Nicolas Balesme, Managing Partner, Deloitte Gabon, on the governance and benefits of public-private partnerships (PPPs): Interview

Interview: Nicolas Balesme

How can the wider implementation of PPPs benefit Gabon and its investors?

NICOLAS BALESME: PPP schemes are relevant to international investors because they receive an agreed and regular income over the contract’s lifespan in return for services provided and costs incurred for investment, financing, design and construction, operation, maintenance and management of the project. Once the project is financially strong and profitable, it can be fully financed by banks and/or external moneylenders. In this case, the income generated by the industrial project must allow the private operator to repay its financial debt and cover expenses in addition to remunerating its shareholders.

When the project is complete, the income of the private operator may come in the form of compensation by the Gabonese state and/or a fee paid by the final customer. In addition, these contracts may allow international investors to participate in large-scale or priority projects through financial leverage.

To make projects more attractive, the government may decide to provide the private operators or investors with state grants or guarantees. The state benefits from such schemes by profiting from the technical know-how of the operator, who also assumes most of the technical and financial risks. Considering the current economic climate and the state’s budgetary constraints, this financing model is particularly interesting for Gabon. These schemes will allow the financing of cost-effective projects, such as those in the energy, and transport and logistics sectors.

What are the main challenges arising from partnerships utilising this model?

BALESME: The PPP model is governed by the contractual balance principle between the operator and the state. This equilibrium is based on an accurate definition and allocation of risks between the two parties, and the fair remuneration of the operator. Risk management includes risk identification, mainly of social and environmental, operational, design, construction, maintenance, availability, and financial and legal risk. It also includes risk assessment, which determines the probability of the occurrence of risk and its impact; the allocation of identified risks between the public and private entities, which is dependent on the capabilities and expertise of either party to assume the risk; risk mitigation, which reduces the probability and magnitude of the risk; and risk monitoring.

The remuneration of the operator is calculated in regards to the rate of return on investment, based on the capital invested by the private operator compared to other investments or contracts; or in regards to the level of remuneration, which has to be above-floor remuneration in a competitive environment.

What legal framework do PPPs adhere to?

BALESME: The order, signed on February 11, 2016, sets the framework for the preparation, signing and execution of PPP contracts and agreements. This order excludes PPPs from the scope of application of the Public Procurement Code of 2012, which is under revision. This latest order, which should be ratified by Parliament during its current session, introduces a specific framework for PPPs in Gabon. Most notably, the order lays out a specific institutional framework to be supervised by the National Agency for Investments Promotion, which is charged with designing, implementing and monitoring PPPs.

The different types of PPPs available to investors in Gabon are the contractual partnership, which may be implemented under the partnership contract only, and which the order specifies by way of mandatory clauses to be included in the contract; and the institutional partnership, which may be implemented under the form of a semi-public entity, a group of economic interests or the acquisition by the private partner of a number of stakes in an existing public company.