Aligning agents to principals : an exploration of the job creation possibilities of South Africa’s infrastructure public-private partnerships

Abstract

This study sought to explore the governance mechanisms that result in agent principal alignment in Public Private Partnerships (PPPs), with specific reference to Job Creation. This is important to understand in South Africa as infrastructure PPPs are central to the government’s economic growth strategy. The Renewable Energy Programme (REIPPPP), a decade-old PPP, was identified as the ideal context given its consistent job-creation alignment between the state and its agents, Independent Power Producers (IPPs). Agency Theory posits that agents are inherently self-interested and thus unlikely to act in the interests of principals. However, while some theoretical propositions envisage instances of agent-principal alignment, what is less known are the precise mechanisms by which this can be achieved. This study explored the questions of moral hazard and adverse selection, which refer to goal conflict and information asymmetry in agent-principal relationships. The research was undertaken through a qualitative study, comprised of secondary data analysis as well as semi-structured interviews. It was found that by aligning contracts across multiple stakeholders, agents can increase their enforcement capacity. Furthermore, a rigorous data collection system accompanied by credible penalties, results in greater compliance. This contribution enhances the theory in respect of governance mechanisms whilst simultaneously providing practical guidance for PPP structuring.