Building now, paying later: The deferred PPP model and the future of public investment in Ghana

By Ing. Philip LARTEY

For many decades, Ghana’s infrastructure ministries and other public agencies have relied heavily on Engineering, Procurement & Construction (EPC) and EPC + Finance contracts to deliver projects. Under these arrangements, contractors design, finance, and undertake the construction.

They are subsequently repaid upon completion (or sections thereof) in accordance with the project agreements. While these contractual models yielded some successful outcomes, they also placed fiscal pressure on the government’s annual budgets, led to contractor arrears, and delayed project completion.

During the 2022-2023 Domestic Debt Exchange period, many EPC projects were suspended midstream, causing inconvenience to the public. Meanwhile, the pressure by the citizenry on the government to provide desperately needed infrastructure remains high.

On the other hand, the high expectations for Public-Private Partnership (PPP) infrastructure projects being rolled out following the passage of the PPP Act, 2020 (Act 1039), have become muted.

The procuring Ministries, Departments, and Agencies (MDAs) have been hampered by weak transaction preparation skills, prolonged procurement approvals, and challenges in risk allocation. This has discouraged the full adoption of the PPP projects. As a result, many critical projects that could be undertaken with PPP arrangements remain delayed, underfunded, or abandoned midstream.

Successive political administrations have shown a penchant for EPC and EPC + Finance projects due to the perception that such projects should be completed during their political terms. Ironically, though, many public figures and civil society continue to tout PPPs as the game-changer to solve their infrastructure concerns without a deep appreciation of the intricacies of their structuring and delivery arrangements.

Introducing the Deferred PPP Model

One innovative way to address this issue is the Deferred Public-Private Partnership (PPP) model, which is essentially a pragmatic blend of the familiar traditional EPC approach and the performance-based discipline of PPPs. It builds on the government’s familiarity with EPC frameworks while introducing PPP principles, such as performance-based remuneration, life-cycle cost efficiency, and private-sector discipline in the operations phase post-construction.

Basically, the Deferred PPP Model is a hybrid infrastructure delivery mechanism that combines EPC execution with PPP-like deferred payments. Under the model,

• The private partner designs, finances, and builds the infrastructure. (as in EPC+F).
• Upon completion and certification, the government begins repayment over an agreed period (typically 5-15 years).
• Payments are tied to contract KPIs. If the road, hospital, or school fails to meet defined operational standards, payment deductions will be applied.
• The financing and repayment structure is formalised through a Deferred Payment Agreement with the contractor underpinned by fiscal budgets or ring-fenced revenue sources.

Essentially, the model transforms an EPC contract into a quasi-PPP, in which the government’s obligation to pay is deferred and contingent on the contractor’s continued performance and incentives. Ghana has previously used a one-off deferred payment agreement under the Sinohydro contract. Unfortunately, project reports have revealed that projects under the contract were affected by increased transaction risks and implementation challenges.

Globally, variations of the Deferred PPP Model exist:

South Africa’s availability-based PPPs for healthcare and education.

The Inkosi Albert Luthuli Central Hospital is a landmark availability-payment PPP. The private partner designed, built, financed the construction, and currently operates the support services. The South African government pays quarterly availability fees over 15 years. Critical roads, courts, and government offices are also being undertaken using the model.

The Eastern and Limpopo schools were built under the Rapid School Build Programme using replicable annuity-type PPP frameworks.

The South African experience is anchored on clear standards where payment deductions are applied for non-performance. Annual availability payments are also ring-fenced via long-term budget commitments.

India’s Hybrid Annuity Model (HAM) for road, water, and sewerage projects.

From 2016 to date, India has implemented this model. The government pays between 20-40% of the project cost during the construction phase in milestone grants. The private sector finances 60%. The remainder is repaid over 10-15 years as indexed annuity payments (plus O&M payments and interest). The HAM has made financing bankable and delivered a huge backlog of road projects.

For the roads and bridges in Ghana with uncertain toll viability, the HAM-style deferred PPP is a suitable template.

Kenya’s use of the deferred PPP model in the provision of roads and affordable housing

Kenya uses annuity payments for rural and urban roads under Kenya’s Roads Annuity Programme. Private contractors build the roads, and the government makes annuity payments over 8-10 years, which include activities during the O&M phase.

Kenya also applies deferred payment models in the provision of affordable housing PPPs. Developers’ complete units, and payment comes from structured public-sector guarantees or government off-taker schemes.

These examples demonstrate that deferred-payment PPPs can deliver infrastructure efficiently while maintaining fiscal sustainability.

Key Features and Payment Mechanism of the Model

A robust payment and risk management framework underpins a well-designed deferred PPP Model. The following are its key features:

Deferred Payment Mechanism

Payments to the private partner commence only after the project is completed and certified operational. The government pays back over time, typically from sources such as

• Budgetary allocations spread across multiple fiscal years.
• Road fund revenues (for road transport projects).
• User fees or ring-fenced availability payments.

This deferral of payment creates fiscal breathing space for the government while ensuring the project is fully delivered before the expenditure is incurred.

Performance-based Payments

Payments are contingent upon the availability and functionality of the asset. For instance

• A hospital must commit to meet operational standards (e.g., reliable electricity, efficient sanitation measures, accurate medical records) before payments flow.
• A road must remain motorable and safe, with penalties for deterioration.

If the asset fails to meet these criteria, deductions or penalties must apply. This ensures value for money, accountability, and long-term sustainability.

Transition from EPC to PPP project

Unlike traditional EPC projects, the Deferred PPP model requires private contractors to remain involved beyond the construction phase and handover. They may manage construction or performance verification for a few years, building the foundation for private-sector capability and preparing local firms for full PPP operations.

Blended Finance and Risk Sharing

The model encourages collaboration with local banks, export credit agencies, and development financiers to provide concessional loans, guarantees, and development finance to mitigate project risks. Government payment commitments could backstop local syndicated loans, improving credit confidence and expanding financing options.

Applicability across Infrastructure Sectors

The Model is highly adaptable and versatile across many infrastructure sectors:

Health Sector – Construction and Equipping of Hospitals, Clinics and Diagnostic Centres

The Ministry of Health (MoH) and Ghana Health Service (GHS) have a significant infrastructure backlog, especially for regional hospitals, specialist centres, and health posts. Traditional EPC+ F contracts often create heavy debt obligations and maintenance neglect after handover. The Ministry of Health (MoH) and Ghana Health Service (GHS) often rely on EPC or EPC+F contracts for hospital delivery, leading to high debt accumulation and delays. Many facilities also deteriorate quickly due to weak maintenance financing.

Deferred PPP applicability:

• A Design-Build-Finance-Operate (DBFO) model can be adopted where the private partner delivers a fully equipped facility and maintains it for 10-20 years.
• The government begins payments only after completion and commissioning, with performance-linked deductions for non-compliance in equipment uptime, cleanliness, or power reliability.
• Deferred payments can be made quarterly or annually from MoH budgetary allocations over future budget cycles while ensuring performance-based operations.

Education Sector- Construction of Schools, Training Centres and Student Accommodation

Ghana continues to experience a rising demand for educational infrastructure, particularly in primary, secondary and technical education sectors. Limited GETFund disbursements and fiscal constraints have delayed the delivery of many new senior high schools, dormitories, technical training centres, and hostel projects. This is because conventional EPC contracts require immediate payment, often leading to abandoned projects and poor maintenance.

Deferred PPP applicability:

• A Design-Build-Finance-Maintain (DBFM) arrangement can be used where the private partner constructs and maintains the facility for 10-15 years.
• The government, through the Ministry of Education or GETFund, starts making availability payments only after the facilities are completed, equipped, and verified as operational, typically through periodic availability payments.
• The deferred payments period can be made from annual education budget allocations or internally generated funds, linked to performance indicators such as facility condition, sanitation, classroom readiness, or energy efficiency.
• The private partner is responsible for maintenance and facility management during the payment period.

This encourages private contractors to deliver durable, low-maintenance educational facilities without the usual heavy upfront borrowing.

Sports and Recreation Sector – Construction and Operation of stadia, Sports Complexes and Multipurpose Arenas

Ghana’s growing demand for modern sports and entertainment facilities, especially considering the successful hosting of the 2024 African Games and other continental events, has outpaced public investment in the sector. The country’s ambition to host major sporting and entertainment continental events is constrained by limited budgetary capacity for new stadia or the rehabilitation of existing ones.

Deferred PPP applicability:

• The private sector finances and constructs the sports infrastructure, and the government begins deferred payments only after the facility meets availability and performance standards eg, seating capacity, pitch quality, safety certification, and compliance with international standards.
• The private partner may operate the facility for 10-20 years, combining government availability payments with other commercial revenue streams eg. Concessions, event hosting, and advertising rights.
• The hybrid revenue structure enhances the project’s bankability while reducing the state’s immediate expenditure burden.

The model supports sports development while limiting fiscal exposure.

Roads and Bridges

Road and Bridge infrastructure is capital-intensive, highly visible, and requires strong lifecycle management to avoid premature deterioration. Ghana’s current EPC/EPC+F approach often leads to delays, cost variations and weak maintenance. Roads and Bridges generate predictable socio-economic value, even when direct revenue streams like tolls are not yet available.

Deferred PPP applicability:

• The Contractor finances and constructs the road and bridge infrastructure, and the government begins deferred payments only after the facility meets availability and performance standards, eg, pavement quality, safety measures, axle-load compliance.
• The contractor may operate the facility for 5-15 years, utilizing the government availability payments together with other commercial revenue streams eg, rest stops, and fuel stations.
• The model works even when tolling is not attractive. The government’s deferred payments can be a substitute for user charges.

The model will address the contractors’ cash flow constraints. It also improves delivery speed for politically sensitive corridors.

Public Housing (Affordable and Social Housing)

Public housing requires upfront capital and long payback periods. Ghana’s housing deficit of over 1.8 million units makes deferred PPPs attractive because the government avoids upfront spending. Payments can be structured from rental incomes or long-term budgetary commitments, ensuring steady revenue and quality maintenance.

Deferred PPP applicability:

• The private contractor builds, and the government commits to deferred payments or partial occupancy guarantees.
• Government triggers payments only when units are fully completed, utility connections, roads and services are delivered, and occupancy milestones are achieved.
• Government pays availability payments while recouping part of the cost from tenant rents over defined periods.

The model will ensure housing quality over the years, preventing deterioration of public estates, unlike the existing EPC housing. For this sector, there needs to be a strong alignment with National Rental Assistance and Affordable Housing reforms. Further linkage to the mortgage market and the public sector payroll deduction systems should be explored.

Agriculture Infrastructure (Irrigation, Warehousing, Processing facilities)

Ghana’s agricultural infrastructure often suffers from incomplete delivery, low maintenance and limited financing for local contractors. The deferred PPP model helps overcome these constraints by aligning private financing with government repayment.

Deferred PPP applicability:

• In the case of irrigation schemes, contractors design, build and maintain canals, pumping stations and hydrological structures. The government pays after commissioning based on functioning irrigation coverage.
• Post-harvest facilities, including storage facilities and warehouses, can be delivered through deferred PPP with KPIs like humidity control, cold-chain uptime, and equipment reliability.

Agriculture infrastructure does not always generate direct user revenue. Deferred PPPs can provide government-backed payment certainty. Long-term maintenance obligations ensure performance and reduce asset decay. The Ministry of Agriculture and the 24-hour economy secretariat can apply the model on aspects of their programmes.

Conversion of Ongoing EPC contracts into deferred PPPs

So far, the discussion has focused on new infrastructure projects that are yet to be rolled out. Ghana has a huge portfolio of ongoing EPC projects in the roads, education, and health sectors, currently funded by Government revenues or support from Development partners. Some of these projects have dragged on for years owing to inconsistent funding. Others have stalled midstream for various technical reasons. Both categories are suitable candidates for restructuring into deferred PPP projects. These are some of the practical approaches.

Convert outstanding EPC balance into annuity/deferred payments

This pathway is best for ongoing projects that are 30-90% complete. It works as follows

• An assessment of the remaining works, including quantities, cost-to-complete, and any scope variations.
• Agree with the contractor to complete the remaining works, but be paid through
  • Structured deferred payments (e.g., 3-7 years)
  • Indexed availability payments once the road/school/ hospital is commissioned.
  • Performance-linked deductions (optional but recommended)
• Government signs a Supplementary Agreement/Contract Addendum converting the payment structure into a PPP arrangement.
• Government creates a payment security mechanism, eg, Escrow, Debt Service reserve account, Road Maintenance Trust Fund allocation, GetFund allocations, etc.
• The Contractor may bring in a financier to support the cash flow until annuities start.

This approach can be applied to the stalled Agenda 111 hospital projects.

Convert EPC into a Hybrid-Annuity PPP Model

This pathway is best for EPC projects that have stalled or lacked funding. It works as follows

• The government agrees to pay 20-40% of the remaining project cost as milestone payments.
• The contractor finances the rest of 60-80% through lenders.
• Government repays the contractor’s financed portion through annuity/availability payments over 10-15 years (which can be negotiated).
• Contractor takes up O&M responsibility (basic or full).
• Availability deductions apply if the infrastructure does not meet standards.

This approach protects the contractor’s liquidity, ensures project completion, and spreads fiscal pressure.

Convert EPC into a “PPP-concession-lite” (short-term availability PPP)

This pathway is best for EPC projects in the early stages (0-40%). It works as follows

• The government stops the EPC contract at its current milestone.
• The remainder of the contract is repackaged into a short concession (8-12 years).
• The contractor forms an SPV and becomes the Special Purpose Concessionaire.
• Government pays
  • No toll revenue risk (pure availability structure), or
  • Allows the concessionaire to collect user charges (optional)
• Government makes annual availability/annuity payments for CAPEX+O&M.
• Availability deductions apply if the infrastructure does not meet standards.

The approach can be applied to selected projects under the current Big Push programme.

The above specific practical steps are realistic and actionable and can be summarized as follows.

1. Identify EPC projects suitable for conversion: good candidates include stalled roads due to lack of funds, projects >40% complete with strong contractors, social projects (hospitals and schools) stuck due to budget releases.
2. Conduct a Cost-to-complete & VfM review: assess remaining costs and whether deferred PPPs offer a better value.
3. Negotiate a Contract Addendum: turn existing EPC into EPC+O&M+ deferred Payment, insert availability KPIs, define annuity schedule and indexation (CPI, FX if needed)
4. Secure multi-year payment commitments: Ring-fence funding allocations, set aside one year of payments into an escrow account, and the MoF issues a payment commitment Letter.
5. Contractor finances the remaining works through local banks, pension fund-backed infrastructure notes, and DFIs.
6. Appoint an Independent Engineer/certifier to certify milestones, availability, and performance deductions.

Key Gaps, Fixes and Policy Recommendations

To institutionalize and make the Deferred PPP model robust and bankable, the following policy remedies and reforms are recommended:

Legal and Policy recognition – Make the model official and standardised:

Gap: The PPP Act (Act 1039) provides a legal base, but the model must be enabled with standard templates and policy guidelines so that procuring agencies know how to structure them consistently. The Ministry of Finance should officially recognise the model as a transitional PPP mechanism under the second schedule of the PPP Act, which permits the development of alternative PPP models other than those described in the schedule.

Fix: The Ministry of Finance must issue deferred PPP implementation guidelines under the Act that provides standardized contract clauses for the model.

Fiscal framework & budget treatment – Make payment commitments credible and predictable:

Gap: Deferred payments are only credible as the public finance treatment and medium-term affordability. If repayments are treated ambiguously in the Medium-Term Expenditure Framework (MTEF) or subject to annual appropriation risk, investors will demand a high-risk premium.

Fix: The Ministry of Finance will be required to include deferred payment obligations in the MTEF with line items or multi-year binding commitments. It may be necessary to establish escrow/reserve arrangements (eg, 6-12 months of payments pre-funded) and define payment waterfalls. The MoF can consider partial risk guarantees for the initial pilot projects to lower financing costs.

Payment security & bankability instruments – Reduce private finance risk:

Gap: Without payment securities such as escrow accounts, sovereign backing, and step-in rights, lenders will price the projects as high risk or decline to finance.

Fix: In addition to the inclusion of escrow account clauses in the contract document, the procuring authorities must include step-in rights/assignment clauses to protect lenders while preserving public interest.

Procurement & contract standards – Make availability KPIs measurable and enforceable:

Gap: Availability/payment regimes fail when KPIs are vague or when monitoring is weak.

Fix: Issue sector-specific KPI matrices (e.g., road roughness thresholds, hospital equipment uptime, classroom readiness). Standardize schedules on how much to deduct for each shortfall and bonus mechanisms for over-performance. Appoint an Independent Engineer/certifier and establish a public monitoring dashboard.

Institutional Capacity – Strengthen technical, legal and financial skills:

Gap: Procuring MDAs may not have the requisite experience in structuring deferred-payment PPPs, VFM analysis and long-term fiscal impact assessment.

Fix: The Public Investment and Assets Directorate (PIAD) of the Ministry of Finance and the sector ministries’ transaction teams must be expanded with specialist advisors for structuring, financial modelling, and tender management.

Introduce targeted capacity building on toolkits and standard financial models. Deploy experienced transaction advisors for the pilot projects, but concurrently build in-house capacity.

Build technical and financial capacity among local EPC contractors, banks, and public officials on structuring deferred PPPs, performance monitoring, and fiscal impact assessment.

Fiscal transparency & VfM testing – Guard against hidden contingent liabilities:

Gap: Deferred payments create contingent liabilities. Without rigorous VfM and fiscal affordability testing, governments can accumulate implicit liabilities that show up later.

Fix: Mandate VfM comparisons (EPC vs Deferred PPP) and publish redacted results for public accountability. Include contingent liability reports for deferred-payment commitments in the annual budget documents.

Financial market development – Create investable long-dated instruments and poolable pipelines:

Gap: Local banks and institutional investors may lack suitable long-dated instruments to match deferred-payment cash flows.

Fix: Develop infrastructure bond/pension fund participation frameworks and standardized SPV documents to attract institutional capital; aggregate sector pipelines to create bankable portfolios for institutional investors.

Pilot design and phased rollout – Start small, learn fast and scale with safeguards:

Gap: Large projects risk systemic failure if contractual or fiscal arrangements are not proven.

Fix: The Government could launch pilots in 2-3 medium-sized projects, for example, a regional hospital and a strategic road corridor, and a school complex, to demonstrate proof of concept, success, and scalability.

Benefits and Strategic Advantages

The Deferred PPP model offers multiple benefits for Ghana’s infrastructure agenda:

• Fiscal space management: Government can deliver infrastructure today and pay over time, easing debt pressures.
• Accelerated Project Delivery: Contractors are motivated to complete projects quickly since repayments begin only after completion.
• Value-for-Money Assurance: Payments are linked to asset availability and performance, ensuring lifecycle cost efficiency.
• Local Capacity Development: Encourages EPC contractors and local banks to develop PPP skills, experience in structured finance, and performance-based contracts.
• Investment Confidence: Predictable payment structures backed by the government can attract private capital and institutional investors.

Conclusion: A Call to Action

Ghana’s infrastructure story is one of ambition constrained by fiscal limitations. Our infrastructure challenge is not the lack of ideas. It is the need for innovation that balances ambition with affordability. The Deferred PPP Model presents that balance. It offers a new paradigm: Government pays for results delivered, not for projects promised.

By institutionalizing deferred PPPs, Ghana can accelerate development without compromising fiscal prudence, ensuring that roads, hospitals, schools and public facilities are delivered sustainably, efficiently, and equitably. In an era of fiscal constraint, Deferred PPPs can redefine Ghana’s path to infrastructure self-reliance. Let us begin with the upcoming Accra-Kumasi expressway.

Ing. Philip Lartey is the CEO of DonWudi Investment, a management and PPP advisory firm specializing in infrastructure, project finance, and public investment. He is a former Director of PPP at the Ministry of Roads and Highways. He can be contacted on 024-443-8427 and donwudiinvest@gmail.com.

Provided by SyndiGate Media Inc. (Syndigate.info).