Delivery of public sector infrastructure through Public Private

Partnerships: an opportunity for Zambia

Sydney Ngoma1, Mundia Muya, Chabota Kaliba

Department of the Civil and Environmental Engineering, University of Zambia, P.O Box 32379,
Lusaka, Zambia.

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Email address: sydngoma@yahoo.co.uk

ABSTRACT
Zambia like most developing countries has embraced Public Private Partnerships (PPPs)
as a project delivery model in the provision of infrastructure. The country faces budgetary
constraints which have made maintenance and provision of new infrastructure a
challenge. PPPs seem to create opportunities which can stimulate economic growth and
sustain development. Since the Government has embarked on economic and structural
reforms, the study reported in this paper is aimed at examining the opportunities available
for Zambia in the delivery of infrastructure using the PPP approach. A review of literature
was conducted to determine the potential benefits and key success factors in sustainable
development through PPPs. The findings suggest that the potential benefits include: cost
savings; risk sharing; better levels of services and maintenance; revenue enhancement;
efficiency and economic growth. The discussion in this paper is based on literature review
on PPPs. The research is an on-going investigation into public sector Infrastructure
delivery through PPPs in Zambia. Although this is the case, the paper provides useful
preliminary discussion on the implementation of PPPs in Zambia upon which further
studies can be conducted. The paper provides useful information on the potential
opportunities that are available in Zambia if PPPs were successfully implemented.

Keywords: Public Private Partnerships, Sustainable Development, Infrastructure, Project

Finance

INTRODUCTION
Public Private Partnerships (PPPs), a “union” between public and private sector activity,
have been employed recently as a “new way” to optimize the use of public funds and boost
the quality of services traditionally provided by the public sector. Their use has spread
from the United Kingdom to Europe and beyond, and has expanded from the transport
sector to innovative projects in health, education and others.

Zambia like many other developing countries is striving to meet and sustain its
infrastructure development needs. Successive governments have seized on various
financing and procurement methods as a solution to budget constraints at a time of
dwindling donor aid and stricter fiscal targets, resulting in the adoption and use of PPPs in
the recent past. Undoubtedly, this trend will bring many benefits and opportunities in terms
of more abundant, lower-cost and higher-quality services. However, there are risks implicit
in the way PPP is unfolding in Zambia that could limit and even undo these benefits unless

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steps are taken to coordinate, monitor and follow up public-private projects and to
communicate their virtues to the public.

The aim of this paper is to explore the potential benefits and opportunities of using PPP to
deliver infrastructure development in Zambia. The paper starts by discussing infrastructure
reform, development and the use of PPPs. It then discusses the resulting benefits in PPP
and considers the key opportunities from the use of this approach in the Zambian context.

INFRASTRUCTURE REFORM AND DEVELOPMENT IN ZAMBIA

After Zambia attained independence until the mid 1970s, the Government was responsible
for administering most of the economic affairs of the country. Further, Government was
responsible for the provision of infrastructure and related services. During this period, it
was possible to sustain economic growth mainly due to the favourable trends in the global
economy. When prices of copper declined in the early 1970s, Zambia’s export earnings
reduced. This resulted in macroeconomic instability resulting from huge balance of
payments deficits (ZDA, 2009a).

In the early 1990s, the Zambian Government initiated economic reforms leading to the
liberalization and a market driven economy. Privatization of Government owned
enterprises was one of the main actions taken in the process of reforming the economy.
Despite the reforms, Government still remained responsible for provision of infrastructure
and related services (ZDA, 2009b).

In 2004, the Government of Zambia recognized the need to provide infrastructure and
services through PPP. Though some forms had been in existence, there was no framework
for their implementation. As such, a number of challenges mainly relating to contractual
obligations have been experienced in the execution of these projects. They provide
opportunities for the public and the private sector to share and manage risk appropriately.
This option provided a more appropriate compromise that allows the Government to
maintain statutory and regulatory oversight on the nation’s assets, whilst allowing the
private sector to provide resources and management. Since then, the public has actively
engaged the private sector in dialogue on matters affecting the nation’s economic
development (Mukela, 2007).

There are several reasons for the current interest in PPP. One of them is greater efficiency
in the use of public resources. Experience has shown that many public sector activities can
be undertaken more cost effectively with the application of private sector management
disciplines. It has been estimated that state and local governments experience cost savings
of 10 to 40 percent through the use of PPP privatization schemes (NCPPP, 2002).
Additionally, PPP are a means of increasing investment in infrastructure. Economic growth
is highly dependent on the enhancement and development of infrastructure, particularly in
utilities and transport systems. There is an urgent need for new social infrastructure such as
hospitals, prisons, educational facilities, and housing. Many Governments see these as the
most pressing areas for private involvement (Middleton, 2001).

Many countries in Sub-Sahara Africa (SSA) have an infrastructure gap. In order to narrow

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this gap most SSA countries would need to commit to 9%-13% of their GDP’s for at least
the next 8-10years (Estache 2005; Hammami et al 2006). The lack of adequate and quality
infrastructure is evident in many Sub-Sahara African countries, including Zambia. Estache
(2005) notes that the rate of access to quality infrastructure in developing countries
remains relatively low when compared to other developed and emerging countries.

INFRASTRUCTURE NEEDS IN ZAMBIA

Rapheal (2007) observed that Governments provide a broad variety of services for their
people, ranging from health and social programs, to defense, fire, police protection,
maintaining a legal system, and the provision of physical infrastructure. The extent of the
public’s role varies among countries and has fluctuated historically inside each country.
The main motivation of Governments’ intervention is constant: the need to put into place
an infrastructure and legal environment where the national economy is able to produce the
maximum resources. In Zambia, economic and population growth have strained existing
infrastructure and rendered the need for improvements and new construction even more
pressing (GRZ, 2009).

Infrastructure includes services such as water and sewage treatment, energy, transport,
information and communication technology, logistics and financial services. Many of these
sectors are particularly important to the facilitation of trade and maintenance of public
health. These infrastructure services are generally less available in SSA countries than in
other regions of the world (Hammami et al 2006). In response to the need for more
services, literature has indicated various infrastructure project needs where the public is
seeking a private partner to deliver services. Table 1 below highlights the priority areas in
infrastructure investment in Zambia.

Table 1: Priority areas in infrastructure investment in Zambia (FNDP and Vision 2030)
Sector Projects
Roads Road Sector Investment Plan (RoadSIP) with a total investment
of US$ 1.6bn over a ten year period (2004- 2013)
Energy Rehabilitate and upgrade existing Hydro power stations and
build new ones; build new thermal power station in Maamba ,
Rural electrification
Sports Infrastructure Rehabilitate Independence Stadium and build a new stadium in
Ndola
Health New cancer Research Centre in Lusaka, Lusaka and District
hospitals, rural and per-urban clinics, Nursing schools
Housing Both for public sector workers and for the private sector
Other Public Sector Government buildings such as those for Ministries, Parastatals,
Infrastructure institutions, Police and Defense Forces
Water and Sewage Rehabilitate and build new water dams, water reticulations
disposal systems including its associated sewage disposal systems in both
infrastructure urban and rural areas
Roads Kitwe-Chingola Dual Carriageway (52Km) & the Chingola-
Solwezi Road (173Km)

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 Railways Construction of the Chingola-Solwezi Railway link,
rehabilitation of the TAZARA rail line currently jointly owed by
Tanzania and Zambia, (may be commercialized or privatized)
Border posts through New boarder posts at Nakonde, Kasumbalesa and other border
PPP posts through PPPs initiatives.
Kazungula Bridge Linking Zambia, Zimbabwe and Botswana, Feasibility study has
and Boarder posts been funded by the African Development Bank
International Upgrading Lusaka and Livingstone International Airports
airports:
Olympic sized Rehabilitation Programme - Both sports facilities were planned
running truck and for the 2011 All Africa Games with a view to handing them over
indoor sports arena to the private sector and relevant sports bodies after the games.
Multi-facility Multi-Facility Economic Zones are planned for and the Chinese
Economic Zones in have already started building the other one in Chambeshi and
Lusaka and investors are sought for the one planned for Lusaka South
Chambeshi
Olympic sized Both these sports facilities are planned for the 2011 All Africa
running truck and Games with a view to handing them over to the private
indoor sports arena sector/relevant sports bodies after the games.
(Source: Mashamba (2009)

Nevertheless, the Government of Zambia has succeeded to partnering with a funder

through different PPP models to provide infrastructure in certain critical areas of the
nation. On some of these projects, the Government has entered into initial agreements with
private partners to finance the projects. The PPP models under which these agreements
have been done may differ according to the project. The Public Partnership Unit (PPPU) in
Zambia also advertised, inviting private funders to partner with the Government on certain
road sections (including Monze – Choma, Zimba – Livinstone and Chingola – Solwezi)
earmarked to be operating as toll roads (Times of Zambia, 2010).

THE POTENTIAL ROLE OF PARTNERSHIPS IN ZAMBIA

The use of PPP to deliver public sector projects has been embraced throughout the world
with the United Kingdom being one of the forerunners in its use. The genesis of PPP in
UK was under the PFI scheme (Turolla 2004), which was used to boost public sector
investment programme. Hammani (2006) refers to PPP as a variety of financing and
delivering approaches that create long-term relationships between the private sector and
the public sector, while the UNECE (2008) describes PPP as a tool that is aimed at
financing, designing, implementing and operating public sector facilities and services by
the private sector.

On the 26th of August 2009, the Government of Zambia voted an Act No.14 of 2009 to
promote PPP. The act’s guideline is to promote and facilitate the implementation of
privately financed infrastructure projects and effective delivery of social services. The act
was established through a PPP Unit under the Ministry of Finance and National Planning
and is working in liaison with Zambia Development Agency (ZDA), Public Service
Commission, Citizens Economic Empowerment Commission, National Council for

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Construction (NCC) and other statutory bodies (GRZ, 2009).

The most widely used forms of contracts for infrastructure projects as discussed by Bracey
(2006) include:
(a) Design - Build - Operate (DBO): the private body designs, constructs, and operates the
new facility for a set time frame usually 30 years.
(b) Build - Operate - Transfer (BOT): in this method the private body builds, finances and
operates the facility for a specified time. However ownership of the facility is
transferred to the public entity after the concession period.
(c) Build - Own - Operate (BOO): in this method the private sector builds, owns and
operates the facility. The private sector assumes complete control of the project and
therefore takes all associated risks.
The variety of these routes are very important even for a developing country like Zambia
because they give provisions to financing different types of projects apart from new
construction such as rehabilitation and leasing. Other routes as discussed in PPP Act of
Zambia (GRZ, 2009) include; Build and Transfer (BT), Build Lease and Transfer (BLT),
Build Own Operate Transfer (BOOT), Build Transfer Operate (BTO), Contract Add and
Operate (CAO), Develop Operate and Transfer (DOT), Rehabilitate Operate and Transfer
(ROT), Rehabilitate Own and Operate (ROO), Build Own Operate and Maintain Contract,
Lease Management Contract, Management Contract, Service Contract, Supply Operate and
Transfer.

The Zambian government in its 5th development plan (2006-2030) acknowledges the
critical role that infrastructure plays in the social-economy development of the nation.
Importantly, it acknowledges the role that the private sector can play in infrastructure
provision. Through the development plan the government seeks to ‘develop and implement
an appropriate policy framework in order to facilitate effective private sector participation
in the construction and maintenance of public infrastructure’. As such the PPP policy
document and the proposed PPP bill formally welcome the role that PPP can play in
infrastructure development (Muleya and Zulu, 2009).
Table 3 below shows the use of PPP in the SADC region with South Africa having the
largest number of PPP projects since 1990. However Zambia has only had 6 PPP projects
since 1990.

Table 2: Comparative PPP data in SADC countries

Country GNI (US$ Million) No. of PPP Total investment
projects (US$ Million)
South Africa 5390 32 25341
Tanzania 350 21 2115
Mozambique 340 15 2241
Mauritius 5450 11 549
Madagascar 280 9 216
Congo Dem Rep. 130 7 915
Malawi 170 6 133

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 Zambia 630 6 944
Zimbabwe - 5 841
Namibia 3230 5 104
Angola 180 5 834
Lesotho 1030 3 114
Seychelles 8650 3 94
Botswana 590 2 247
Swaziland 2430 1 53
(Source: World Bank, Internet)

This shows that Zambia has not yet explored this option and hence has a great potential to
attract a lot of private sector investment since most areas of development still remain
unexplored. With the enactment of the PPP bill in parliament, a gateway has been opened
up for the private sector to consider partnering with the Government.

BENEFITS OF PPP FOR ZAMBIA

The benefits of PPP have been widely discussed in literature. Key to PPP is that it is used
as a mode for infrastructure delivery as the public sector can now consider projects which
otherwise would have been unaffordable (Hammani 2006). The approach is therefore
widely seen as a promising avenue for infrastructure development in developing countries
like Zambia, especially that it allows the public sector to spread the costs of the project as
they only pay for infrastructure provisions as the services is provided. (Allard and Trabant,
2007).

Public private partnerships are not the solution for the delivery of all services. There are
risks in proceeding with public private partnerships without critically examining their
suitability to specific circumstances. However, the public can realize important benefits
when PPPs are used in the appropriate context. According to Harris (2006), potential
benefits include:

(a) Cost savings

The public may be able to realize cost savings for the construction of capital projects as
well as the operation and maintenance of services. The close interaction of designers and
constructors in a team can result in more innovative and less costly designs. Overall costs
for professional services can be reduced for inspections and contract management
activities. As well, the risks of project overruns can be reduced by design-build contracts.
Private partners may be able to reduce the cost of operating or maintaining facilities by
applying economies of scale, innovative technologies, more flexible procurement and
compensation arrangements, or by reducing overhead;

(b) Risk sharing

The risks can be shared between the public and the private partner. Risks could include
cost overruns, inability to meet schedules for service delivery, difficulty in complying with
environmental and other regulations, or the risk that revenues may not be sufficient to pay
operating and capital costs;

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(c) Improved levels of service or maintaining existing levels of service
PPPs can introduce innovation in the way service delivery is organized and carried out. It
can also introduce new technologies and economies of scale that often reduce the cost or
improve the quality and level of services;

(d) Enhancement of revenues

PPPs may set user fees that reflect the true cost of delivering a particular service. They also
offer the opportunity to introduce more innovative revenue sources that would not be
possible under conventional methods of service delivery;

(e) More efficient implementation

Efficiency may be realized through combining various activities such as design and
construction, and through more flexible contracting and procurement, quicker approvals
for capital financing and a more efficient decision-making process. More efficient service
delivery not only allows quicker provision of services, but also reduces costs;

(f) Economic benefits

Increased involvement of the public in PPPs can help to stimulate the private sector and
contribute to increased employment and economic growth. Local private firms that become
proficient in working on PPP projects can “export” their expertise and earn income outside
of the region.

Additionally, Norment (2006) described the following as expected outcomes or benefits

from PPPs:
(i) increased pool of financial resources for service delivery;
(ii) increased social benefits to residents, including the poor and vulnerable groups, as a
result of joint interdependent initiatives;
(iii) reduced public exposure to commercial risks by sharing risks and rewards with
other stakeholders;
(iv)regular maintenance of assets overtime and reduced long term costs.

According to South African PPP Unit (RSA, 2009), the following key features of PPPs
make them inherently excellent for achieving economic objectives:
(i) the long-term nature of PPPs provide an opportune instrument to grow a country’s
economy equity over time since risks are clearly identified, costed and appropriately
allocated;
(ii) the formation of private consortia in the form of special purpose vehicles (SPVs) for many
PPPs facilitates long-term beneficial partnerships between new enterprises and experienced,
resourced companies - both as equity partners and in project management, both at the private
party SPV and subcontracting levels;
(iii) where a government is the buyer of a service, and insofar as the service is provided
to the agreed standards, there is a steady revenue stream to the private party, reducing
risk to new enterprises;
(iv)principal equity sponsors in a PPP are often also first-tier subcontractors, building
incentives for optimal risk management;
(v) PPPs have far-reaching broad-based potential: through the subcontracting and

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 procurement mechanisms they can involve a full spectrum of large, medium and small
enterprises, and bring tangible local economic development benefits to targeted groups
of people;
(vi)return on equity to the private party is competitive where risk is properly assumed;
(vii) PPPs develop skills and create jobs.

Thus, in establishing a framework for PPPs in Zambia, the Government is creating a

platform for business to be undertaken at a new level and with broadened options. As
business partners, the public and private sector become significant to each other’s success
and sustainability (Mukela, 2007).

CONTRIBUTION TO DEVELOPMENT
The resulting effect of a successful implementation of PPP in Zambia would be an
acquisition of more public infrastructure such as public markets, schools, Universities,
hospitals and social centres. The delivery of needful public services and facilities would be
accelerated as a result of the optimization of private resources in reducing the huge deficit
in terms of public infrastructure and services.

DISCUSSION & CONCLUSIONS

This paper was aimed at discussing some of the opportunities Zambia has in using PPP as
a mode of delivering public infrastructure projects. The use of PPP has potential benefits as
it provides an opportunity for the public sector to consider projects which would otherwise
have been too costly to procure. The initiative of the Zambian government to encourage
private sector participation in infrastructure development is in the desired direction.
Successful partnerships between the public and the private would realise the benefits of
PPP. The aspects identified above are based on lessons learnt from best practices in the
region, and internationally and also general PPP guidance.

Contracts, special project vehicles (Promoters), detailed customised structures and

financial instruments for each PPP must be appropriately worked out because each project
is unique from the other. There is therefore great need to continuously improve the PPP
operating environment and research further on how the opportunities in PPP can be best
explored and implemented in Zambia in order to produce the beneficial and profitable
results for both the public and private sectors.

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