Public-Private Partnership – Compelling Case for Road Infrastructure Financing in Tanzania

[Roving Journalist]

Eng. Mohamed Besta – Chief Executive TANROADS​

A compelling case for the transformation of Tanzania's road sector through public-private partnerships (PPPs) can be made based on several factors. It is apparent that any nation developing its road network is essential for the growth, trade and harnessing of regional economies. The feasible PPPs normally attract private investment which in turn becomes a driver for the expeditious development of infrastructure. Within the context of the road sector, PPPs lead to improved network connectivity, and public mobility and facilitate trade and investment. Basically, the very nature of PPP Concessionaires is anticipated to culminate in laying the ground for efficiency in public mobility, trade and investment which is in sync with President Dr. Samia Suluhu Hassan's emphasis on reforms and rebuilding mantra in the public sector.

Experience in the sub-Saharan region can be drawn from South Africa where over 300 PPP projects have been implemented since 1994. The South African National Treasury, the body that deals with PPP projects, have established documented procedures in dealing with the PPP projects that guide the process for engagement between a public sector institution and a private party. Under such guidance, the private parties assume substantial financial, technical and operational risk in the design, financing, building and operation of a project.

Fair enough, our nation has been financing infrastructure through traditional public funds in various forms whether in taxation regimes or loan grants. History attests that the road sector has been the leading beneficiary of public funds. However, the growing need for financing road development projects has been piercing into the minds of the policymakers and unfortunately the overall national annual income. This state of affairs has culminated in the perpetual straining of available revenues and an inadequate pace for development in the road sector.

Again, it is public knowledge that inadequate service condition of public roads has afflicted our country since independence. With such deficiencies, we are constrained to rethink the modality for mobilizing capital investment towards road network development. While providing infrastructure through public financing is a core function of the State, PPPs offer options to undertake infrastructure projects in which up-front capital is provided by the private sector and under the agreed concessional structure.

Access to private sector finance permits increased investment in public infrastructure, compared to raising or budgeting additional funds. in reality, the additional public funding is not always available due to strains caused by other competing demands in social sectors as well as runaway infrastructure demands. For this reason, the imperative for the involvement of the private sector in partnering with the public sector should be supported at different decision-making levels in our nation.

The agricultural sector, which accounts for a sizeable contribution to the economy in Tanzania, is greatly dependent on the reliable and accessible road network. This linkage between agricultural productivity and the condition of the road network is causing downward pressure on the government to fund of development and maintenance of road infrastructure. To lessen this downward pressure on the government's part, contemporary financing approaches must be thought through, formulated and implemented for the long-term common good. The current statistics indicate that the road network under the mandate of TANROADS stands at 36,760 km of roads of which 11, 919 kilometres (32%) are upgraded to bituminous standard whilst the remaining 24,841 kilometres (68%) still awaits financing for upgrading to bituminous standard. Amidst such harsh reality, and at this historical moment 62 years after independence, we are compelled to contemplate and reform ways and means for road project financing with particular emphasis on PPPs. The PPPs are expected to offer a host of benefits to our country which include but are not limited to the following aspects:

Financial Sustainability: It is known that our government have been facing limitations in funding road projects for far too long. With the onset of the PPPs, our country will ultimately allow private investors to inject capital, reducing the strain on public finances and enabling the government allocation of funds to other critical social sectors such as health, rural energy education and safe water supply.

In order to understand the financial sustainability of PPPs, it is imperative to consider the very nature of the large-scale infrastructure projects they may be used to facilitate. Regardless of whether the finance comes from the private sector (through a PPP) or the public sector (via traditional financing), funding infrastructure has certain distinct features from the perspective of an investor. Infrastructure investment is generally characterized by large up-front capital intensity during the construction phase, with relatively smaller operational costs. In PPPs, roads or hydroelectric dams, for example, are expensive to design and build, but once their construction is complete, they significantly lower operating and maintenance costs. It cannot be overemphasized that the primary objective of any government is to provide “services or at least build an environment to enable for socio-economic activities” through the availability of various forms of infrastructure.

Improved Public Mobility - Through the PPP's investment in infrastructure, especially roads, the likelihood of improved mobility is obvious. The remote and seemingly underserved communities will most likely reap benefits from transport mobility. In essence, public mobility invigorates economies and thereby improves the livelihoods of the community and of a nation. A restrained society is definitely economically degenerative. The interaction among sectors and groups in all forms including, formal and informal, breathes life into societal well-being.

Efficiency and Quality: In this context, PPPs often culminate into enhanced project management, efficiency and quality. Contractors with expertise in road construction and maintenance, for example, can introduce contemporary technologies and industry best practices (IBP) whilst ensuring high-quality infrastructure.

The most important motivation for the use of PPPs as an alternative method for financing and procurement of infrastructure is the potential for long-term gains in terms of efficiency and quality. It is important to note that when deploying PPP to any feasible project and within the appropriate framework and processes, a host of benefits can be realized. The benefits will be consolidated further through achieving an effective system under the desired outcomes in time and value.

For PPPs, the long-term expected cost to the public sector may be lower than with conventional project financing (and/or the expected benefits may be higher). This is the case even after considering the higher cost of capital (financial costs) associated with the private financing that forms part of the PPP. For user-pays PPPs, the efficiency might also result in lower charges to users and reliability of transport infrastructure.

Irrespective of the mode of concessionaire, a technical challenge (that is, a project) must be tested through Cost-Benefit Analysis in the long term. The solution must also be beneficial and valuable in terms of socio-economic outcomes on a wide scale and in the long run.

It is at this juncture that the project should be tested as “PPP feasible” for the purposes of determining whether the PPP delivery will provide expected efficiency rather than reduced efficiency that may result from cost increases or lower benefits to our society. This is achieved through in-depth Value for Money assessment and monitoring during the PPP concession operational regime. In essence, the PPPs must demonstrate incremental efficiency and cost-effectiveness.

Innovation and Adaptation: Besides, the performance-based nature of PPP contracts, the concessionaires provide benefits by encouraging innovation which aligns with President Dr. Samia Suluhu Hassan's focus on reforms and rebuilding strategies. in this context, it can be argued that when the requirements in a PPP concessionaire are properly designed on performance and deliverables, it is possible to grant the PPP project a certain degree of versatility and adaptability to structure and organize its own means and methods. Therefore, the private sector’s ability to innovate will provide an additional source of savings and efficiency. Provided that the contract is performance-based (that is, there is a prescriptive agreed deliverables, through scope, specifications or requirements, rather than a prescription of the inputs or means of its implementation).

Human Capital Development – Managing and implementing PPP projects would require skills development not only in physical engineering activities but also in contract administration and management. The need for adequate handling of concessionaires cannot be overemphasized as we are embarking on this journey to project financing.

Within the context of human capital development, The PPP project financing framework often creates a direct influence on generating employment opportunities through the construction and maintenance jobs and indirectly by boosting economies of sectors connected by improvement in mobility and transportation.

In conclusion, it is apparent that there are various direct and indirect accrual benefits from the PPP arrangements in all sectors of the economy combined. The public should be enlightened to understand that we have a favourable environment to reform and rebuild the modality for road infrastructure financing. The support from people from all walks of life will leap us ahead if we are to develop together as a nation. The government's ability to reach out to all sectors increasingly needs support from other financing avenues such as PPPs. The evidence from developed countries such as Turkey, South Korea, Singapore, UAE etc. on the contribution of PPPs in infrastructure financing is overwhelming and we cannot not stand to be indecisive anymore. Bold and informed decisions must be made with all the caution for public long-term good. We must weed off indecision, self-doubt and a defeatist mindset. However, any idea or notion is subject to introspection and should be conducted with utmost diligence so that we walk alongside as a nation – the time is nigh. Everything is possible under the sun if and only if we are committed to transformation and take that step forward, a step that will be flagship to prosperity.

From the foregoing, the expectations are ripe for transformation and rebuilding along the path of PPP project financing. Traditional financing has greatly helped our country to thrive over the last few in terms of expansion of road networks and improved standards of roads. However, these gains must be further consolidated by deploying other alternative forms of project financing such as PPPs to accelerate development. In any case, the public interests must be safeguarded to ensure that the road assets under the PPPs serve the intended objectives and are within the framework for cost recovery and transfer of the given concessionaire.

The famous stoic statement from Seneca goes “It’s not because things are difficult that we dare not venture. It’s because we dare not venture that they are difficult.”