By Louise Mathu, the Lead Consultant at Gennis Consulting in Kenya
The specific Act or law governing Public Private Partnerships (PPPs) in Kenya is the Public Private Partnerships Act of 2013. A new Public Private Partnerships Bill, 2021 is proposed to replace the current Act.
Prior to the enactment of the 2013 PPP Act, Kenya had already witnessed significant private sector participation in public sector activities, particularly in the energy sector through the involvement of Independent Power Producers (IPPs).
Since then a number of PPP projects have been concluded under the 2013 Act. The PPP Unit of the National Treasury reports on its website that as of March 2020, the country has a project pipeline covering various sectors. These are Transport and Infrastructure, Education, Health, Energy, Environment and Sanitation, Water, Housing, Industry and Manufacturing.
It further reports that a total of 80 projects have been approved, 74 of these from a solicited process and 6 as Privately Initiated Investment Proposals (PIIPs).
Reasons for the introduction of The Public Private Partnerships PPP Bill, 2021 are to streamline the regulatory framework for PPPs, enhance efficiency in the PPP process through reducing the number of oversight approvals and proposing timelines on key project processes and stages. The Bill also seeks to address existing gaps in the current Act of 2013.
This article highlights a number of the significant proposed changes.
Directorate of Public Private Partnerships
The Bill proposes the establishment of the Directorate of Public Private Partnerships. The functions of the Directorate would include originating, guiding and coordinating the selection of PPPs, overseeing project appraisal, providing technical expertise in the implementation of projects and overseeing PPP contract management frameworks.
Under the current law, there exists a PPP Unit, with somewhat limited functions. The PPP Unit is housed within the National Treasury.
The PPP Bill also proposes to do away with Nodes that are established in each contracting authority that intends to enter into a PPP. A Node consists of financial, technical procurement, legal and other necessary staff whose functions are to identify, screen and prioritise projects, appraise projects and undertake the tendering process.
The establishment of a Directorate with greater responsibilities is beneficial to centralise PPP processes and functions.
This is likely to enhance efficiency and result in better coordination overall, particularly given the complexity of PPP procurement. It is worth noting that a Director-General of the PPP Directorate was appointed earlier this year, possibly in anticipation of the enactment of the new PPP law.
The proposed new law also proposes to introduce direct procurement as a procurement method where any of the following conditions are satisfied:
(a) The private party possesses the intellectual property rights to the key approaches or technologies required for the project;
(b) The works or services are only available from a limited number of private parties;
(c) A particular private party has exclusive rights tin respect of the works or services and no reasonable alternative or substitute is available;
(d) The contracting authority determines that there are operational and strategic advantages and or reasons linked to particular private parties on the basis of national interest, bilateral or international cooperation, or external trade;
(e) The direct engagement of a private party shall significantly lower the cost of delivering the works or services on the basis of the project’s qualifying for funding on such terms as the Government shall approve without such outcomes becoming part of the public debt;
(f) The works or services are procured from a public entity; and
(g) Any other reason that may be prescribed by the Cabinet Secretary.
Brazil does not allow non-competitive processes at all.
Direct procurement is generally not the most preferred of procurement methods in any context, primarily because it tends to raise questions regarding the transparency of the process. The question of whether value for money (VFM) is achieved also arises.
Value for money according to the PPP Reference Guide ‘…means achieving the optimal combination of benefits and costs in delivering services users want.’ Research shows that competitively procuring a PPP is more likely to generate a fair market price and value for money, than directly negotiating a PPP contract (Policy Guidelines for Managing Unsolicited Proposals in Infrastructure Projects, Vol II, World Bank, PPIAF).
There may be benefits and good reasons to directly procure a PPP project but the process can be prone to manipulation. Some countries such as Brazil do not allow non-competitive processes at all.
If this mode of procurement is to be used, it is critical that the necessary safeguards be put in place to ensure value for money, transparency, accountability and public interest have been clearly established and operationalised. (PPP Knowledge Lab)
PPPs by County Governments
The Africa Infrascope Report of 2015, a benchmarking index assessing the capacity of African countries to carry out sustainable PPPs in Infrastructure, captured the need for harmonisation in PPP laws and practices between line ministries (horizontally) and vertically across national/sub-national levels.
Kenya was highlighted as one of the countries that could benefit from such harmonisation, given the devolution of several national government functions to County governments.
The PPP Bill, 2021 specifically provides that County governments may enter into PPP agreements. It stipulates that County governments would nonetheless be required to liaise with the PPP Directorate and obtain written approval from the PPP Committee (which among other functions, oversees the implementation of PPP contracts) and the National Treasury.
Local content is another new introduction in the PPP Bill. Parties to a project agreement are to give priority to services provided in Kenya and supplies manufactured in Kenya. Mechanisms for technology transfer are also required to be put in place.
For effective implementation and operationalisation, guidelines, standards and practice notes on the application of local content are to be issued once the Bill is enacted.
Certainly, there are benefits that accrue to a country from local content requirements, though in application, implementing them is never quite an easy task. It is also argued by some that imposition of local content requirements would have the net effect of making PPPs more expensive, a cost that is eventually passed back to the government.
Wider Scope of PPP Arrangements
In addition to the typical PPP arrangements recognised in the current Act, the PPP Bill, 2021 seeks to expand the scope of arrangements to facilitate greater participation by private parties. Some of the additional arrangements are Annuity-based Design, Build, Finance and Operate, Strategic Partnerships and Joint Venture Partnerships.
If and when the Public Private Partnerships Bill, 2021 is enacted, only time will tell if the objectives it seeks to achieve will be fulfilled. ESI
This article is published exclusively by ESI Africa.
Louise Mathu, the Lead Consultant at Gennis Consulting in Kenya, is a lawyer specialising in Energy and Extractives, Projects and Infrastructure, Public Private Partnerships (PPPs) and Project Finance.