PROJECT INFORMATION DOCUMENT (PID)

CONCEPT STAGE

Report No.: AB3314

Project Name / Lesotho Hospital Public Private Partnership-Partial Risk Guarantee
Region / AFRICA
Sector / Health (100%)
Project ID / P105738
Borrower(s) / GOVERNMENT OF LESOTHO
Implementing Agency / Ministry of Finance and Development Planning
Government of Kingdom of Lesotho
Environment Category / [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined)
Date PID Prepared / September 11, 2007
Estimated Date of Appraisal Authorization
Estimated Date of Board Approval / March 13, 2008
  1. Key development issues and rationale for Bank involvement

The Government of Lesotho is undertaking a long-term health sector reform program, started in 2000, which aims to achieve a sustainable increase in access to quality preventive, curative and rehabilitative health care services. The Bank has been playing a catalytic role in assisting the Government’s health reform through its Lesotho Health Sector Reform Program (HSRP) and HIV and AIDS Capacity Building and Technical Assistance Project (HCTA). The HSRP is a three-phased Adaptable Program Lending (APL) approved by the Board in 2000 and designed specifically to finance the reform through a Sector-wide Approach (SWAp). Phase I of the ten-year APL was completed satisfactorily in 2005, and the implementation of Phase II is ongoing and also proceeding well.

One important agenda item under the reform is to replace the only national referral hospital (Queen Elizabeth II Hospital). The hospital, built in the early 1900s, is no longer fit to serve as the national referral hospital due to its collapsing structure, obsolete systems, limited service space and capacity, and overcrowding of patients. It even poses a real risk of cross-infection. Nonetheless, the hospital continues to consume a significant share of the national health budget, and its budget has tripled in the last five years. The HRSP APL has always planned to include assistance for the replacement of the hospital.

Starting in 2006, with the assistance of IFC, the Government examined different financial options to replace the national referral hospital, including public finance only, private finance only, and Public-Private Partnership (PPP). In September 2006, Cabinet approved a PPP based plan to build a new national referral hospital to replace the existing one. The Bank has supported the hospital PPP plan. The successful completion of the hospital PPP tender is one of the triggers to move to Phase III of the HSRP, and the Bank’s Global Partnership on Output-based Aid (GPOBA) has already approved a US$ 6.25 million grant to support service delivery in the new hospital.

This PPP will be the first PPP for a public hospital construction and operation in an IDA Sub-Saharan African country. The Government has recognized that risks associated with the transaction may hinder the participation by the private sector. To ensure the realization of the PPP, the Government has requested a Partial Risk Guarantee (PRG) from IDA. The proposed PRG will partly mitigate the political and financial risks perceived by the potential private sector partners. It will therefore enhance the bid value by attracting more bidders to compete for the PPP contract. This PRG, if successful, will be the first PRG offered by IDA for the health sector globally.

The Bank CAS (March 27, 2006) identified “improving human development outcomes” as a key pillar to boost economic growth and alleviate poverty in Lesotho. In particular, the CAS prioritizes aiding Lesotho to achieve the MDGs and emphasizes the focus of increasing the efficiency and effectiveness of health care delivery. The HSRP and IFC advisory services to the PPP are included in the CAS as instruments to achieve the objectives of the CAS. The proposed PRG will significantly enhance the chance of a successful closure of the hospital PPP and therefore support the CAS objectives in the health sector.

  1. Proposed objective(s)

The proposed PRG aims to contribute to the successful implementation of the health sector reform program by enabling the realization and implementation of the hospital PPP. It would also provide a strong signal of the Government’s commitment to the health sector reform through establishing a functional and efficient national referral hospital. Satisfactory financial closure and successful implementation of the hospital PPP would improve both the quality and quantity of tertiary health services, enhance health service delivery and hospital management, and utilize health resources (budget) efficiently and effectively.

  1. Preliminary description

The hospital PPP plan is a Design-Build-Finance-Operate project for a 390 bed hospital to be constructed on a greenfield site in Maseru. Under the PPP plan, the PPP partner, selected by competitive tender, will design, build, partly finance and fully operate the new public hospital, as well as refurbish and re-equip three associated filter clinics. The private sector partners are required to provide a package of clinical services defined in the tender documents and operate and maintain the new hospital to a satisfactory standard. The services delivered to patients at the new hospital and filter clinics will be measured though specific agreed performance indicators and volume targets and will be monitored by an independent certifier. The PPP contract is anticipated to be for 18 years (including an estimated construction period of 3 years).

The new hospital will serve as the national referral hospital for secondary care for patients referred from the country’s district hospitals. It will also provide training opportunities for the secondary and primary health facilities. In addition, the new hospital and the filter clinics will provide health services directly to the greater Maseru area, with a population of almost 500,000 people—one quarter of the country’s population. The hospital will also help Lesotho save the resources spent on referrals outside the country, which is estimated at least Maloti (M) 10 to 12 million per year (US$ 1.4 to 1.7 million per year).

The Government will be responsible for partly financing the capital cost and will provide monthly unitary payments to the PPP partners. Based on the IFC’s projection, the total estimated cost of the new referral hospital is about M500 million or US$ 71.4 million (including VAT). Out of the total estimated cost, the Government will invest M400 million (US$57.1 million) and the PPP partner will be expected to invest M100 million (US$14.3 million). The unitary payment will cover debt service costs, facility and equipment replacement and maintenance costs, and operating and staffing costs, as well as reasonable returns for the investors’ equity participation. The gross unitary payment to the private partner is estimated to be M169 (US$ 24.1 million) million per year (based on 2006 values). This unitary payment, on a net basis, is approximately the same amount that Government spends to operate the current hospital. The Unitary Payment will be indexed to the CPI as an appropriate measure of inflation.

The proposed PRG will provide the prospective investors with a way to mitigate perceived risks. Specifically, the PRG will be likely to cover the risks related to non-payment by the Government of (i) upfront capital amounts to support the construction of the hospital; (ii) unitary payments; and (iii) termination payments. The provision of the PRG would not increase contingent liabilities of the Government as they merely backstop its undertaking already offered in the PPP concession. All fees associated with the PRG are payable by the PPP private sector partners; bidders who opt to use PRG would incorporate such financing costs associated with the PRG into their bid proposals.

  1. Safeguard policies that might apply

Due to the handling of medical waste at the health clinics and the new hospital, OP/BP 4.01 (Environmental Assessment) is triggered to document how medical waste will be managed and disposed. The Project does not trigger OP 4.10 or OP 4.12 since it does not affect Indigenous Peoples nor involve involuntary resettlement. The future hospital site is uninhabited and its construction will not result in displacement of people, loss of assets or loss of access to assets, or loss of income sources or means of livelihood.

As one of its obligations under the PPP agreement, the operator will be required to undertake an Environmental Impact Assessment to ensure that potential adverse environmental and social impacts are addressed in a timely manner prior to the commencement of construction.

An environmental scoping study, funded by IFC, was recently completed to identify issues to be addressed in the Environmental Impact Assessment (EIA). The scoping study was submitted to the Ministry of Environment in August 2007 for its comments. Since the site of the new hospital is uninhabited, no major issues were identified in the study.

  1. Tentative financing

Source: / ($m.)
Borrower / 0
IDA Guarantee / 5
Total / 5
  1. Contact point

Contact: Feng Zhao

Title: Sr. Health Specialist

Tel: (202) 458-7772

Fax: (202) 473-8299

Email: