employment creation and

poverty reduction, will require massive investment in priority sectors of
the economy.
• The country has come far with the help of its Development Partners
and fiscal prudence on the part of Government in the achievement of
some remarkable progress which makes the future bright.
• There is the need to maintain the momentum of growth and the
achievement of the Millennium Development Goals.
• To do this concerted efforts must be made towards investing in some
key areas of the economy.
• This will require scaling up of resources on the part of Government and
its Development Partners to make it feasible.
Ghana: Economic Sector
 Economic Sector Overview...1

• Well endowed with Natural Resources (gold, timber, industrial

diamonds, bauxite, manganese, fish, rubber, hydropower, petroleum,
silver, salt and limestone)
• Ghana has roughly twice the per capita output of the poorest countries
in West Africa
• Heavily dependent on international financial and technical assistance
• Gold and cocoa production, and individual remittances, are major
sources of foreign exchange
• The domestic economy continues to revolve around agriculture, which
accounts for about 35% of GDP and employs about 55% of the work
force, mainly small landholders
• Ghana signed a Millennium Challenge Corporation (MCC) Compact in
2006, which aims to assist in transforming Ghana's agricultural sector
 Economic Sector Overview...2

• Ghana opted for debt relief under the Heavily Indebted Poor
Country (HIPC) program in 2002, and is also benefiting from the
Multilateral Debt Relief Initiative that took effect in 2006
• Thematic priorities under its current Growth and Poverty Reduction
Strategy (GPRS-II), which also provides the framework for
development partner assistance, are:
- Macroeconomic stability;
- Private sector competitiveness;
- Human resource development;
- Good governance and civic responsibility
• Sound macro-economic management along with high prices for gold
and cocoa helped sustain GDP growth in 2008
 Economic Sector Overview...3

Industries:
• Mining
• Lumbering
• Light Manufacturing
• Aluminium Smelting
• Food Processing
• Cement
• Small Commercial Ship-Building
 Economic Sector Infrastructure

• Energy and Bio-Energies (Power Plants, Hydro-

electric Plants, Networks and Renewable Energies)
• Environment (Water Networks, sewage Facilities,
Sanitation and De-salination)
• Information and Communications Technologies
(Backbones, Regional Inter-connections..)
• Transport (Roads, Highways, Railways, Ports and
Airports)
 Economic Sector Infrastructure: Energy and Bio-Energies

ELECTRICITY
Electricity - production: 8.204 billion kWh (2006 est.)
Electricity - consumption: 6.76 billion kWh (2006 est.)
Electricity - exports: 755 million kWh (2006 est.)
Electricity - imports: 629 million kWh (2006 est.)

WHY EXPORT 755 TO THEN IMPORT 629??????????????

PARTICULARLY AS PRODUCING MORE THAN COMSUME
WHY ARE ELECTRICITY CUTS SO PREVALENT??????????
 Economic Sector Infrastructure: Energy and Bio-Energies

OIL

Oil - production: 7,571 bbl/day (2007 est.)

Oil - consumption: 49,300 bbl/day (2006 est.)
Oil - exports: 5,709 bbl/day (2005)
Oil - imports: 45,520 bbl/day (2005)
Oil - proved reserves: 15 million bbl (1 January 2008 est.)

CONSUME DAILY ABOUT 7 TIMES AS MUCH OIL AS PRODUCE DAILY

AND HAVE TO IMPORT MASSIVE AMOUNTS YET HAVE OIL (PROVED
RESERVES) OF 15 MILLION BBL???????????
 Economic Sector Infrastructure: Energy and Bio-Energies

NATURAL GAS

Natural gas - production: 0 cu m (2007 est.)

Natural gas - consumption: 0 cu m (2007 est.)
Natural gas - exports: 0 cu m (2007 est.)
Natural gas - imports: 0 cu m (2007 est.)
Natural gas - proved reserves: 22.65 billion cu m (1 January 2008 est.)

MASSIVE AMOUNT OF NATURAL GAS RESERVES YET ZERO

CONSUMPTION AND PRODUCTION????????
 Economic Sector Infrastructure: Energy and Bio-Energies

Comment

• Growth in electricity production averaged 4.2 percent a year between 1980 and 1996.
In 1998 electricity production was 6.206 billion kilowatt-hours (kWh), 99.9 percent of
which was from hydroelectric sources. In the same year, electricity consumption was
5.437 billion kWh and exports were 400 million kWh, while 65 kWh of electricity were
imported. Hydroelectricity is generated at the Akasombo and Kpong power plants,
which traditionally supply virtually all of the country's electricity needs, as well as
provide exports to Benin and Togo.

• Total dependence on hydroelectricity makes Ghana vulnerable to variations in

rainfall, and power shortages reached crisis-point in 1998. This has stiffened resolve
to provide alternative sources of electric power, including a recently built oil-and gas-
fired power station. There are also plans for a number of gas-fired plants, using
imported gas and gas from the Tano fields. The Tama oil refinery was being
expanded and prepared for privatization in 1997-99. The U.S. Export-Import Bank is
to provide guarantees to cover drilling in the Tano off-shore natural gas fields and
construction of pipelines, plus loan financing for operations and maintenance work.
 Economic Sector Infrastructure: Environment

Environment - current issues:

• recurrent drought in north severely affects agricultural
activities;
• deforestation;
• overgrazing;
• soil erosion;
• poaching and habitat destruction threatens wildlife
populations;
• water pollution;
• inadequate supplies of potable water
Economic Sector Infrastructure: Information and Communication Technologies

Telephones - main lines in use: 376,500 (2007)

Telephones - mobile cellular: 7.604 million (2007)
Telephone system:
general assessment:
• outdated and unreliable fixed-line infrastructure heavily concentrated in
Accra; competition among multiple mobile-cellular providers has spurred
growth with subscribership about 35 per 100 persons and rising
domestic:
• primarily microwave radio relay;
• wireless local loop has been installed
Economic Sector Infrastructure: Information and Communication Technologies

international: country code - 233;

• landing point for the SAT-3/WASC fibre-optic submarine cable that provides
connectivity to Europe and Asia;
• satellite earth stations - 4 Intelsat (Atlantic Ocean);
• microwave radio relay link to Panaftel system connects Ghana to its
neighbours (2007)
Radio broadcast stations: AM 0, FM 86, shortwave 3 (2007)
Television broadcast stations: 7 (2007)
Internet country code: .gh
Internet hosts: 24,018 (2008)
 Economic Sector Infrastructure: Transport...1

Airports: 11 (2008)
Airports - with paved runways:
• total: 7
over 3,047 m: 1
2,438 to 3,047 m: 1
1,524 to 2,437 m: 3
914 to 1,523 m: 2 (2008)
Airports - with unpaved runways:
• total: 4
914 to 1,523 m: 3
under 914 m: 1 (2008)
Pipelines:
• oil 5 km; refined products 309 km (2008)
 Economic Sector Infrastructure: Transport...2

Railways:
• total: 953 km
narrow gauge: 953 km 1.067-m gauge (2006)
Roadways:
• total: 62,221 km
paved: 9,955 km
unpaved: 52,266 km (2006)
Waterways:
• 1,293 km
note: 168 km for launches and lighters on Volta, Ankobra, and Tano rivers; 1,125 km of arterial
and feeder waterways on Lake Volta (2008)
Merchant marine:
• total: 4
by type: petroleum tanker 1, refrigerated cargo 3
foreign-owned: 1 (Brazil 1) (2008)
Ports and terminals:
• Tema
Ghana National Transport Policy
 Economic Sector Infrastructure: Transport

Comment
• There are 39,409 kilometres (24,490 miles) of roads, of which 11,653
kilometres (7,241 miles) were paved in 1997. In 1997 there was a 953-
kilometer (592-mile) railway network (currently undergoing major
rehabilitation) of narrow gauge. The railway connects Accra, Kumasi, and
Takoradi, the major mining areas, to the sea ports. The railway network also
provides passenger services from the interior of Ghana to the main sea
ports at Tema (near Accra) and Takoradi.

• The main waterways include the Volta, Ankobra, and Tano Rivers, which
provide 168 kilometers (104 miles) of year-round navigation, and Lake
Volta, which provides 1,125 kilometres (699 miles) of arterial and feeder
waterways. The main ports are at Takoradi and Tema. There were 12
airports in 1999, 6 of which had paved runways .
Ghana: Social Sector
 Social Sector Infrastructure

• Health (Urban and Rural Hospitals)

• Education (Schools, High Schools and
Universities, Cultural centres, Libraries..)
• Social Housing
• Leisure and Sport (Stadiums..)
Social Sector Infrastructure: Health
Social Sector Infrastructure: Education
Social Sector Infrastructure: Social Housing
Social Sector Infrastructure: Leisure and Sport
 Ghana: Economic and Social Stimulus Plan...1

This plan is suggesting aims to stimulate employment, certain

critical economic sectors, and government spending in Ghana
•"You've got to look at the whole picture"
•Focus stimulus spending on infrastructure development
•Front-end investments for longer-term benefits
•Job creation and tax cuts in the country
•Stimulate vital sectors of the economy such as energy and
health care
•Make consumption easier/cheaper for everybody
•Infrastructure investments could help make the economy and
Ghanaian more competitive internationally.
 Ghana: Economic and Social Stimulus Plan...2

The Implementation of the Stimulus Plan

•The stimulus plan again would again boast the country's Infrastructure,
including the highways;
•Need to modernize government buildings and other public infrastructure;
•Need to provide clean water, flood control, and other environmental
investments; there would also be public transit and rail infrastructure
improvement.
•Local school districts would be increased to prevent educational service
cutbacks and also to help modernize higher education programs
•Need to transform the Ghanaian energy by pumping money into the sector to
make it more efficient
•Need to repair public housing and make it affordable for the low income earners
PPP Opportunity Areas
PPP Sector Highlights around the World
PPP Infrastructure Projects in Africa 1996-2006
Infrastructure Development in Africa…1
Infrastructure Development in Africa…2
Infrastructure Development in Africa…3
The Benefits of PPP Schemes
The Benefits of PPP Schemes
Opportunity Sectors in Ghana
 PPP Opportunity Sectors in Ghana

•
Concessive and Non-Concessive PPPs
Ghana: Possible Infrastructure Sectors for PPP
Infrastructure Meets Business
Ghana: Possible Infrastructure Sectors for PPP
Asset Procurement Options under PPP
 The Differences between
The Public and Private Sectors
Differences between the Public Sector and
Private Sector
 PPPs and PFI

Delivering Infrastructure
Projects to Ghana
Selecting an Appropriate PPP / PFI Model
Government / Public Sector Authority
and The Project Company (Ghana) Ltd
Parties Involved in PPP Projects
Key Phases of the PPP Project Process
Outline of the Procurement Process
Contractual Structure of The PPP
Contract Management Structure
Structure of Project Governance
Financing Infrastructure Projects
Stages of Project Selection
Financing PPP Schemes
Public versus Private Contract Costs
Public Sector Costs vs. Private Sector Costs
Breakdown of Total Costs
Different PFI Cost Structures
Comparing Costs of PPP and Government Debt Finance
Typical PPP / PFI Bidding Process Costs
Cashflows to Shareholders
Role of Banks in PPP....1
Role of Banks...2
Role of Banks...3
Role of Banks...4
Keys to Successful PPP Schemes
Key to Successful PPP Schemes...1
Key to Successful PPP Schemes...2
The Project Company (Ghana) Ltd
 The Project Company (Ghana) Ltd

The Private Finance Initiative (PFI) Model

Decision Tree for PPP
The Project Company (Ghana) Ltd

PPP Structure
The Project Company (Ghana) Ltd

Services We Deliver
Our Company Aims
Our Business Profile
We Look Forward to Working with You

The Project Company (Ghana) Ltd

End of Presentation

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