PPPs involve a long-term agreement in which a private company offers a service traditionally provided by a government entity. This service is performed based on the output specifications outlined by the public entity and any payments to the private party are based on its performance. Risks and responsibilities are shared, and typically assigned to the party that is best suited to handle them in the most cost effective manner.
Infrastructure refers to the physical and organizational structures and facilities (such as roads, power plants, rail, fiber cables, public housing, ports, pipelines, airports, water and sewerage, health and educational facilities etc) required for normal operation of a society and for enterprise to thrive in a society.
Kenya’s economic growth blue-print, Vision 2030 prioritizes modernization of the country’s infrastructure as a means to enhance the country’s competitiveness and improve the standards of living for citizens.Construction, operation and maintenance of infrastructure is however a capital intensive undertaking that requires collaboration between the public and private actors. PPPs as such provide an avenue for the government to partner with the private sector to pool more resources, innovation and efficiencies for the the faster development of the country.
The PPP Policy of 2011 articulates the rationale for PPPs in Kenya as follows;-
- Accelerated modernization of infrastructure in the country
- Bridging infrastructure development budgets by tapping private sector finance
- Tapping private sector innovation and efficiencies in delivery, operation and maintenance of infrastructure
- Prudent management of public debt through development of off-balance sheet delivery of infrastructure projects
- Opening up investment projects to local and international investors
- Lifecycle approach to infrastructure projects to ensure better operation and maintenance of infrastructure developed
- Improved governance and management of infrastructure projects in the country Which sectors are targeted for PPPs.
The country’s PPP Policy identifies infrastructure sectors, both physical and social infrastructure such as transport, energy,education, health, environment, ICT and agriculture among others to utilize PPP arrangements in delivery of their mandates.
Yes, Under the current PPP framework, Lot 33 of the Roads Annuity programme – Ngong to Isinya (the“Ngong-Kiserian-Isinya”) and from Kajiado to Imaroro (the “Kajiado-Mashiru-Ishara) – has reached financial close and the private partner has already moved to the ground to undertake the project. Prior to the enactment of the PPP Act, Independent Power Production (IPP) in the energy sector was done by was of PPPs. We currently have a number of operational IPPs.
Yes, the government enacted the PPP Act in 2013 (as well as its related Regulations in 2014) as the primary law to guide implementation of PPP projects in Kenya.
The PPP Act places the responsibility to the Contracting Authority – at the County or National Government level – to identify, prioritise and select projects that they would like to undertake as a PPP. In identifying such projects, the relevant contracting authority is mandated to ensure that the proposed projects fit in with the county/sector ministry/state departments overall development plans, programme or policies.
A contracting authority at the National and County Government level, under whose mandate the project lies, is in charge of delivery of such projects. Further the PPP Act has established the institutional framework in charge of the PPP Program in the country including the PPP Committee to provide overall oversight and the PPP Unit to provide Technical Support to county/sector ministry/state departments in preparation of PPP Projects in the country
Whereas privatization involves divestiture (government selling off a public company) PPP projects involve sharing of roles (risks) between the government and the private sector through a PPP Agreement. The private partners’ compensation is strongly linked with their meeting certain pre-agreed performance standards to ensure superior service delivery. In most cases where public assets are concerned, the private partner is only concessioned /leased to use them for a limited duration of time, with the same reverting to state at the end of the project contract.
A stable and supportive legal regime, a pipeline of bankable projects, political will and deep capital markets are critical to the success of a PPP program. Kenya is fortunate to have the right mix of these factors.
The PPP Law in Kenya (PPP Act 2013) provides for 2 main ways to select a private partner in a PPP project, a) The Solicited process where a project is procured using a free, fair, open and competitive tender process b) The Privately Initiated Investment Proposal (PIIP), where a private party proposes a project to the public party. Such projects must be included in/part of the relevant sector plans, CIDP or other relevant development plans.
With many development needs against scarce resources, governments world over have adopted PPPs as a financing model to augment ordinary public infrastructure development budgets. Countries such as the UK and India have had robust PPP markets for many years now. In the African continent, South Africa, Egypt, Nigeria and Senegal are among countries that have adopted this novel financing model.
In East Africa, Uganda has a road project (Kampala-Jinja) being developed as a PPP, while both Ghana and Rwanda are setting up legal and institutional frameworks to support delivery of PPP projects. Tanzania has developed a legal framework and has identified a couple of projects for delivery.
The contract duration for a PPP project is determined by various factors among them the cost of the project, technologies involved, affordability to both the contracting authority and the end user, etc.
The PPP Law in Kenya provides for a Solicited Competitive process and a Privately Initiated Investment Proposal (PIIP) process. Under the first process, the public agencies undertaking a project will normally undertake the 2-stage procurement process of inviting the private sector to apply for qualification to bid (Request for Qualification, RFQ) after which the pre-qualified firms will be requested to bid for the project (Request for Proposals, RFP). Under Privately Initiated Investment process, a private party would normally identify an infrastructure need under a mandate of a certain public agency, undertake a feasibility study of the project to gauge viability, affordability, etc., then propose the project to a public agency. If accepted the parties will enter into negotiations and once negotiations are concluded, the project will be submitted to the PPP Committee for consideration for approval to be execution under the clear criteria stipulated under the PPP Act for delivery of unsolicited projects.
Kenya has developed a robust project pipeline with small, medium and large infrastructure projects planned for delivery as PPPs. It is anticipated local finance institutions will finance the moderate projects and partner with larger international institutional financiers for the larger projects.
Can county governments undertake PPP projects The PPP Act identifies and provides for both the National Government and the country governments to deliver PPP projects in line with their respective mandates as the Contracting Authorities. The County Governments Act also provides for County Governments to implement PPP Projects in line with their delegated responsibilities.
Prior to execution, PPP Project proposals are subjected to detailed analysis in key areas among them the technical, financial, legal and social environmental. The main aim for this it to ensure the projects implemented provide quality and measurable services tithe citizens, at affordable rates This is to ensure that a project is not only financially sound, but also one that is affordable to the implementing contracting authority and ultimately the end users.
PPP Project Agreement feature dispute resolution mechanisms to ensure full contract life is realized. The agreements however also provide for termination clauses, should it be more desirable by bother either parties to do so. Any petitions during the procurement of a PPP Project are heard and determined by the PPP Petitions Committee as established by the PPP Act 2013.
PPPs involve substantial risk transferto the private party, mobilization ofproject finance by the private sector and private party’s compensation being strongly indexed to performance standards. Public procurement entails financing of a project from public means and the government retaining most project risks, for project is fully owned by the state, especially after the defects and liability period elapses. Further, PPPs are output based as opposed to input based, meaning the contracting authority is more focused on the output i.e. service arising from the project as opposed to input i.e. detailing the specifications of a project.
The PPP Law in Kenya stipulates sequential process starting with project identification and screening, analysis and feasibility, procurement, entering into contract, delivery and operational phase of a project. The PPP Act also provides for proposing, feasibility, negotiation and entering into a PPP contract under the unsolicited process.
As per the process stipulated in the PPP process, Contracting Authority is required to prepare and submit a PPP project proposal, which will be submitted to the PPP Committee, through the PPP Unit, for consideration for approval.
Transaction Advisors are consultants/advisors in a project who support undertake comprehensive project feasibility analysis (technical, legal, financial & socio-environmental), support develop project procurement documents and guide the procurement, negotiation and entering into a PPP project contract all the way to financial closure in project.
No, the government may offer certain specific types of support such as against demand risks for project, force majeure etc., but not sovereign guarantees. Indeed, one of the rationales of the Kenyan PPP program is to prudently manage the public debt-stock (Sovereign guarantees are considered debt in most International Finance Reporting Standards, IFRS) Whereas the government is likely to provide Viability Gap Funding/subsidies to make some projects viable, this is limited support as contrasted to blanked sovereign guarantees.
Yes, the institutional framework started with the creation of a PPP Secretariat in 2009 to support the country’s PPP agenda. In 2013, the National Treasury established the PPP Unit as a specialized unit to offer technical expertise on delivery of PPP projects in the country. The Unit is equipped with competent and experienced local and international expert on various aspects of PPPs. The PPP Unit also serves as the ‘Centre of Excellence’ on all PPP issues in the country. Further, the PPP Unit has in the last four (4) years undertaken a targeted capacity building programmed to Contracting authorities at both the County and National level. This capacity building has tailored to meet the needs of the various contracting authorities and covered intermediate courses for those just joining the process and advanced modules for those who are more conversant with PPP principles.
There is a widespread myth that PPP projects take inordinate amount of time to execute as contrasted to other forms of procurement. This is incorrect. If one were to consider the full project development cycle for instance under traditional procurement right from project planning, budgeting, financing search, feasibility studies, detailed designs, resource allocation and procurement all the way to a project execution, PPPs will fair relatively better.
This notwithstanding, PPPs require comprehensive feasibility analysis prior to execution to confirm viability, affordability, value for money among other parameters over the full project life. As such, the PPP Unit emphatically advices public entities to plan their project delivery timelines accordingly and to avoid the last minute rush.
Starting from almost scratch with development of the legal and institutional PPP framework from 2011- 2013, a lot of progress has been realized in progressing the Kenyan PPP program and as of August 2018 the following milestones have been realized, A project pipeline of seventy (70) active and inactive PPP projects has been identified. Nineteen (19) Feasibility Studies have been conducted, with eighteen (18) showing the projects to be feasible for delivery as PPPs.
- One (1) Road Project Under Roads Annuity Program has attained financial close.
- Eight Projects in Transport and Energy sector are currently undergoing negotiations.
- Five (5) Projects are undergoing procurement.
- Four (4) Projects are awaiting clearance to commence procurement process.
- Three (3) Projects have had feasibility studies successfully conducted.
- Four (4) Projects are currently undergoing feasibility studies.