Friday, 27 July 2007

THE PRIVATE SECTOR: ‘Public resources will never be enough’

THE PRIVATE SECTOR: ‘Public resources will never be enough’
Published: November 20 2006 15:40 | Last updated: November 20 2006 15:40

By David White

For three days last month the taps ran dry in most of Dar es Salaam, Tanzania’s main city with a population of 3m. The incident, caused by a broken main, was an ironic postscript to a bitter saga over management of the city’s water supply, which led to three British executives being summarily deported from the country last year.

In a project largely financed by the World Bank, the African Development Bank and the European Investment Bank, a 10-year contract to manage technical and commercial operations was awarded after a competitive tender to a consortium headed by Biwater of the UK.

But less than two years after operations started, the contract was broken off amid mutual recriminations. Non-governmental organisations such as the World Development Movement had inveighed against the deal. The Tanzanian government said the consortium failed to improve delivery of water, while Biwater launched a sweeping attack against alleged misuse of international aid.

A case taken by the company to the International Centre for Settlement of Investment Disputes is expected to reach a verdict by next April. Following the bust-up, Tanzania formed a new state company to run the city’s water. But this has not proved to be an automatic solution.

Passions run high over all forms of privatisation and private-sector involvement in public utilities. But many experts and officials at international institutions say there is no option between public and private sectors. Infrastructure needs, they argue, will never be met without the resources of both.

A change of thinking has taken place at the World Bank since the 1990s when hopes were vested in the private sector’s ability to fill the gap in financing a broad range of infrastructure and donors were more preoccupied with social programmes. “It is more sexy to lend to a school than a thermal power station,” notes a World Bank official.

It has become clear that areas such as transport will continue to depend heavily on injections of public investment and donor support, but public money will have to used in different ways to combine with commercial interests. Mobilisation of capital, including private-sector capital, is one of the “pillars” of the New Partnership for Africa’s Development (Nepad), the economic revival initiative launched five years ago.

One result of the debt relief granted under the Highly Indebted Poor Countries programme has been to restrict the access of most African countries to new soft loans, to avoid a renewed debt build-up. Tim Turner, acting director for the private sector at the African Development Bank, says that, with limited amounts of funding available on concessional terms under this “debt diet”, the money needs to be used to make infrastructure commercially viable for private enterprise to run. By taking part in the deals, the bank can chaperone commercial lenders, advise governments and monitor adherence to environmental and transparency standards, he says.

Africa can also bring to bear its own private savings. South Africa’s Public Investment Corporation, which manages pension funds, is backing a Pan-African Infrastructure Development Fund, aiming initially to raise $1bn for long-term equity investments with participation from other pension funds and the AfDB.

“The private sector in Africa is going to take off whether we like it or not,” says Mr Turner.

Experts distinguish, however, between marketable services such as telecommunications and electricity generation and others such as roads and drainage, where opportunities for private investors are less clear-cut. Private investments in projects such as the Chad-Cameroon oil pipeline, in operation since 2003, and the West Africa Gas Pipeline have necessitated backing from the World Bank to mitigate political risk.

In transport, there are few examples of outright privatisation other than airlines but there is a range of partnership and concession arrangements for airports, ports and railways. “When it comes to the construction of roads, we might be coming to the last bastion,” says an official at the United Nations Economic Commission for Africa, which advises Nepad and regional bodies. Public-private partnerships have, however, been used for several toll roads in South Africa, including a 500km motorway corridor from Witbank, east of Johannesburg, to the Mozambique capital Maputo. Elsewhere on the continent, a toll road is planned east of Lagos in Nigeria and another is being considered running inland from Dakar in Senegal.

John Janks, a partner of international law firm White & Case in Johannesburg, who has been closely involved with public-private partnership deals, says no ventures are yet so entrenched that they can serve as outstanding models. Luthuli central hospital, on the outskirts of South Africa’s eastern port city of Durban, has been one notable success, however.

He emphasises the importance of having an appropriate regulatory framework in place beforehand, and warns: “The private sector is particularly concerned about over-regulation.”

A big obstacle to private management of public services has been governments’ reluctance to accept the setting of commercial tariffs. Many partnership projects have been slowed down as a result.

Water provokes the most heated debate, despite the arguable success of long-standing arrangements in places such as Abidjan in Ivory Coast and Dakar. Senegal. Many experts argue that objections to private management on tariff grounds are ill-founded, since people without access to piped supplies pay significantly higher prices to vendors, for water that may be contaminated. “Poor people pay more for water than anyone else anywhere,” comments one specialist.

Kordjé Bedoumra, the AfDB’s water and sanitation director, says it is hard to reach a conclusion about private involvement in the sector from experience so far. “But I think there won’t be much choice,” he adds. Companies need assistance to improve their financial position and gain access to capital markets. “Public resources are not enough,” he says, “and they’ll never be enough.”

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