Assessing Value for Money in Public-Private Partnership Infrastructure Projects in Zambia
The Case of Lusaka City Council
Value for money has been regarded as the primary objective for the attraction of governments to Public Private Partnerships in many developed and developing countries (Ismail et al 2009). Thus, if a project does not promise to deliver VfM, such a project is better off being procured through other means. The attraction to PPPs in many countries has been necessitated by the need to meet the growing infrastructural challenges being faced in the advent of rapid urbanisation, globalisation, decentralisation, informality and climate change. In addition, the inability of governments to reduce the infrastructural gap due to inadequate resources in terms of local taxes, intergovernmental transfers and borrowing has necessitated the recourse to PPPs. Although VfM has been viewed as a primary objective for the use of PPPs, other reasons such as the need to shift capital expenditure to the private sector and to enhance the efficiency in infrastructure delivery and services have been identified (Asian Development Bank 2008). Regarding the need to shift the capital expenditure to the private sector, Morallos and Amekudzi (2008) argue that the ability to shift the financial burden for providing and maintaining of infrastructure services is the major reason for the use of PPPs in countries facing financial constraints on their infrastructure budgets. In Zambia, the use of PPPs in the delivery of infrastructure was first implemented by the Lusaka City Council through joint venture agreements signed with two firms in the early 2000s to construct the Luburma and ChaChaCha Markets on a Build-Operate-Transfer basis. The structuring of the projects have been characterised by challenges related to contract management, contract monitoring and enforcement, identification and allocation of risks, tender evaluation criteria and processes and undertaking of feasibility studies to determine the reasonable payback periods for the private parties to recoup their investments. With the foregoing, the central question has been; are the two market projects generating any value for money to the Lusaka City Council given the challenges that have been encountered in the process? Therefore, the main objective of the study was to establish whether or not the urban markets PPP infrastructure projects have delivered value for money to the Lusaka City Council and to make appropriate recommendations on how value for money can be achieved, maintained and/or enhanced. The study undertaken was exploratory in nature with a case study adopted as a strategy. Research instruments used were in-depth interviews and questionnaires. The research findings revealed that the projects did not incorporate the key factors that influence the attainment of value for money which are optimal risk transfer, competition, output based specifications, contract duration, private sector management skills and performance measures and incentives. Risks were not optimally transferred while competition was nonexistent in the Luburma Market project and very low in the ChaChaCha Market project. In terms of specifications, they were outlined as inputs contrary to the output based specifications approach for PPPs. Although the contract durations were long enough to warrant the private parties to recoup their investments, the same were not linked to the alternative service delivery approaches as well as whole life costing mechanisms to ensure that facilities were well maintained and performed according to specifications. As for private sector management skills, it was revealed that the award of the contracts to the private parties was dependent upon their experience in similar projects and their financial capabilities. Hence, there were no linkages with cost reductions, efficiency in delivery or incorporation of private management skills in the design and construction standards. The findings also revealed that there were no measures and incentives embedded in the contracts to enhance the performance of the private parties. Furthermore, it was discovered that there was no value for money analysis undertaken when carrying out the projects. Similarly, there were no value for money assessment models in Zambia but that competitive bidding was used to ensure that the best offer possible is obtained. The research also disclosed that although risks are considered an integral component in PPP projects, there were no processes in place to evaluate them. Instead, the tabulation of risks, likely impacts and the indication of who was likely to bear them are relied upon. The study also exposed that the major hindrance to undertaking VfM assessments was lack of human capacity. Additionally, political interference was regarded as being rife in the PPP procurement process and hence affecting the undertaking of rigorous assessments in the projects. Overall, it was concluded that value for money was not being delivered by the Luburma and ChaChaCha Markets to the local government following the non incorporation of the key value for money drivers in the structuring of the projects. Ironically, VfM was being delivered to the private parties through the long term nature of the contracts. However, it was also highlighted that a few benefits to the local government have been gained through the provision of conducive trading environments to traders, generation of income to the local government as well as creation of employment opportunities for the citizens. The study recommends that for value for money to be attained in PPP projects, there is need to ensure that there is optimal risk transfer in projects, high competition, specifications to be outlined as outputs, contract durations to be linked to alternative service delivery approaches and whole life costing apart from facilitating the recouping of the investment, full usage of private sector management skills and the inclusion of performance measures and incentives in the contracts. It is also recommended that capacity building measures be implemented to enhance the skills of the staff in various areas of structuring PPP projects. There is also a need to turn the PPP Unit into a standalone quasi government institution in order to mitigate the occurrence of political interference so as to allow for the enhancement of the achievement of VfM in the projects.
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|Organisation||Institute for Housing and Urban Development Studies|
Kalemba, A. (Andrew). (2011, September). Assessing Value for Money in Public-Private Partnership Infrastructure Projects in Zambia. Retrieved from http://hdl.handle.net/2105/11557