Public Private Partnerships and Dispute Resolution: Zambian Regulatory Framework and Dispute Resolution Mechanisms

25th November 2024

Introduction

The World Bank estimates that poor infrastructure in sub-Saharan Africa reduces economic growth by 2%, business productivity by 40% and that inadequate infrastructure is double the cost of anywhere else in the World. The central idea of Public Private Partnerships (PPPs) is to deliver public goods/infrastructure and services efficiently and effectively with private participation. The PPP model finds particular appeal in Zambia at such a time as this when public coffers are indubitably leaner than the gargantuan demand for public infrastructure and services.

The commitment of private sector leveraged finance to these projects is accordingly central to the PPP model in Zambia. Ergo, it is vitally important that Zambia’s investment ecosystem demonstrates attractiveness as regards the security of such investments within a stable and predictable environment. The Lusaka Ndola Dual Carriage Way PPP for instance represents a value of US$650 million of private sector leveraged financing (with Zambian pension fund money forming part of the mix). Stability and predictability are essential to success.?

There are various circumstances that may produce a tension resulting in shockwaves to? the PPP ecosystem. Public sentiment for instance, may force the hand of the executive to take what may be considered to be arbitrary steps without due regard to due process. The recent decision by the leadership of Kenya in seemingly abruptly deciding to terminate the high-profile deal with the Adani Group for instance, has raised serious concerns regarding the country’s commitment to honouring international contracts. The deal was poised to revolutionise Kenya’s infrastructure and energy sectors, with significant investments earmarked for key projects such as the management of Jomo Kenyatta International Airport (JKIA) and the modernization of the Kenya Electricity Transmission Company (KETRACO) facilities.?

Otiono Panya argues that ‘Public outcry, however justified, should not outweigh the need for legal clarity and a thorough investigation into the actual implications of a deal when it comes to international contracts and foreign investments. International businesses, especially those considering investments in developing markets, rely on the stability of legal frameworks, political goodwill and the assurance that contracts once signed will be honoured.’ The need for legally enforceable mechanisms that manage and resolve disputes cannot therefore receive overemphasis. This article attempts a cursory overview of the mechanisms built into Zambia’s PPP framework and discusses efficacy with provocation for consideration.?

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Normative Background for PPPs in Zambia

The short history of the current regulatory framework superintending Zambia’s PPP regime may be traced back to the Public Private Partnership Policy of 2008 (the PPP Policy). The professed policy vision being ‘well developed and maintained quality socio-economic infrastructure and related services that enhances the Zambian people’s livelihoods and effectively contributes to National Development through PPP frameworks and initiatives.’?

In 2009, the Public Private Partnership Act, 2009 (PPP Act, 2009) was enacted to give a legal undergirding to PPP projects in Zambia. This brought Zambia into the elite company of only a handful of Countries that had enacted PPP legislation in the SADC Region. Under the PPP Act, 2009, a total of 8 PPPs are reported to have been accepted in the transport sector. Multiple inadequacies with the PPP Act, 2009 were noted which culminated in its repeal and replacement in 2023. On 25th January 2024, the Public Private Partnership Act, 2023 (PPP 2023) came into effect. Despite the professed intent to drive an aggressive infrastructure development agenda, Zambia’s erstwhile administration only recorded 9 PPP projects between 2009 and 2021.?

The current administration that took office in August 2021 expressed the policy direction that PPPs would be a key mechanism for procuring public infrastructure.? Zambia’s infrastructure Minister was quoted as stating that the Zambian government opted for the PPP model on account of the empty coffers inherited from their predecessors. This position was recently reiterated by the Zambian President Mr. Hakainde Hichilema when he officially launched the Public Private Collaboration for Broadening access to Finance at the Mulungushi International Conference Centre, Kenneth Kaunda Wing in Lusaka on 21st November 2024. “The reason we conceived this idea of the Public Private Partnership is because there was no money in the treasury. We found no money but only debts which we had defaulted on in 2020 then we decided to come up with this partnership as a way of finding solutions given that what we had inherited was difficult,” said President Hichilema.’ A significant upswing in PPPs has been noted with 8 being recorded in the three years of the current administration with various others in the pipeline.??

Disputes and the Zambian Public Private Partnership Legislation

PPP Act, 2009

As regards disputes, the PPP Act 2009 provided for dispute resolution between the PPP Unit (as it then was), the Contracting Authority and the Concessionaire to be agreed by the parties in the PPP Agreement. However, in default of such agreement, the PPP Act 2009 provided for dispute resolution by arbitration in accordance with the Arbitration Act, 2000. Notwithstanding the foregoing, the PPP Act, 2009 also provided that the PPP Council could act as mediator, conciliator or arbiter as regards disputes arising between Contracting Authorities and Concessionaires at the request of the parties. This function could be delegated to suitable persons by the PPP Council.

Various criticisms were levelled against the PPP Act 2009 including inadequacies in the institutional mandate of the PPP Unit, the dearth of skilled transaction advisors, the lack of clarity in the application of the PPP law as well as the lack of enforcement mechanisms for the PPP law etc. The PPP Act 2009 was amended in 2021 to provide for expanded representation within the PPP Technical Committee. Finally, the PPP Act 2009 was repealed and replaced in December 2023 by the Public Private Partnership Act No. 18 of 2023 (PPP Act 2023). It came into force on 25th January 2024.?

PPP Act, 2023

The PPP Act 2023 brought about several changes to the legal architecture for PPPs in Zambia. It created the Public Private Partnership Council (the Council) as the apex body in the administration of PPPs in Zambia. The Council comprises Ministers of related ministries including the Ministries of Finance and National Planning which chairs, Infrastructure, three other Ministries (including Commerce) and four private sector persons with PPP knowledge and expertise.?

Further the PPP Act 2023 upgraded the former Public Private Partnership Unit to a directorate styled the Public Private Partnership Office (the PPP Office) headed by a Director General appointed by the Republican President.??

With particular reference to disputes, the PPP Act 2023 provides for two specific dispute resolution provisions i.e. at section 55 the PPP Act, which enjoins the? parties to establish a dispute resolution mechanism within the PPP Agreement. Further, section 90 addresses dissatisfied bidders and provides for appeal to the PPP Council whose decision on the matter is final.

The current PPP legal regime anticipates and accordingly makes provision for disputes to arise at two distinct stages of the PPP life cycle i.e. during the bidding stage up to the time of the award of the Concession, and then in the life of the Concession. Any express mention of Arbitration/ADR has been removed, rather leaving it to the parties to determine in the PPP Agreement, their dispute resolution mechanism(s) of choice.

The UNCITRAL Model Legislative Provisions on Public Private Partnerships, 2019

The UNCITRAL Model Legislative Provisions on Public Private Partnerships, 2019 (the Model Law) at Part VI provides Model Provisions with respect to Settlement of Disputes. The provisions envisage disputes between the contracting authority and the private partner, disputes involving users of the infrastructure or other parties and finally, disputes between the private partner and its shareholders, lenders, contractors, suppliers and business partners.?

Reflections in Conclusion

Our previous article exposed critical dispute factors in PPP infrastructure projects (see https://www.dhirubhai.net/pulse/public-private-partnership-dispute-resolution-zambia-mwondela-fciarb-klnmf/). They spanned? planning, contract, design, construction, operation and handover stages, with external related factors also being a critical dispute factor grouping. As has previously been noted, PPPs are complex transactions with a variety of interests public and private, represented by a variety of stakeholders, operating in an environment that is subject to the vagaries of change including those of a social, economic and political nature. The question will be whether the mechanisms built into the legislative scaffolding suffice to resolve PPP related disputes without derailing the progression of the PPP edifice.?

In our next article, we will undertake a deeper dive into the world of PPP disputes with their peculiar challenges and opportunities.

About the author: Kaumbu Mwondela, LLB, LLM, AHCZ, FCIARB is a legal practitioner and international arbitrator. He is qualified at the Zambian bar and is a member of various professional bodies and organisations.

This article is for general information purposes and is not intended to be and should not be taken as legal advice.