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PPP interview: “We need stronger managers and directors in our African governments who understand different procurement alternatives”

Exclusive interview with Andre Kruger, CEO of PPP Training Online, who travels the continent doing accredited training in PPPs for governments and government-owned entities. At the recent Enlit Africa, he was part of a panel discussion on “Less talk, more action: Catalysing a sustainable transition.”

Please introduce yourself and tell us more about how PPP Training Online started.
Good morning. My name is Andre Kruger, I’m based in Johannesburg, South Africa, and I am an ex-career banker-turned consultant, turned trainer that is actively involved on the African continent, especially supporting government institutions, utilities, state-owned entities in improved financial planning.

As far as procurement matters are concerned, we focus on public-private partnerships. PPP Training Online was established 7 years ago now, and we were assisted by the UK Prosperity Fund in this effort to develop the training initiative, and we make use of the certified PPP Professional Programme developed by the World Bank in 2016, making use of consultants worldwide. It’s perhaps interesting to know that more than 10,000 people have already participated in the first course, the so-called CP3P Foundation course. So, it is very popular, it is the gold standard of PPP training worldwide. APMG, a UK company, accredits the CP3P programme and its courses and also act as the examination and quality overseer, especially after accredited training organisations like PPP training online, as well as our trainers.

We train across continent and we have we do training in French and in English and we exceeded the 700 mark recently, so, approximately 100 people per annum. We have we have touched 32 African countries, training candidates from 32 African countries and 14 PPP units. That is where the PPP units act as the overseers, the regulators of PPP projects in every country. Only 10 African countries do not have policies or acts. South Africa started 20 years ago. Those that haven’t started are slowly starting to pick up, capacitating their people, learning from neighbours, learning from outside Africa on how to progress in this space.

So, we’ve been going for 7 years and the training materials are currently being updated to specifically include principles focusing on the environment, net zero and the poor. So, it may take another 6–7 months because the World Bank will be using consultants the world over to update these principles that we teach.

We often hear that PPPs are very successful and popular in the water industry. Why is that and what are the opportunities for investors?
In the water industry in Africa specifically, we estimate that there are approximately 50 PPPs on the continent. The latest water PPP that was implemented is the one in Kigali in Rwanda. It’s a bulk water PPP, whereby the private sector extracts water from a river and cleans it up to a portable standard for use by both by the population as well as industry in Rwanda. Currently, countries that are heavily invested in the PPP procurement methodology space would be Kenya: They’ve identified 30 different dams that they want to develop making use of the PPP mechanism. Maybe not all of them will be procured in the end on a PPP procurement mechanism. And then Egypt has identified 44 or 45 potential desalination plants to be developed on a PPP basis. And just as a matter of interest, many people, especially in South Africa, are sceptical about desalination and the high cost of electricity to run these plants.

It’s important to know that Saudi Arabia in the Middle East has developed a large number of desalination plants and the private sector entities making use of solar, mostly solar energy generation, have brought the prices of water down in the desalination PPP process. We have spoken to those big developers and they reckon they can attain this lower, more competitive pricing in any country in Africa.

So, PPPs in the water sector are quite a popular way of servicing and delivering water to communities, be it in cities or in the rural areas. Obviously it is a little bit tougher in the rural areas, but what is happening worldwide and in Africa specifically, is that governments contribute grant funding, or the name that is being used in the PPP space is viability gap funding. They are contributing viability gap funding to make the projects commercially viable and or to lower the price that the users pay for water.

So, from that perspective, there are many. Closer to South Africa, you may know that Angola is busy with the development of three new water PPP projects. Similarly, Mozambique is actively exploring this market. And then the biggest water PPP in Africa is currently being developed in Botswana. They are going to take water from the Zambezi River and are considering either one or maybe two pipelines. Personally, I think two pipelines running from the Zambezi down to Gaborone may be too expensive. One pipeline already will make it one of the largest water PPPs on the continent. And yet, they have developed this feasibility in maybe 18 months now. So, a very good example of a well-capacitated utility, the Water Utility Corporation of Botswana. They have probably got 20 PPP professionals already in that organisation. The initial project that they started off with is a water reuse project, an indirect water reuse project in Gaborone, similar to the plant in Namibia. You will know that Namibia is also developing another water reuse PPP. The first water PPP plant is an example worldwide, Africa wide, and it has been going for 20, 30 years already. Very, very successful.

What are the challenges?
So, maybe just this input. When a government wants to develop new projects, a government entity would develop a long-term plan, 5–10-year plan. In this plan, they will consider making use of their own budgeted funding, maybe add to that some grant funding that they may be able to source for a specific project, or they could procure a project on a PPP basis and also contribute grant funding into the PPP and in that way overcome the problem of a lack of creditworthiness.

So, in many African countries and in South Africa specifically, asking for money for infrastructure projects is just overwhelming. In many countries, even in South Africa, our government entities are not considering PPPs significantly or aggressively enough. Many countries across the world and even in Africa are using PPPs to grow their economies. Yet in South Africa, even our large metros are only considering balance sheet-based funding. And then they constantly want bankers to develop new products that they can use to finance their projects. Or another government institution, such as the DBSA, will step in and support them. Now, in principle, there’s nothing wrong with that, but you can’t keep doing that forever.

What we need in our government entities in South Africa and in many African countries are stronger managers and directors who understand the use of different procurement alternatives, who can decide that, for example, a project that is needed in Year 5, because of an influx of people into this major city, maybe that project should be procured on a PPP basis. Then you can make sure that you have built up a database that will provide you with the necessary information, so that once you get to the feasibility study, there are sufficient data to build your studies. So, the first challenge is probably a lack of suitable governance in government institutions. We cannot continue and well-qualified colleagues that are used to traditional procurement and that have not been capacitated, not been trained, that haven’t built up any experience in this space. We need to assist them to become either stronger or we need to add to that, bringing in new colleagues that can help. So, the first challenge then is capacity.

The second challenge is a lack of financial governance, a lack of financial planning and the integration of that financial planning with the engineering planning, the asset management planning. And in that process, you may want to know that the African Development Bank hopes to start a new department that can specifically help countries and major utilities to do just that, to consider making use of PPP procurement methodologies as they develop big projects. So, I started off by saying the challenge with big projects is that it takes time to develop, whether you procure them on a traditional basis or on a PPP basis. In South Africa specifically, there’s a mantra that the regulations are too difficult: “We cannot develop PPPs and we’d rather procure on a traditional basis.” And yet those projects take 3–5 years to develop. The construction typically takes longer than what your private sector parties suggested to you when they bid for the project. I think it’s time to change that mantra of it’s too difficult. Just imagine, Bafana wanting to participate in the next World Cup, but telling everybody that it’s just too difficult, it’s just too tough. The other countries are just so much better. Think about the Springboks. So I would suggest that it’s time for us to change this mantra, to consider developing feasibility studies for major infrastructure projects, including for water projects. It is doable. Other countries are doing it. So I think it’s time that we stop this negative cycle that 99% of people repeat. And the procurement staff in government entities will do well also to add to their own discipline by understanding properly how to procure through a PPP mechanism.

How can PPPs help the continent move towards becoming a greener economy?
So, an important point in this procurement process, and I was fortunate just earlier this week to participate in a procurement conference in the Western Cape, where it was all about how the procurement system in a government entity can support the development of infrastructure and the delivery of services to communities? At the forefront is this notion of developing sustainable projects, developing projects that would tomorrow adhere to the net zero principles, etc.

So it’s also then good to know that worldwide in the PPP space, international DFIs, like the World Bank, have already developed systems describing these systems on how to include environmental, sustainability and net zero issues when a government entity develops a feasibility study. So, these are already available across a number of sectors, including the water and the electricity sectors. So, it is very important for government entities to include in their feasibility studies, whether they procure on a traditional or PPP basis, the requirement of the private sector to adhere to these standards.

And then the important thing is, when we are operating in a government environment and we’ve got a limited budget, we will set targets for 2050. With sustainability targets and net zero targets, when we involve the private sector in a PPP, we can bring those target dates much closer. We can attain those targets much faster by transferring that responsibility and risk to the private sector.

Interesting to know that in the UK, where they have 600 to 700 PPPs coming to the end of their life, and government entities need to decide how to proceed now: Are they going to take the assets back? Remember, they’ve also always retained legal ownership of those assets. They’ve only transferred economic rights to the private sector. The economic rights are coming back to the government at the end of these contracts. What the government has already done, is in many of those projects, they have asked for variations so that in 6 years’ time, when the project gets to the end of its life, the project must be net zero friendly. Now, we know in PPPs, if government requires such a variation in the contract, they must pay for it. But the UK government is more than happy to pay and make sure that when the project potentially is handed back to them, that it already adheres to net zero targets. So, we could also use PPPs to attain net zero much quicker than solely looking at budgetary resources.

Which countries are doing the right things in your view?
On the African continent, there are many countries that also are using PPPs to build their economies. After Covid, many countries worldwide decided to bring in the private sector through PPP procurement mechanisms to build their economies. For example, Uzbekistan, one of the smaller countries, is developing 300 PPP projects with the help of the IFC, the International Finance Corporation, which is part of the World Bank. They do transaction advisory services on the continent. At any given time, they will be involved with about 30 different transactions where they assist government entities. For example, the wastewater treatment plant in Gaborone is one of those. They are currently also assisting eThekwini Metro in South Africa with a wastewater PPP feasibility study.

Anyhow, countries that are doing it right and that are chasing economic growth, not only using their budgetary funding, would be a Kenya, would be the smaller country of Rwanda that are actually doing it brilliantly. We can really learn from them. Ethiopia, that was traditionally a centralised, managed country, has also opened up. We were fortunate to train the water directorate, the director general and the directors in the department, and then three senior staff members of every water utility in Ethiopia.

And there are similar examples right across the continent. At the end of last year, we were fortunate also to train the Cameroon PPP unit that is actively following PPPs. For example, one of the major ports in Cameroon.

So, think about it. I think there are huge opportunities also in the South African space to consider bringing in the private sector, transferring the economic rights to the private sector to manage ports in South Africa. We have just recently seen that the Cape Town port was listed as one of the worst managed ports in the world. An ideal scenario. What we would suggest in that port scenario is to work through a competitive process and do proper feasibility studies and consider bringing in the private sector. The private sector port operators will fall over their feet to participate in a well-developed, commercially-based project and to support the growth of the South African economy.

What surprises you about this work?
We are fortunate to be able to work across the continent. We are also specifically supporting the European Investment Bank with some consulting work in Kenya, Uganda, Ghana and the Ivory Coast, which is another example of a country, if you look at West Africa, that is really positively making use of PPPs. Ivory Coast has probably 30 different major PPPs that it has developed over the last few years. They are even busy with affordable housing PPPs.

So, what surprises me sometimes is that countries outside of South Africa on the continent are actively using PPPs, while South Africans are constantly complaining about the difficulty. Nobody has said it’s easy. It is tough. You need a proper project manager. You need a proper contract manager to guide the process within a government entity. And in these other countries, when they do their proper long-term planning, and they know that they need to develop a major project in the next 3–5 years, they already start today to appoint a project manager if they do not have that internal capacity or to capacitate somebody inside the institution to be able to do the work tomorrow. So yes, it’s tough, but we need qualified people, so it’s also a huge job opportunity. I’ll maybe come back to this point a little bit later. So it’s actually a very exciting field to be in.

So, it is really negative in the sense that South Africans are complaining, whilst even neighbours in the SADC space are actively pursuing and making use of PPPs. But I think, with the political changes happening, with the pressure on service delivery in South Africa, I reckon that we will see an uptick in the use of PPPs. Also, not all projects can be PPPs. That is important too. In countries that actively use PPPs, only about 20% of their typical infrastructure procurement is procured through PPP procurement mechanisms. So, not all projects can and should be PPPs, but you need to have a strong management team to understand which projects will practically be able to be developed making use of PPPs.

Anything you would like to add?
I think I’ll conclude with the emphasis on the notion that becoming a project manager in a government institution is a huge, huge job opportunity right across the continent, even outside the continent. There are not sufficient qualified, capacitated people that can take that job and manage it. Just imagine, you are working in a large state-owned entity, a municipality or a government entity. You are appointed as the project manager to work with a, for example, a PPP with an estimated value of $80 million. What happens with that project manager is that this person interacts with top management and with the directors of that entity. That same project manager and his or her team also need to interact with transaction advisors that assist them to develop these projects. Now, the transaction advisors are typically very highly qualified and experienced people. I mean, government won’t appoint, should not appoint, transaction advisors that are not qualified and experienced. So imagine, you as a project manager need to be the middle person that can interact with the public and private sectors at a very high level. There are not enough people, and this is a huge job opportunity.

Just listen to this example. The Gauteng provincial government in South Africa has been developing a major government precinct, 17 different buildings. The project is going to be ZAR10+ billion.

The Gauteng Provincial Government’s total staff number is around 30,000 people. A year or two ago, they realised that they do not have a qualified or an experienced person within their employees to act as the contract manager, and they wanted to rather appoint a specialised firm to do the contract management of this large project. I think that is not optimal. If you have a bit of time as a government entity, you can either train up, skill up, appoint a person that can lead the contract management team within a large government entity.

Closing this point, you will know the Gautrain PPP in South Africa, until recently it was still the largest PPP on the continent. Their contract management team initially consisted of 80 people. Not all PPPs need a PPP contract management team of that size, but sufficient to say, you need a very strong, capacitated team to assist. One of the biggest reasons for failure of PPPs is a lack of proper contract management. Again, a huge opportunity for anybody interested in this space. Thank you.

 

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