Public-private partnerships (PPPs) are a growing trend in many countries, and are fast becoming an efficient mechanism for large energy and infrastructure projects and essential services in Sub-Saharan Africa. This model of project finance resonates well with modern governments where there is a stress on public funds for project development, and where the private sector is wary of fully private-financing, due to project and completion risks.
Mauritius has had a long history of PPP and procurement legislation but has not been very successful in procuring a full-scale project despite having in place the Public Procurement Act 2006 (the Public Procurement Act) and the Public-Private Partnership Act 2004 (the PPP Act) to plug past failures of conventional infrastructure projects developed and operated by the public sector. With the implementation of these acts, the public sector no longer procured assets, but procured services from the private sector.
With the recent introduction of the Build Operate Transfer Project Act 2016 (the BOT Act), Mauritius heralds another major development in the relationship between the state and the private sector. The new BOT Act comes hot on the heels of the Government's ambitious multi-million dollar Smart City Scheme for mixed-use infrastructure, and is poised to bring in modernised, efficient, transparent and competitive public procurement and PPP procedures.
The Smart City Scheme
In its first budget in 2015 (the Budget), a newly elected Mauritian Government laid out the vision for the Smart City Scheme (the Scheme), an ambitious infrastructure programme with a two-fold objective:
- the creation of smart cities across the island for mixed use development projects in: general commercial; leisure and residential; industrial; educational; medical; tourism clusters; and technology and innovation clusters. The overall ethos would be innovation, sustainability, efficiency and quality of life in urban development; and
- a regeneration programme covering existing towns, including improvement of the infrastructure and enhancing the appearance of sites and buildings across the country.
Following the Budget, amendments were made to the Investment Promotion Act 2000 (the IPA 2000) to introduce the concept of Smart Cities. Consequently, the Investment Promotion (Smart City Scheme) Regulations 2015 were passed, with detailed requirements for ventures seeking to develop a project under the Smart City Scheme.
About thirteen 'greenfield' sites have already been identified, which are predicted to be the new epicentres for business, finance and administration. The projected cost of these thirteen smart cities is about MUR 23.5 billion (approximately USD 660 million). The funding requirement is ambitious, requiring active participation of local and international lending institutions, private equity entrepreneurs and funds. One year on from the Smart City Scheme's announcement, the BOT Act was proclaimed on 5 April 2016 with the objective of providing the legal and regulatory framework to secure public-private partnerships to meet the financing needs of the Smart City Scheme.
The Scope of the BOT Act
The market typically understands a BOT project to be where a private sector party is given the right to build a project and to operate the project for a specified time subject to a 'transfer-back' to a government entity at the end of the contract period.
The BOT Act's scope of application extends beyond the above understanding. It also covers other project delivery methods such as:
- where the private sector project company assumes ownership of the project (build, own, operate and transfer), is also responsible for designing the project (design, build, finance, operate and transfer); and
- where the project involves the modernisation of existing infrastructure (modernise, own/ operate and transfer).
The BOT Act therefore allows for the greater integration of design, construction and operational skills of the private sector more efficiently that what existed under the PPP Act and the Public Procurement Act.
The BOT Act also allows the relevant governmental entity to have the project operational for a far lesser initial investment than conventional procurement methods; the cost of the project could be amortised over the lifetime of the concession. This was one of the main selling points of the BOT Act when it passed through the National Assembly.
Statutory Mechanisms for a Project Under the BOT Act
The BOT Act does not affect any partnership between Mauritius and a foreign state under a bilateral agreement. Government to Government, arrangements will remain unaffected by the BOT Act and continue to be governed by the PPP Act and Public Procurement Act.
The BOT Act supersedes the provisions of the Public Procurement Act and the PPP Act, although the rules of the Central Procurement Board pertaining to the assessment of bids would still apply. Under the BOT Act, it is also now mandatory for BOT agreements to be tabled before the National Assembly, which was not previously the case.
The starting point to any BOT project remains a governmental initiative. The relevant governmental authority (the Contracting Authority) will appraise and commission feasibility reports, in line with the requirements of the BOT Act on potential BOT projects. The procedure, from commissioning the feasibility report up to concession award and the entry into the BOT project transaction documents is prescribed by the BOT Act.
The BOT Act creates certainty by prescribing the minimum standard set of terms to be covered in the transaction documents which include, among others: (a) the rights and obligations of the contracting authority and private party; (b) the period of execution of the project; and (c) the financial terms and the management of the private party's performance.
The BOT Act is a real innovation in uplifting the procedural rules for project assessment and approval. It provides for efficient, competitive and transparent procurement, and promises to fill in the gaps where the PPP Act has failed. Under the former rules, public procurement was a protracted process, often delayed by challenges and lengthy appeals which meant that a number of viable projects ended up being prematurely aborted. The revamp brought by the new law is expected to accelerate the process and diminish the level of uncertainty and political risk associated with public sector projects.
While the new BOT Act remains to be tested, it is hoped that the improvements brought will help to harness much needed private investment in the Smart City Scheme specifically, and Mauritian infrastructure generally, and be the impetus for renewed growth in the sector.
Originally published by ALN Legal Notes, September 2016.
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