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Wednesday, 12 December 2018 05:59

Public-Private Partnership in Ethiopia: Explanatory Note

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  1. Background

The Policy for the Use and Implementation of PPPs (hereinafter the “PPP Policy Document”) prepared by the Ministry of Finance and Economic Cooperation identifies shortage of government financing to achieve the goals set in the Second Growth and Transformation Plan (hereinafter “GTP II”) as the main reason for the need for Public-Private Partnership (hereinafter “PPP”) framework in Ethiopia. The need to mobilize resources from different sources to meet the investment, technology and skills requirements in infrastructure projects is also another reason for adopting the PPP framework. According to the PPP Policy Document, preparation of PPP legal framework is given priority in the implementation of the government’s PPP program. Accordingly, the Ministry of  Finance and Economic Cooperation (hereinafter “MoFEC”) has taken the lead in the drafting of the PPP Proclamation, which was later promulgated in the Federal Negarit Gazette on February 22, 2018.

Both the PPP Policy Document and the Public Private Partnership Proclamation No. 1076/2018 (hereinafter the “PPP Proclamation”), set the objectives for the government’s decision to adopt the PPP scheme. Though the objectives set in these two documents are not a replica of one another, they are complementary to one another. The objectives of creating a favorable framework, improving quality of public service, reducing the public debt and enhancing transparency, fairness, value for money, efficiency and long-term sustainability as identified in the PPP Proclamation, are further expounded in the PPP Policy Document.

  1. What is PPP

Both the PPP Policy Document and the PPP Proclamation provide a definition of PPP. According to the definition, all contracts entered with the public body will not automatically become a PPP. A contract which is entered with the public body or public enterprise should meet the following definitional elements to be classified as a PPP Agreement and thus subject to the PPP Proclamation. According to Art. 2 of the PPP Proclamation and Section 5 of the PPP Policy, the following defining elements need to be fulfilled:

  • Agreement with the Contracting Authority;
  • A long-term agreement;
  • Public Service Activity;
  • Compensation; and
  • Transfer of risk to the private party.
  1. Scope of Application of the PPP Legal Framework

Both the PPP Proclamation and Policy Document provides for the scope of application of the documents. The first demarcation is in relation to the Federal Government Structure adopted under the Federal Democratic Republic of Ethiopia Constitution (hereinafter the “FDRE Constitution”). Accordingly, the scope of application of the PPP Proclamation and Policy is limited to Federal public bodies wholly financed by the Federal Government and public enterprises fully owned by the Federal Government.

The PPP Proclamation also provides for transactions and projects excluded from the scope of application of the PPP Proclamation. Accordingly, the following transactions and sectors are excluded:

  1. Oil, mines, minerals, rights of airspace;
  2. Privatization or divestiture of public infrastructure of public enterprises; and
  3. iii.PPP projects where the contracts were under negotiation or were already concluded at the time of the enactment of the PPP Proclamation.

One important note that needs to be mentioned here is, according to the above exclusion, the current shift in the policy of the Government of Ethiopia (hereinafter “GoE”) and the decision to privatize different public enterprises (such as the Ethio-Telecom and the Ethiopian Airlines) will not be regulated by the PPP Proclamation.

 

  1. PPP Forms

The PPP Proclamation identifies different forms in which the PPP scheme can be applied through. These forms are:

  1. The design, construction, financing, maintenance or operation of new infrastructure facilities;
  2. The rehabilitation, modernization, financing, expansion, maintenances or operation of existing infrastructure facilities; and/or
  3. The administration, management, operation or maintenance pertaining to new or existing infrastructure facilities.

One important point that needs a careful consideration in relation to the above PPP forms is  PPP agreements that involve existing infrastructure facilities. As explained in the above, the PPP Proclamation excludes privatization or divestiture of public infrastructures. Therefore, in light of such exclusion, care should be taken when a PPP agreement is entered in relation to existing infrastructure facilities so not to contradict with the provision of the PPP Proclamation. One good example where there will be a potential conflict is in relation to the privatization of the management of an enterprise. According to Privatization of Public Enterprises Proclamation No. 146/1998, the privatization of the management of an enterprise is considered as Privatization of Public Enterprises. Accordingly, if an agreement for the management of an existing infrastructure facility is to be classified as a privatization, then such arrangement will be excluded from the application of the PPP Proclamation. 

 

  1. PPP Administration

Both the PPP Proclamation and the Policy Document provides for the roles and responsibilities of different public parties that will be responsible for the administration of PPP projects on different levels.

  1. PPP Board
  2. Ministry of Finance and Economic Cooperation
  3. PPP Unit
  4. Contracting Authority
  5. Contracts Management Team
  6. PPP Director General

 

  1. Selection of PPP Projects

According to the PPP Policy Document, initially PPPs will be implemented as a mechanism of developing infrastructure. Thus the selection of projects for PPP arrangement will be in line with the GoE specific infrastructure targets as set out in the GTP II. However, the GoE also recognizes that a range of projects could also be considered for implementation through the PPP scheme as its implementation capacity grows. One important point readers should also take from this is, despite the identification of such priority sectors, the final decision on the selection of a project will lie in the assessment of cost and benefits of the individual projects.

 

  1. Methods for Selecting Private Partners

The PPP Policy Documents expresses the GoE’s wish to implement a clear, consistent and transparent system which will encourage competition in the selection of private partners for PPP projects. In line with this policy of the government, the PPP Proclamation provides for the below selection mechanisms for the selection of a private partner as well as set mandatory conditions in the selection of the procurement method to be used.

  1. Open Bidding
  2. Two-state bidding
  3. Competitive dialogue
  4. Direct negotiation
  5. Unsolicited proposal

The PPP Proclamation provides for procurement through an open bidding with prequalification as the default method for selection of private parties. The PPP Director-General is only permitted to use procurement methods other than Open Bidding when the conditions provided by the PPP Proclamation for the respective procurement methods are fulfilled. 

Read 372 times Last modified on Wednesday, 12 December 2018 06:03
Liilnna Kifle

Liilnna is an associate in the Energy and Mining practice at MLA. Liilnna joined MLA in 2014 and has experience working in Energy law, Mining law, Investment law, Corporate law, Employment law, and Intellectual Property law matters. Liilnna earned her LLB (with great distinction) from Addis Ababa University in 2014. In 2017, she earned her LLM in Energy Law with Professional Skills from the University of Aberdeen, United Kingdom.

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Mehrteab Leul & Associates is a member of DLA Piper Africa Group, an alliance of leading independent law firms working together in association with DLA Piper, both internationally and across Africa.

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