ICT PPPs differ from those in other infrastructure sectors. Though PPPs are still an effective way of using scarce public funds to catalyze and “crowd-in” private sector participation and financing, each project needs to be looked at individually, while paying close attention to risk allocation.
Although PPPs are at their core an assignment of risk between private sector and public sector parties, these agreements also define governance arrangements. For PPPs in information and communications technology (including telecommunications), or ICT, the governance arrangements ensure fair competition and open access. This is an area where PPPs in ICTs differ from PPPs in other infrastructure sectors.
Most countries have telecommunications legislation and a sector regulator to ensure efficiency and fair competition in the provision of infrastructure and services. Generally, regulated industries such as ICT require different levels of oversight from the PPP regulator. Governments must be careful to limit the opportunity for regulatory arbitrage among the PPP and sector regulators by market players, ensuring that the regulatory oversight of the telecom regulator does not conflict with that of the PPP supervisor and vice versa.
PPPs in Telecom
In telecom, PPPs are often used for the financing, installation, and operation of infrastructure (typically fiber optic broadband, both terrestrial and submarine), and the provision of services that use the infrastructure. The contracts are typically “transactional”—they involve setting up joint ventures, sometimes through a corporate vehicle and sometimes via contract for the express purposes of the project.
For example, the Africa Connects Europe (ACE) submarine cable consortium is not an entity, but a joint venture (JV) by contract. Of the 20+ members of ACE, consortium members who are benefitting from World Bank financing are using PPPs for the construction of domestic infrastructure and the distribution of broadband capacity locally, mostly in the form of corporate JVs that include shareholder agreements and articles of incorporation or the equivalent.
Some elements of the corporate JV type of PPP that the ACE agreements incorporate are worth noting:
- Entry, exit, and continuity: Provisions regarding entry and exit from the venture, including the rights of first refusal upon exit, should be considered. The JV PPP should also include appropriate provisions that give the parties incentives to continue in the venture. These could include spacing out investment obligations throughout the rollout of the project (as opposed to allowing private participants to “back-load” their investment after public sector money is invested).
- Open access and fair competition: JV PPP contracts address the governance of the venture, including, critically, issues of open access and fair competition. For added protection, material decisions affecting open access and fair competition could be given “super-majority” voting rights in the consortium documentation. This gives minority participants (usually the government entity) rights to ensure that the public policy objectives that the venture was set up to achieve are respected.
- Downstream arrangements: The contract should also consider the need for the JV to enter into further downstream arrangements, including financing and construction of infrastructure, obtaining operational licenses, and even “outsourcing” the network operations functions to third parties.
PPPs in e-Government
While some of the legal arrangements for e-government projects may include the purchase of hardware and software from vendors for running government databases, or outsourcing contracts with other vendors to run systems on behalf of governmental entities, these arrangements are qualitatively different than the transactional PPPs typical in telecommunications. An e-government contract is a long term, ongoing relationship typified by the transfer of some governmental function to a private party. The PPP contract focuses on the service-level aspects of the activity, shifting risk and liability to the private provider that is performing a function on behalf of a governmental entity.
The financial aspects of these contracts are very different from those in the telecom infrastructure context. While there is an element of investment, the main distinguishing factor is the ongoing provision of service. Accordingly, the financing of these PPPs may also include financing by the government of the service provider through ongoing operational revenues via license fees, or using revenues generating from provision of the service. Though these differences may seem minor at first, each one creates a set of circumstances that deserves close attention to result in a successful project.
For a set of materials on Telecom and ICT frameworks, laws, regulations, toolkits and other reference, visit the Public-Private Partnerships Infrastructure Resource Center.