EAST AFRICAN COMMUNITY

1. 0 EAST AFRICAN COMMUNITY PPPs- A VEHICLE FOR ADDRESSING INFRASTRUCTURAL CHALLENGES IN THE EAST AFRICAN COMMUNITY* by Prof. Sam Tulya-Muhika** *A General Presentation at the “3rd EAC Investment Conference” [ Munyonyo, Kampala, 28th -30th April 2010] ** Prof. Sam Tulya-Muhika is/was: (1) Chairman/Managing Director of International Development Consultants since 1989 (2) Chairman, East African Co-operation Forum (EACF), Uganda Chapter & East Africa since 1991; (3) Chairman, Uganda Task Force on the East African Community (1997-98) (4) Member of the GCA/World Bank Eminent Persons Group on African Integration (2002-2003) (5) Chairman, Federation of Ugandan Consultants, since 1994; (6) Chairman, International Development Consultants (IDC) EAC/ COMESA/SADC-wide Consultancy Firm, since 1990. (7) Member of the Committee for Fast-Tracking the E.A Federation (Sept-Nov 2004). (8) Professor of Statistics & Applied Economics, Makerere University, 1969/70-2005.

2. 1 Table of Contents • Role of Infrastructure in Regional Integration • East African Infrastructure Framework • PPP’s - PPP’s - SMART Partnerships - Principles • Potential of PPPs for E.A. Infrastructure Development - Key Areas - Pros & Cons • Closing Remarks - EA Institutions - Partial Fast-Track of the EA Federation Institutions

3. 2 1. ROLE OF INFRASTRUCTURE IN REGIONAL INTEGRATION • 1.1 WHAT IS REGIONAL INTEGRATION? • Integration is essentially: MOVEMENT • Hence anything that • - Hinders movement (even for a good reason) slows down • the pace of Integration. • - And anything that enables movement expedite • integration • Otherwise, formally: Regional Economic Integration • (between neighboring states) is basically a process of • de-regulation of borders, starting with “borders-in-the-mind” • construction of a “regional mindset”.

4. 3 1.2 DEEPENING STAGES OF REGIONAL ECONOMIC INTERGRATION PTA 1: PREFERENTIAL TRADE AREA FTA 2: FREE TRADE AREA CU 3: CUSTOMS UNION CM 4: COMMON MARKET MU 5: MONETARY UNION FEDERATION 6: FEDERATION

5. 4 1.3 Importance of the Common Market Stage of Integration • By far, an efficient and effective common is the most important of all the stages of Integration • Both the MU and Federation are CM enablers • - MU: Efficiency → cut back drastically on Cross-Border Transaction Costs • - Federation: Effectiveness → One (1) policy centre. • The Common Market is the single most important source of benefits of Regional Integration for the Investor, Tax-payer and ordinary People. • This is because • - Good economics is the best politics; and • - The principal purpose of political integration is to create an economically able State. • The E.A. Common Market is due to take effect from 01st July 2010. CONGRACULATIONS!

6. 5 2. EAC INFRASTRUCTURE FRAMEWORK OF A COMMON MARKET • 2.1 CM & Movement • A Common Market is about free movement of • - Goods • - Services • - People • - Capital • - Ideas • - Policies • - Practices • - Values • - Work Culture etc • Hence, the primary importance of InfrastructureDevelopment for success of a Common Market (as poor infrastructure is a high market cost). • Thus, the EAC can only be “The preferred Investment Destination” if all movement is good enough.

7. 6 EAC Infrastructure Framework Cont’d 2.2 EA. Infrastructure is to be made up of a - Roads Network - A Rail Network - Air Transport Network - Harbors & Inland Water Transport - Information Communication Technology - Energy - E.A. Research Institutions - Civil and Administration Buildings, e.g. EAC Headquarters.

8. 7 2.3 Samples of E.A. Transport Frameworks • E.A. Road Network • - Northern Corridor • - Central Corridor • E.A. Railway Network • - Northern Corridor • - Central Corridor

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12. 11 2.4 Key Requirements for each Infrastructure Mode • Financial Capital Huge, • Ownership • Management Human Capital • Organizational Issues • - Policy • - Standards • - Legal and Regulatory Framework • - Operations

13. 12 3. PPPs • 3.1 Definition • PPPs: Public Private Partnerships • In effect: A process of transfer of a publicgood into a private good (in part or in total) • Origins: New-liberal Market Reforms of the 1980s/90’s Take the State of out the Market. • Calls for: Detailed definition of the (i) public, (ii) eligible private, (iii) the public good, (iv) roles responsibilities.

14. 13 PPPs Cont’d 3.2 Typologies of PPPs include TypeResidual Role of the State (i) Corporatization, ∙ Owner & Policy maker e.g. Service Institution Regulator (like immigration) or Joint Stock Company (ii) Management Contract ∙ Owner & Policy Maker & Regulator (iii) Service Contracts/Agreements [Private Sector maintains the transferred asset, but any expansion/development is for the State ; short ≡ up 10 years]

15. 14 Cont’d PPPs Type Residual Role of the State (iv) Leasing ∙Owner of Superior Title /Policy/Regulator *(v) Concessions ∙ Owner of Superior “Title” [Up to 30 years; / Policy & Regulator Private sector Builds Owns Operates and Transfers (BOOT) →at the end of the Concession] (vi) Divestiture ∙ Policy & Legal Frameworks [Complete privatization] + Regulation * N.B. Concessions suitable for Transport & similar (land-based) Infrastructure

16. 15 3.3 Pros and Cons of PPPs • Common Benefits of PPPs • (i) Financial Capital • (ii) Unbundling [Breaking up Public Enterprises into commercially viable functional units] • (iii) Efficiency in resource allocation and effectiveness [debated in some areas].

17. 16 Pros and Cons of PPPs Cont’d • Common Problem Areas of PPPs • (i) Not SMART! See the SMART Partnership Movement Over-Arching Principle Win- Win & not Win-Lose “Prosper Thy Neighbour”! • (ii) The jeopardy of the common nobody “minds the gate”. • (iii) Absence of an agreed PPPPolicy Framework covering, amongst others, the Principles of Privatization and PPPs, including a clear • statement of purpose of the PPP and mitigation measures impacts on the vulnerable section of society.

18. 17 3.4 Principles of Privatizing PPPs • Share a vision as to why you need to change and maintain or set up a reliable regulatory framework that defines time-bound objectives or targets to be met by the private operators; this also assisting you to identify the appropriate type of Public/Private Partnership. • 2. Ensure fair and meaningful competition, securing a competitive, transparent and accountable bidding process. • Prevent natural monopolies from turning into commercial monopolies; also public monopolies as private monopolies.

19. 18 Principles of Privatizing PPPs Cont’d • Protect the weak and deal with (transitional) social costs. • Involve civil society and make use of local knowledge Protect the weak and deal with (transitional) social costs. • Secure a sufficient financial basis to pay private operators for necessary services (such as access to water, education, energy, communication and transport whenever customers are not in a position to pay cost-covering prices; this implies that states should join hands in fending off “harmful” international tax competition).

20. 19 Principles of Privatizing PPPs Cont’d • 7. Look at external costs and try to create an incentive structure that induces private operators to avoid externalities. • 8. Apply ‘cross-subsidies’ if that is the best way of maintaining unprofitable, but essential elements of public service that are necessary on social equity grounds. • 9. Protect public goods/the commons-for example, by preventing incentives structures that invite private actors to over-use, let along destroy, public goods.

21. 20 Principles of Privatizing PPPs Cont’d • Monitor and control the performance in a way that convinces the citizens of the respective state, province or municipality. • 11. Build into the Concession Agreement and impose penalties or sanctions on Private Operators as necessary • 12. In general, indicate, in principle, that the State still carries the primary politicalrisk for the privatized service. • Source: An adaption and augmentation from a Club of Rome (2004/5) • Report by Prof. Sam Tulya-Muhika • * (1) “Privatization is a good thing gone wrong”. [Proof. Steadman] • (2) “Privatization is a good thing likely to go wrong”. • [Prof. Sam Tulya-Muhika]

22. 21 4. PPPs for E.A. Infrastructure Development 4.1 Key Areas (i) Financial Capital (ii) Ownership (iii) Management (iv) Organizational Issues. 4.2 Examples: E.A. Railway System - Northern Corridor: Mombasa-Nairobi-Malaba- Kampala-Kasese-Kisangani(?) with a “spur” to Kigali from Kihanga (or Kasese). - Southern Corridor: Dar-es-Salaam-Isaka-Kigali/Keza- Musongati

23. 22 4.3 Key Features - Single Track - Standard Gauge (1,435 Metres) - Design Speed (a) Passenger: 160 KPH (110 MPH) (b) Cargo: 120 KPH (75 MPH). - Inter-Modal and Modes –in-Parallel

24. 23 4.4 Transport Corridor Lay-Out • ROAD [Motorway]RAIL [Dual Track] • 1 2 3 3 2 1 • Infrastructure Corridor

25. 24 4.4 Financial Requirements: Construction Alone • Mombasa-Kampala • (a) Approx Distance : 1000 kms • (b) Construction Cost: US$ 3 Million (Single) • per km (Approx) : US$ 5 Million (Dual) • (c) Total Cost : US$ 3 Billion • [Single Track] • (d) Total Cost : US$ 5.5 Billion • [Dual Cost]

26. 25 Financial Requirements: Construction Alone Cont’d • Will call for some form of PPP, e.g Concession→ with “The Public” to retain: Policy, Standards, and Regulation (& Superior Title). • Ownership: Dual Ownership, e.g. Service Contract (after Construction) • Management: Concessionaire

27. 26 4.5 Organizational Issues • Recall that for an effective PPP detailed definition of the • (a) Public • (b) Private Sector →eligibility • (c) Public Good • is a must. • Ideally, all E.A. Infrastructure should be (i) truly East African and (iii) East African-owned, for both efficiency and effectiveness. • The Public Good and Eligible Private Sector Establishments should be easy.

28. 27 Organizational Issues Cont’d • The problem will be defining: The East African Public since the rights of “The Public” are normally vested in the “State” and exercised by the “Government” of the day. • Dual or multiple cross-border Concessions not attractive (to the Private Sector) for such huge capital outlays (as above), since they tend to be neither efficient nor effective.

29. 28 5. RECOMMENDATIONS • Re-visit the Report of the Committee on Fast-Tracking the East African Federation • Fast-Track demand-driven “federal” Institutions, e.g • (1) E.A. Finance Commission (for the M.U) • (2) E.A. Trade & Investment Commission (for the CM) • (3) E.A. Infrastructure Commission (for the CM) • Key Features of each Commission • (1) E.A. Policy formulation, and Legal and Regulatory Framework • (2) Policy implementation and operation under different E.A. Authorities (as necessary).

30. 29 Recommendations Cont’d • (3) Commission to hold Superior E.A. Titles, e.g. Transport Corridor • For instance, establish, under the E.A.I.C • (1) E.A. Railways Authority • (2) E.A. Roads Authority • (3) E.A. Ports Authority • (4) E.A. Civil Aviation Authority etc • We had before, e.g. E.A. Railway Corporations, E.A. Harbours Corporation etc. and movement was so good! • - We need to be pragmatic: AFRICA MUST UNITE LET US START HERE, IN EAST AFRICA AND NOW!