Rethinking P3s For Development

In this April 2013 academic paper entitled When Business Meets Aid: Analysing Public-Private Partnerships for International Development, authors Margaret Callan and Robin Davies, both visiting fellows at Australian National University’s Development Policy Center, contend that the huge potential of public-private partnerships is still largely unrealized because their “purposes and forms are rarely distinguished and given explicit consideration.” The paper proposes a new framework and taxonomy for thinking about public-private partnerships for development to address this gap, .

 Callan and Davies distinguish among four categories of partnerships:

            Inclusive business ventures: These core business activities benefit the population at the bottom of the pyramid. Government-led development agencies play three roles in making these business activities more inclusive: improving the knowledge base for inclusive business activity, providing risk-sharing subsidies, and exercising convening power to broker partnerships.

            Pro-poor supply chain initiatives: This consumer-oriented sub-category of inclusive business aims to include the poor in supply chains in an equitable way, while reducing others social or environmental harms created through the supply chain. Labeling and certification mechanisms connect these practices to consumers, by allowing them to choose “products considered to be ethically produced and sustainably managed.”

            Public-private partnerships for service delivery: Many private enterprises provide services to their employees and local communities in health and education. Development agencies often assist by providing in-kind contributions or funding to expand and improve the provision of services.

            Product development partnerships (PDPs): In response to a “gross mismatch between the burden of illness and investment in health research,” international organizations, private foundations, and some official donors have established partnerships to develop new medicines, health technologies or delivery systems.

The authors raised critical questions about each partnership model and challenged commonly held beliefs about partnerships.

Callan and Davies pointed out, for example, that a surprisingly small amount of evidence exists on public-private partnership impacts and cost-effectiveness. They also questioned the view that partnerships need to be mediated by “brokers” who understand both parties, and the idea that private-sector actors are less “fickle” than public agencies in their financial commitments. The authors argued instead that local businesses are, in fact, “the best and most consistent partners for inclusive business approaches.”

As recently as June 2013, a conference promoting the use of PPPs was held in Bahamas and another one is carded for later in the year in Trinidad and Tobago.  It is clear that more and more Caribbean countries are opting for this model for financing large infrastructure projects which allows for off balance sheet capital infrastructure long term debt. Jamaica constructed its highway linking Montego Bay in the north of the island to Kingston through a PPP. This highway is now a toll road, which means that users have to pay to use the highway, which cuts transport times between the two main Jamaican cities considerably. Arawak Cay Port Development Holdings Ltd (ACPDH) in Nassau, Bahamas was another project developed as a P3, with ownership of the port being a partnership between the Government, ACDPH and the public (the company is listed on the Nassau Stock Exchange). This partnership was formed to design, develop, construct, manage, operate and maintain the Nassau Container Port and the Gladstone Freight Terminal as a modern container port and warehousing complex. Alternatively, the private partner could be contracted to take over management of a public asset, such as an airport which was the approach adopted in respect of the management of the Lynden Pindling International Airport in Nassau.” In Trinidad and Tobago, the water desalination project DESALCOTT is an infamous P3 still plagued with allegations of corruption, though largely said to be operating efficiently. The Cabinet of Trinidad and Tobago is also said to have approved PPPs as national policy and there is a robust pipeline of 90 projects with a value of over US$5 billion that has been identified in collaboration with ministries, departments and divisions. Some 20 of these has been approved to proceed including two airports, four highways, an open access broadband system, schools, hotels and diagnostic centres.  

Notably no mention was made at that recent conference of some of the massive P3 failures which have already been experienced across the globe, resulting in significant pushback in the UK where the end of the Governments fascination with the Private Finance Initiative (PFI) infrastructure development model is being celebrated. The PFI expedition was one of the costliest public policy experiments in the history of Great Britain and now initiatives are underway to recoup monies from the private sector participants. Some of the criticisms include :

            - The information, negotiating power and professional capacity assymetries between the public and private sector participants are routinely taken advantage of by the latter resulting in long term deals favouring corporate interests as opposed to the development objectives the partnership was conceptualized to serve. 

           

            - No substantial body of evidence that P3s have delivered better value for money for the taxpayer, nor that they have been more innovative or better designed. 

           

            - Flawed procurement and tendering processes usually attend the P3 project model due to a largely unregulated space. 

           

            - The recording of the debt is typically off balance sheet thereby giving the false impression of financial health.

           

The critical question is whether policymakers and public sector professionals in the region have the capacity to engage on an even playing field with their private sector counterparts so as to ensure that the deals entered into represent best value and serve the long term interests of the public. 

In the circumstances this paper and others seeking to highlight the pitfalls of the P3 infrastructure financing model are well worth the read for Caribbean public officials, professionals and technocrats so that as we hurtle along the P3 path we are mindful of the inherent risks and build capacity to manage them.  

References

www.devex.com

Business Guardian Article by Anthony Wilson

After PFI, Jesse Norman MP

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A closer look at the Griffiths Energy case: Lessons and insights on Canadian anti-corruption enforcement

Note: This is a condensed version of an article originally published on McCarthy Tétrault’s International Trade and Investment Law Group’s Legal Update on Feb. 14, 2013. It is condensed and reprinted with permission.

By Paul Michael Blyschak and John W. Boscariol

On Jan. 25, 2013, the Alberta Court of Queen’s Bench approved a $10.35-million penalty against Griffiths Energy International Inc. (Griffiths) for a violation of the Corruption of Foreign Public Officials Act (CFPOA) in connection with the actions of the company’s previous management and representatives in Chad, Africa (Griffiths Judgment).

It would be difficult to exaggerate the apparent influence of Griffiths’ self-disclosure on the amount of the fine imposed.

Although the CFPOA has been in force since 1999, the Griffiths conviction joins the conviction of Niko Resources Inc. (Niko) in June of 2011 (Niko Order) as only the second significant conviction rendered under Canada’s foreign anti-corruption legislation to date.
The Griffiths conviction relates primarily to a series of consulting agreements and related transactions entered into by the company, a Calgary-based junior oil and gas exploration and production firm, at the direction of its previous management and in pursuit of certain production sharing contracts (PSCs) in Chad.
Around the time the company was formed in August 2009, Griffiths and several of its founding shareholders set out to develop contacts with senior Chadian political figures, including the Chadian Ambassador to Canada and the country’s minister of petroleum and energy.
This led to the execution of a consulting agreement on August 30, 2009 between Griffiths and Ambassade du Tchad LLC (Tchad LLC), a U.S.-registered entity wholly owned by the Ambassador. The agreement  provided for a $2-million fee payable to Tchad LLC in the event Griffiths was awarded the desired PSCs before the end of 2009.
Griffiths terminated the Tchad LLC consulting agreement in early September 2009 after being advised that it constituted an unlawful offer of a benefit to a foreign public official. However, on Sept. 15, 2009, Griffiths entered into a second consulting agreement on identical terms with another U.S.-incorporated entity, this time wholly owned by the wife of the Ambassador and named Chad Oil Consulting LLC (COCL). Griffiths simultaneously (i) granted the Ambassador’s wife 1,600,000 founder shares in the company at a price of $0.001 per share, and (ii) granted an additional 2,400,000 founder shares at the same price to two individuals nominated by the Ambassador’s wife, including the wife of the then Deputy Chief of the Chadian Embassy in Washington, D.C. (Deputy Chief).
Following the expiration of its initial term, the COCL consulting agreement was renewed by the parties effective Jan. 1, 2011, with only minor amendments. Shortly thereafter, and after months of negotiations, a Griffiths subsidiary executed a PSC with Chad on Jan. 19, 2011. The $2-million dollar payment owing to COCL was placed into escrow in February, 2011, before being transferred to COCL pursuant to deposit instructions received from the Deputy Chief.
Griffiths acknowledged that, by entering into the Tchad LLC and COCL consulting agreements and by issuing seed shares to the Ambassador’s wife and her nominees, it violated paragraph 3(1)(b) of the CFPOA by providing direct or indirect benefits to the Ambassador in an attempt to induce the Ambassador to use his position to influence decisions of Chad in respect of the desired PSCs.
However, the Statement of Facts also contains several important acknowledgements by the Crown which informed its agreement to limit the fine imposed on Griffiths to $10.35 million (being a fine of $9 million plus a 15 per cent victim fine surcharge).
First, the Crown acknowledged that the current senior leadership of Griffiths was distinct and separate from the management steering the company at the time of the corrupt practices at issue, and that the new management had taken swift action following the discovery of the offending consulting agreements.
The Crown also acknowledged the decision of Griffiths to voluntarily self-disclose its special investigation to the RCMP and representatives of the Public Prosecution Service of Canada and Alberta Justice on Nov. 15, 2011, as well as their counterparts in the United States shortly thereafter.
While Justice Brooker of the Alberta Queen’s Bench (Court) said "the penalty imposed must be sufficient to show the Court’s denunciation of such conduct as well as provide deterrence to other potential offenders,” he said Griffiths’ conduct upon discovering a possible breach of the CFPOA demonstrated a "complete and genuine remorse for the illegal conduct manifested by its former officers."
It  would be difficult to exaggerate the apparent influence of Griffiths’ self-disclosure on the amount of the fine imposed. Niko was fined $9.5 million for gifts in kind worth an aggregate of approximately $200,000.00. Griffiths, on the other hand, was fined about eight per cent more than Niko for payments in excess of 10 times the value of gifts provided by Niko.
Criminal culpability under the CFPOA resulted both from the COCL consulting agreement under which the $2-million dollar payment was made as well as from the earlier consulting agreements, even though no payments were actually made pursuant to those agreements. This serves as a clear reminder that the CFPOA prohibits mere offers or promises made to, or for the benefit of, foreign public officials and not only actual payments made to or for the benefit of such officials.
Although the Crown acknowledges that that the $2-million payment made by Griffiths’ past management to COCL is beyond the reach of the Court, forfeiture proceedings in respect of the seed share issuances to the Wife and her nominees are understood to have been initiated and were scheduled to be heard by the Court on Feb. 15, 2013. The experience of Griffiths may therefore serve as the first instance in Canada of the seizure of assets tainted by foreign corrupt practices.
It should not be lost on companies with overseas operations that engaging third-party agents even with the best of intentions can be fraught with uncertainty and represents one of the most significant areas of anti-corruption risk facing Canadian business.
The experience of Griffiths and its new management and directorship emphasize the need for Canadian companies with overseas operations or business partners to implement and enforce comprehensive anti-corruption policies and procedures customized to their particular circumstances in a proactive manner. This will best place an organization, as well as its management and directors, to detect and prevent potential violations of the CFPOA, and to quickly respond accordingly. As the RCMP and Crown have now made abundantly clear, with approximately 35 ongoing CFPOA investigations, the Canadian business community now operates in a new and aggressive era of anti-corruption enforcement.
Click here to read the full article, with citations.
Paul Michael Blyschak is an associate in Calgary and John W. Boscariol is a partner in Toronto with McCarthy Tétrault.

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