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ZIMASSET unlocks PPP potential

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Introduction

The Government of Zimbabwe recently unveiled the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZIMASSET), touted as the economic blueprint for the country over the next five years. The document is focused on outlining the Government’s target of pursuing a new trajectory of accelerated economic growth and wealth creation.

The blue print recognises the need to develop Zimbabwe’s infrastructure in order to develop the economy. Due to a decade long economic downturn, Zimbabwe has experienced a continuous deterioration in existing public infrastructure. Power shortages in Zimbabwe due to obsolete infrastructure have severely disturbed operations within the Zimbabwean industry. Reliable capacity is of the order of 1,320 megawatts against a demand of about 2,200 megawatts. The power shortages have seen capacity utilisation in the manufacturing sector declining from an average of 57% in 2011, 44% in 2012 and 39% in 2013.

The Zimbabwean Government has taken a policy position in ZIMASSET to adopt public-private sector partnerships (PPP), under which the private sector would partner with the Government to deliver infrastructure. The Infrastructure cluster in the blue print is focused on the rehabilitation of infrastructural assets and the recovery of utility services in Zimbabwe more specifically:

1. Water and Sanitation

2. Public Amenities

3. Information Communication Technology

4. Energy and Power Supply

The Government requires US$ 27 billion to execute the various projects identified in ZIMASSET. With an annual budget of US$ 4.1 billion for the 2014 fiscal year, the Government is looking to alternative sources of funding in order to fund projects stipulated in ZIMASSET. It is vastly acknowledged that securing funding will be key to the success of this turnaround initiative. As such, there has been a redoubled effort in pursuing Public Private Partnerships as viable investment vehicles.

What are PPP’s?

PPPs can take various forms, but are generally founded on long-term contracts between a State entity and a private organisation which provides for delivery of a project. There are various types of PPP’s, with varying degrees of private sector involvement, the most common type of PPP’s is the Design-Build-Finance- Operate transaction (DBFO) whereby the government grants the private partner the right to develop a new infrastructure project. The private partner takes the responsibility, the risk of delivery and operation of the project against pre-determined contractual performance standards and is then paid through the revenue generated by the project.

Promotion of PPP’s In Zimbabwe under ZIMASSET

One of the objectives of ZIMASSET is accelerating the implementation of Public Private Partnerships to fund economic revival and infrastructure development. The Government of Zimbabwe has undertaken to introduce institutional reforms to help promote PPP’s. At the present moment, a PPP Bill is currently before Parliament – the Finance Minister, Patrick Chinamasa, has remarked that it is anticipated that the Bill will be enacted into law in the first quarter of 2014.

The Bill currently before Parliament will see a more formal PPP framework including the establishment of a PPP Unit to administer the establishment of PPP projects. PPPs in Zimbabwe were first mooted in 1998 as a viable tool for unlocking private sector support in funding the maintenance and development of critical public infrastructure in Zimbabwe. In 2004, the Government of Zimbabwe recognized the critical role of the private sector in the provision of the country’s public infrastructure and in response it developed the framework underpinning PPP investments in the country. So far, two PPP policy documents (The 1998 PPP policy and the 2004 PPP policy) have been drafted, though the number of PPP projects in Zimbabwe has been negligible. Pending the finalisation of the Bill, the 2004 guidelines at the moment provide a framework to guide and protect the interests of private investors.

A prime example of the PPP’s currently in Zimbabwe are the road rehabilitation and tolling projects on the major highways in Zimbabwe. Infralink, a joint venture company in which the Zimbabwe National Road Administration, and Group Five (a South African company), holding 70% and 30% per cent equity stake respectively, secured funding for the project through the Development Bank of Southern Africa. A further example is the recent securing of funds from African Development Bank rehabilitate the Hwange Power Station, Ash plant as well as installation of transmission facilities throughout the country, with the tender for the power project being awarded to an Indian company, Indure (Private) Limited. As such, we can already see an increased appetite for Zimbabwean projects from regional and international development finance institutions as well as international private firms.

We are closely watching the commitment to accelerate the implementation of the PPP Bill as stipulated in ZIMASSET. We believe this presents good opportunities for project financiers and those who advise in this industry.

Author: Farai Nyabereka & Tendai Rwodzi