Public Private Partnership Framework in Kenya.

1. Development Context

PPP is a contract based arrangement between a public entity and a private entity based on the performance of a public function with a consideration usually a compensation e.g user fee.

Due to that legal relationship, it creates a reliance and contractual expectancy and gives rise to hard claims on Govt. Public infrastructure comprises in economic (investment) and social infrastructure (moral obligation)

Govt. gets money from revenues (taxes, tarriffs),CBK Transactions, Donors and Private lenders.

We have an infrastructure funding gap of USD 2-3B p.a especially with the growing population inspiring demand thus PPPs provide a value add.

However it faces a variety of legacy issues such as :

- Poor project selection

- Poor project design leading to cost overruns ,delays and poor maintenance

- Corruption

Govt. expenditure in development loans of hundreds of projects from 1963 - 2013 were USD 18.5B and were not so well developed. They had so many revenue leaks resulting from project management inefficiencies.

2. Regulatory Framework

From 1996,economic infrastructure sectors like transport and energy sectors gained interest by private investors and lenders but the transactions that occurred were undertaken without a governing PPP policy or legal framework.

Regulation at the time was by contract and that is why the transactions took longer to be prepared and approved. Addressing affordability, transfer of risks and value for money (3 statutory tests) was arduous. Even the process of tendering and awarding contracts was not legally binding and significant cases of renegotiations and arbitrations were experienced.

Until 2009,Kenya did not have a law on PPPs. In 2009,PPP regulations were issued under the PPAD 2005. In 2011,a formal PPP policy was issued that provided a basis of enactment of PPP law. The PPP Act became effective in 8/02/2013.

It functions along : CoK 2010,PPP Regulations, PFM Act 2012,CG Act 2012 and PPP Policy statement.

Regulations include: County Govt. Regulations, Petition regulations, petition guidelines and project facilitation funds.

There are also FCCL guidelines and the PPP Manual and handbook which are non regulatory tools. It was revised to address issues on clarification of scope, provide additional institutional framework and welcome more private investment; to PPP Act 2021.

PPP Act :

- Establishes the regulatory and Project Devt. institutions.

- Prescribes the project cycle including stage specific project requirements.

- Creates a framework for assessment of FCCLs arising from such projects. - Prescribes procurement methods.

- Regulates PPP tender processes and contract award.

- Makes provision of Govt. support mechanisms such as project facilitation fund.

The project must first be identified under a sector diagnostic study or a sector PPP strategy to identify projects that are of priority and add value to national economic Devt.

Proposals must also be clear and elaborate. The PPP institutional framework is 2 tiered:

a) PPP project implementers/contracting authorities

- Project appraisal team - oversee feasibility study.

- Prequalification committee - qualify/shortlist bidders.

- Project evaluation team - evaluate full proposals.

- Negotiation committee - negotiate terms.

b) PPP regulatory bodies

- Cabinet/Parliament - approve project lists and sign off negotiated deals

- PPP Committee - grant approval in all PPP cycles

- PPP Unit - part of the committee to provide technical support.

The last 2 form the petition committee which is a dispute resolution body.

The 2 major PPP procurement methods include the solicited tender and privately initiated investment proposal.

a)Solicited tender which adopts the elaborate and sequential PPP lifecycle and enables fair price discovery.

b)Privately Initiated Investment Proposals (PIIPs) which are non competitive and open to misuse. Actually quite open to heavy political influence.

The binding statutory prescriptions include:

- Formation of project company and limitations on ownership changes.

- Disclosure of project information.

- Minimum content of a PPP project agreement.

- Any PPP touching on exploitation of natural resources requires parliamentary approval.

- Amendments/variations to project agreements are subject to committee approval and PDMO clearance.

- Proper implementation of project agreements with PM team according to Economic Crimes Act 2002.

- Petitions committee has universal Jurisdiction.

- Financial reporting and audit requirements.

3. Experienced Setbacks.

- Lack of sufficient capacity on the PPP ideology amongst contracting authorities.

- No appropriate sector diagnostic study and ideas are proposed without backup.

- Integrity of project proposals

- Devolution - inter Governmental relations get political.

- Institutional quality is still low.

- Heavy political input.

- Shallow Depth of domestic money and capital markets.

Solution has always been to address issue of risk transfer at the contract negotiation stage and make the entire process as transparent as possible.

In conclusion:

A PPP Project is :

- A public function thus has governance issues.

- A contract thus an agreement.

- A financial asset thus has audit requirements.

- A public policy concern thus mobilizes resources.

- A transaction thus not free.

Published by CPM Mwangi .

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