Tuesday
Feb142017

A Public Private Partnership in Malawi & Interview with Suhail Sheriff, SimbaNet COO

What does a Public Private Partnership in Africa really look like?

The painting below depicts huts along the road from Lilongwe, Malawi’s capital, to Salima, near Lake Malawi, showing dramatic baobab trees in the background.  This image would not normally be taken to represent a PPP. Yet a fiber cable now lies buried along the edge of the road that runs just feet from the huts in the painting, or one like it. It was created to give Internet users in landlocked Malawi a second route to reach international IP connectivity.

Stock Photo, Kalba International

The first route travels to the Mozambique border, reaching an undersea cable landing station near Maputo. The second now goes through Tanzania to a landing point near Dar es Salaam. It not only provides an alternate route for traffic but also puts downward pressure on prices, as the Mozambique route involves the facilities of a monopoly carrier in Mozambique and the incumbent operator in Malawi.  

The new entity that built out and operates the second backbone, SimbaNet, is a private, Tanzania-based company. To receive authorization for its build-out SimbaNet had to win a reverse auction, organized by the Government of Malawi (GoM), based on how low the company was willing to set its wholesale prices for the first five years of service delivery, starting in mid 2016.

Winning the PPP tender against companies from China, Korea and South Africa and making the business model work were only some of SimbaNet’s challenges. After failing to negotiate the use of the local electric utility’s overhead pylons, it had to deal with a host of permitting issues, including the willingness of residents to move their huts, as depicted in the painting, back from the road to make way for fiber trenches. SimbaNet also had to secure a complex financing package that involved private equity, debt providers, risk guarantees, and an advance from the GoM for the broadband services it would receive. 

The government also faced challenges—in designing and running the reverse auction and licensing tender, in specifying services that the PPP entity would provide the government over ten years, and in negotiating the PPP contract and the licensing and financing agreements with SimbaNet, all in the context of a regional infrastructure program supported by the World Bank. Fortunately, the PPP structure chosen was not a BTO or shared-ownership one, as this could have made things more complex.

Even the simple version took five years to fully implement, most of this prior to the construction phase. The fiber backbone, drop offs and data center are now operational. Some risks remain. But users in Malawi have competing sources of capacity to tap. And along with a new backup route through Zambia, they now have a much greater chance of not having their connections with London, Singapore or South Africa disrupted by natural disasters, shark bites, or fishing trawlers. 

Full Disclosure:  Kalba International served as Transaction Advisor to Malawi’s Public Private Partnership Commission on this PPP, helping formulate the tender, design the reverse auction, attract the potential investors,  evaluate the bids, and frame the build-out monitoring process.

Interview with Suhail Sheriff, COO, SimbaNet

Mr. Sheriff saw the project through from the operator side, starting with the early days of the tender process.  His responses to our questions follow below.

Q. What did you think when you first heard the term Public Private Partnership and was this what the one in Malawi turned out to be? 

A. We were very intrigued about the prospect of a Public Private Partnership, a concept that seemed utopian at the time. However, it made a lot of sense and SimbaNET was eager to be part of the PPP and be an active catalyst for the Malawian development agenda. The outcome has been absolutely fantastic. The transaction was management of the PPPC with professionalism and precision and the partnership with the GoM [Government of Malawi] has been extremely encouraging. The fact that the deliverables and targets were all met on time stands as evidence of this.

Q. What was the biggest challenge in winning the Malawi PPP tender? 

A. There were no substantial challenges with regards to the PPP tender, except maybe one and that was that the project did not receive any tax breaks or concessions. We felt that for such a scale of investment into a key development area, the GoM should have done more to avail investment incentives in order to encourage investment.  Other than that, one minor obstacle was the fact that we needed to keep educating various stake-holders on the concepts of a PPP in that traditional models were based on a ‘Government project’ or a ‘private Project’. Getting people to appreciate the partnership between Government and Private was an ongoing process but one that we were happy to do.

Q. And what was the biggest challenge in building out the network?

A. All construction projects have had challenges, but once again, none of them were substantial. The challenges we faced was incursions into the rights of way of the Roads Authority, where we were permitted to construct. We felt that the Roads Authority was not doing enough to protect this land.  We also felt that compensation, although fair to a degree, was sometimes abused in order to hold development objectives at ransom against seeking personal gain.  However, we engaged a very competent EMP [Environmental Management Plan] consultant and a process was followed that was fair, transparent and heavily regulated.

Q. How about the financing? Did the PPP structure help? And what else did you need to deal with?

A. The PPP structure and financing plan was perfect and it created incentive to invest and take reasonable business risks in Malawi. Such schemes should be promoted more in our opinion, not only in Malawi but also across the region. We only had to deal with paying large sums of money toward import tax, which would have otherwise been used to further extend the network.

Q. The government’s aim was to bring broadband prices down and foster Internet use. Is this happening?

A. Absolutely Yes. Before we went live, the price for an STM-1 with IP was around $34,000 and our list price was $13,000 and we expect this to further go down with larger uptake of capacity. The ‘bottleneck’ for Malawi was infrastructure and international connectivity. I can say confidently, that this project broke apart that bottleneck. The new bottleneck, ironically, is now the last mile segment and this is an area that SimbaNET wishes to develop and one that the GoM should also seek to encourage investment.

Q. When Malawi’s President Mutharika was here in New Haven, he was very excited about creating a paperless government in Malawi. As this proceeds, will it affect your role as a broadband provider to the government?

A. A Paperless Government is in essence an Application-Driven Government and all applications are built upon reliable and affordable infrastructure. In that way our role is further strengthened and our outcomes enable further uptake of infrastructure to deliver services, over which one can deliver applications. It’s an IT pyramid, the foundation of which is always a strong, reliable, resilient and affordable infrastructure.

Q. Finally, how did it feel to receive the Best Terrestrial Project designation at the recent Global Carrier Awards in Paris? 

A. We were very excited and very humbled by the international recognition we received with this and other awards. We are very happy to be a key player in showcasing a successful PPP initiative and we look forward to replicating the experiences and lessons learnt elsewhere as well.

Thanks Suhail.  Good luck with your projects in Malawi and elsewhere.

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