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Africa Q&A | Partnerships Bulletin

13/12/2016

PPPs are beginning to break out of their French colonial past in Francophone Africa. Jean-Jacques Lecat, co-head of law firm CMS’s African team, tells Marina Formoso why it is exciting times for the region.

What makes it difficult to implement PPPs in Africa?

Like in most emerging markets or developing countries, the gap between expectations and reality appears more significant in Africa than in other regions. This is due in particular to governance factors such as the insufficient capacity of public authorities to structure, design and negotiate the projects or insufficient preparation, to economic factors including lack of purchasing power of users or financial capacity of public payers, and lack of certainty in the legal framework.

Projects often take more time to be implemented, selection processes are hindered by the lack of appropriate and complete bidding documents, financial close may not be reached or requires a high level of public support. As a result reputable sponsors are sometimes more reluctant to bid.

Are there particular types of PPP models used in Francophone Africa?

Concession agreements, based on the model used in France for centuries, have mainly been used so far. This model entails the delegation of the operation of a public service to a concessionaire, which receives its compensation mainly from the users and takes the operating risks. Concessions are used in electricity production and distribution and in water treatment and distribution sectors, as well as to operate port terminals and railroads.

On the other hand, PFI/government payer types of contract providing for the financing, designing, building and management and/or maintenance of public assets such as hospitals, universities, or administrative buildings, in return for a
compensation paid by the public authority, are not yet well developed.

This is due in particular, until recently, to the lack of appropriate legal framework allowing the award of this type of contract and to the cost of such project, often considered as too high compared to the purchase of the same asset
based on public procurement with concessional financing procured by IFIs.

The use of this type of PPP should however increase in the future, and the legal framework has been adapted for this purpose in many Francophone African countries.

What examples are there of successful and less successful PPPs in these countries?

The oldest concessions are operated in the electricity and water sectors. In Côte d’Ivoire, a concession for water distribution and sanitation granted in 1960 to a private concessionaire for the city of Abidjan has been extended to the whole country and renewed several times.

Compagnie Ivoirienne d’Electricité (CIE), a private company formed in 1990, which has been granted a 15-year agreement (the state remaining responsible for heavy investments), renewed for another 15 year period, is one of the largest and most successful water companies in the region.

In Cameroon, the privatisation of the Société Nationale d’Electricité (SONEL) was not so successful. A 56% stake of the company was sold in July 2001 to the US company AES Corporation and the company, renamed ENEO Cameroun in 2014, entered into four 20-year concession agreements, relating to electricity production, transmission and distribution. However, due in particular to heavy investments and insufficient tariff increases resulting in chronic losses, AES sold its shares in ENEO to the investment fund Actis in 2013, eight years before the end of the concessions arrangements.

For many years BOT contracts have also been awarded for the building and operation of Independent Power Plants in most of these countries on the basis of sectoral laws.

The Bolloré group has invested and is operating 12 port terminals in Francophone Africa.

Concessions for the Abidjan “Third Bridge”, opened to the traffic in December 2014, and for the two tranches of the Dakar-Diamniadio-Mbour highway, opened in 2013 and 2016 respectively, are the first examples of toll roads in the region.

The two concessions have required a high level of public financial support.

Do you see progress in the building of a legislative environment that conforms to internationally recognised standards, and what is the role of regional organisations?

In civil law, African “user-pay” type of concessions have been developed on the basis of the French model of delegation of public services, while most of the rules deriving from the French jurisprudence are not formally recognised in
these countries and until recently there were no comprehensive laws regulating concessions or other types of PPP.

In the absence of express rules, “government pays” types of PPP related to non-market sectors (such as administrative premises, or universities) are not legally recognised since they may be considered as public procurement of infrastructure with deferred payment of the price over a number of years, which may not be provided for under public procurement rules. In view of reducing uncertainties and developing new types of private participation in infrastructure financing, a number of Francophone African countries have recently developed a more comprehensive PPP legal framework.

For instance, after enacting a law on delegation of public services (mainly user-pay contracts and concessions) by local and regional authorities and local public institutions in 2006, Morocco adopted i n December 2014 a law on partnership contracts (government pays contracts) to be entered into by the state and national public bodies.

In sub-Saharan Francophone Africa, specific laws allowing government pays contracts and addressing some related issues have been enacted in Cameroon (in 2006), Guinea Conakry (1998 BOT Law) and Senegal (2004 BOT Law replaced by the 2014 Law on Partnership Contracts), while in other countries an overarching legal framework applicable to all types of PPPs has been adopted: in Bénin (PPP Law adopted in October 2016), Burkina Faso (May 2013 PPP Law), Côte d’Ivoire (Presidential Decree enacted in December 2012), Niger (2011 PPP Ordinance), Togo (law on public action adopted in 2014) and Gabon (2015 PPP Ordinance).

In all cases these new laws and regulations, although not always perfect, complete existing sector laws by providing more precise rules on the selection process of sponsors as well as on the respective rights of the parties and mentioning
principles aiming at maintaining the contract’s economic balance.

The most recent laws provide for the setting up of PPP units in charge of supporting public authorities and assessing the opportunity of proposed PPPs. PPP units are functioning in Burkina Faso, Côte d’Ivoire, Senegal, Niger and Cameroon.

At a regional level, a Regulation on public procurement adopted by the West African Economic and Monetary Union (Union Economique et Monétaire Ouest Africaine – UEMOA) is also dealing with procurement of concessions and has been transposed in public procurement regulations adopted by the member states. UEMOA, the economic organisation grouping the western African member states of the Franc zone area, is also currently studying a model law, which should provide guidelines to member states when preparing their own legal and regulatory framework.

OHADA (French acronym for Organization for the Harmonization of Business Law in Africa, currently comprising 17 member states) does not and in principle will not include any Act on PPPs, but is contributing to improving the business environment through the enactment of unified business laws. In addition, the reform of the Uniform Act on security rights (adopted in December 2010) facilitates project finance arrangements.

How large a role do the multilaterals have in bringing projects to market?

Multilateral institutions and in particular the World Bank and the African Development Bank (AfDB) are supporting governments in their efforts to develop PPPs in various ways. Their development bank arm may contribute to the financing or guarantee the public portion of priority projects.

The World Bank PPIAF and the AfDB PPP transaction advisory service are providing assistance to governments on PPP policy, legal and regulatory framework, and PPP units’institutional building. IFC and the AfDB Private Sector Operations Department are investing along with private investors.

Where can we expect to see the most activity in Francophone Africa?

Côte d’Ivoire and Senegal seem to be the two countries in the region with the largest lists of projects likely to be implemented.

In Senegal the priority actions plan of the Emerging Senegal Plan provides for projects to be realised through PPPs amounting to CFA1.6bn Francs (€2.42bn) in the 2014-18 period. This includes for example the Dakar tramway, a “Business Park”, the Dakar Regional Reference Campus, and a desalination plant.

In Côte d’Ivoire, a list of near 90 projects to be launched or under study is published on the PPP unit website and 20 projects that have already been awarded are discussed. I have advised the government during the selection phase and
the preparation of a preliminary agreement for the concession of the Abidjan light train, which should involve an investment of €1bn, and has been awarded to a consortium including Dongsan Engineering, Bouygues, Keolis and Hyundai Rotem.

Partnerships Bulletin/December/January 2016/2017

Authors

Jean-Jacques Lecat
Jean-Jacques Lecat