Kenya’s development blueprint, “Vision 2030” aims to transform Kenya into a newly industrializing, middle-income country providing a high quality of life to all its citizens by 2030 in a clean and secure environment. A key focus pillar to deliver Vision 2030 is infrastructure development. The Kenyan government estimates to spend approximately USD 60 billion in infrastructure development over an 8 years period against an available resources of USD 25 billion, leaving a funding deficit of USD 40 billion. To bridge this funding gap, the government has initiated policy measures that seeks to collaborate and partner with private sector to carry out infrastructure developments through Public Private Partnerships (PPP) and concession arrangements.
PPP provide an alternative source of financing and delivery of infrastructure projects by Government from the traditional methods of public procurement and privatisation. PPP arrangements offer an opportunity for the Government to attract and mobilizing private sector participation in financing, building, and operating infrastructure services and facilities.
The Government is able to leverage both private sector funds and expertise to deliver essential services to the public to fund infrastructure development that are considered strategic and are of public interest. In a PPP arrangement, the risk of the project is transferred to the private party. The Government keeps control of the asset and avoid some of the failings in public procurement and such as corruption and privatisation such as loss of control of the infrastructure are related consequences like unemployment, in accesses to the service due to it being expensive.
Public Private Partnership (PPP)
A Public Private Partnership (PPP) is a contractual arrangement between a contracting authority and a private party under which a private party:-
- undertakes to perform a public function or provide a service on behalf of the contracting authority; or
- receives a benefit for performing a public function by way of:-
- compensation from a public fund;
- charges or fees collected by the private party from users or consumers of a service provided to them; or
- a combination of such compensation and such charges or fees.
The private party undertake the project and will be liable for risks arising from the performance of the project and will eventually transfers the facility to the contracting authority.
The Public Partnership Act, 2021
The Public Private Partnership Act, 2021 (the Act) came into effect on December 23, 2021, repealing the Public Private Partnership Act, 2013.
The Act provides for the participation of the private sector in the financing, construction, development, operation or maintenance of infrastructure or development projects through public private partnerships. The objects of the Act are stated to include:
- to prescribe procedures for participation of the private sector in public private partnerships;
- to harmonize the institutional framework for the implementation of public private partnership projects;
- to give effect to Article 227 of the Constitution on procurement relating to public private partnerships;
- to streamline and rationalize the regulatory, implementation and monitoring mandates of the relevant agencies; and
- to provide for the participation of county governments in public private
The Act applies to every project agreement for the financing, design, construction, rehabilitation, operation, equipping or maintenance of a project or provision of a public service undertaken as a public private partnership.
The PPP Act establishes certain institutions tasked with the responsibility of regulating, monitoring and supervising the implementation of PPP projects. These institutions are:
- Public Private Partnership Committee. It is responsible for, among other, the formulation of policies on PPP, and overseeing the implementation of PPP contracts.
- Directorate of Public Private Partnerships. It is the lead institution in the implementation of PPP projects. Its responsibility includes;
- originating, guiding and co-ordinating the selection, ranking and prioritization of PPP projects within the public budget framework,
- overseeing appraisal and development activities of government institutions including providing technical expertise in the implementation of projects under this Act;
- guiding and advising contracting authorities in project structuring, procurement and tender evaluations;
- leading contracting authorities in contract negotiations and deal closure;
- on its own motion, originating and leading in project structuring and procurement, in liaison with a contracting authority;
- supporting the development of PPP programmes in the country;
- overseeing contract management frameworks for projects under this Act; and
- undertaking any other activity necessary for the fulfilment of any of the functions of the Directorate.
Types of PPP Arrangements
The Act stipulates what is to be considered a PPP Project. The Second Schedule to the Act set out the structure or type of PPP arrangements that a contracting authority may enter into. These are;
- Management Contract – where a private party is responsible for the management and performance of a specified obligation, within well-defined specifications for a specified period of time not exceeding ten years, and the contracting authority retains ownership and control of all facilities and capital assets and properties.
- Output Performance Based Contract – where the private party is responsible for the operation, maintenance and management of an infrastructure facility for a specified period of time not exceeding ten years and the contracting authority retains ownership of the facility and capital assets.
- Lease – whereby the private party pays the contracting authority rent or royalties and manages, operates and maintains the facility or utilises the leased property for the purpose of exploration, production and development of minerals and receives fees, charges or benefits from consumers for the provision of the service or sale of products for specified period of time not exceeding thirty years.
- Brownfield Concession – where contracting authority issues a contractual licence to the private party to operate, maintain, rehabilitate or upgrade an infrastructure facility and to charge a user fee while paying a concession fee to the contracting authority for a specified period of time not exceeding thirty years.
- Build – Own – Operate – Transfer Scheme – where the private party designs, constructs, finances, operates and maintains an infrastructure facility owned by the private party for a specified time period not exceeding thirty years, or such longer period as may be agreed, after which the private party transfers the facility to the contracting authority.
- Build – Own – Operate Scheme – where the private party designs, finances, constructs, operates and maintains the infrastructure facility and provides services for a specified period of time.
- Build – Operate – and – Transfer Scheme – where the private party finances, constructs, operates and maintains an infrastructure facility and transfers the facility to the contracting authority at the end of a specified term which shall not exceed thirty years.
- Build – Lease – and – Transfer – where the contracting authority authorizes the private party to finance and construct an infrastructure or development facility and upon its completion lease it to the contracting authority for a specified period not exceeding thirty years and upon the expiry of which the ownership of the facility automatically transfers from the private party to the contracting authority.
- Build – Transfer – and – Operate – where the private party constructs an infrastructure facility and assumes the costs and risks associated with the construction of the building and upon completion, transfers the ownership of the facility to the contracting authority and continues to operate the facility on behalf of the contracting authority for a specified period not exceeding thirty years.
- Build – Transfer – where the private party designs, builds, and finances a public facility in exchange for payments by the contracting authority over a specified period of time, after which transfer occurs automatically to the contracting authority for a specified period not exceeding twenty years.
- Develop – Operate – and – Transfer – where favourable conditions external to a proposed infrastructure project by a private party are integrated into the arrangement by giving that private party the right to develop adjoining property, and enjoy the benefits the investment creates as the parties agree on condition that the private party transfers the infrastructure facility to the contracting authority within a period not exceeding thirty years from the commencement of the project and the developed property remain the property of the private party in perpetuity.
- Rehabilitate – Operate – and – Transfer – where the private party refurbishes, operates and maintains for a specified period not exceeding 30 years, an existing facility at the expiry of which the private party transfers the facility to the contracting authority.
- Rehabilitate-Own-and-Operate – where an existing facility is transferred by the contracting authority to the private party to refurbish and operate it with no time limitation imposed on ownership and the private party abides by the conditions of the arrangement during the operation of the facility.
- Annuity-based Design, Build, Finance and Operate – under which a private party is authorized by a contracting authority to design, finance, construct, operate or maintain a public infrastructure facility, in exchange for which the private party receives defined annuity payments over a specified period of time not exceeding 30 years, at the end of which the facility transfers back to the contracting authority automatically.
- Joint Venture Partnerships – under which a contracting authority and a private party collaborate in the joint development of a public facility, and under which the contracting authority contributes by designating public assets such as land to the project, and various government support measures as the case may be, and under which the private partner is responsible primarily for financing, construction and maintenance of the public infrastructure facility for a defined period of time not exceeding thirty years.
- Strategic Partnerships – under which a public agency sources strategic private partners to jointly develop a public investment programme under such terms as they may agree, but under which key project risks including construction, financing and operations are held by the private party, and which arrangements may have a defined end date or a defined set of parameters that support relationship adjustment over time but not exceeding thirty years.
- Land Swap – where a contracting authority transfers existing public land or an asset to the private party in consideration of an asset or facility that has been developed by that private party.
PPP Project Procurement Methods
The Act enhances the procurement options available to a contracting authority for PPP projects. There are four methods through which a contracting authority may procure a PPP Project. These are;
- Direct Procurement
The contracting authority may use direct procurement for the PPP under certain exceptional circumstances set out in the Act. These exceptional circumstances include where the private party possesses the intellectual property rights to the key approaches or technologies required for the project, where the works or services are only available from a limited number of private parties, or where significantly lower cost of delivering the works or services will be realised, or where there is urgent need for the works or services, and any other procurement method is impractical.
- Privately-initiated Proposals (PIP)
This is where a private party submits a privately-initiated proposal (PIP) to a contracting authority for consideration. The Act sets out clear circumstances under which a contracting entity may consider a PIP. The considerations are whether;
- the project is aligned with national infrastructure priorities and meets a demonstrated societal need;
- the project provides value for money;
- the project proposal provides sufficient information for the contracting authority to assess fiscal affordability and the potential contingent liability implications of the proposal;
- the project can be delivered at a fair market price;
- the project is supported by all documents necessary for purposes of transparency and accountability; and
- the project supports the efficient transfer of risk from the public sector.
The private entity should provide certain information in regard to the PIP. The contracting authority then submits the PIP to the Directorate for assessment and approval. The Directorate is required to carry out a due diligence on the private entity before commencing the evaluation of the PIP. Where the PIP is approved, the proposal proceeds to the project development phase, where the private party prepares specific project development activities before the project can be approved.
- Restricted BiddingA contracting authority may be procured a PPP through a restricted bid where;
- competition for contract is restricted to prequalified tenderers, because of the complex or specialized nature of the works and services;
- the time and cost required to examine and evaluate a large number of tenders would be disproportionate to the value of the works or services to be procured;
- if there is evidence to the effect that there are only a few known suppliers of the whole market of the works or services;
- an advertisement is placed on the procuring entity website regarding the intention to procure through limited tender
- Competitive BiddingUnder competitive bidding, the contracting entity, in consultation with the Directorate, invites bids from eligible bidders in respect of the PPP Project. The contracting authority invites requests for qualifications for qualified bidders and prepare a short list of prequalified bidders. A qualified bidder intending to bid for a PPP project is required to complete and submit a technical and financial bid.
PPP by County Governments
The Act provides for the mechanisms for a county government may enter into a PPP agreement with a private party to undertake a PPP Project. The county government will carry out a detailed feasibility study of the project and submit the same to the Directorate. Where the project requires government support or exceed the fiscal ability of the county government, the county government is required to obtain the written approval to undertake the project from the Committee and Cabinet Secretary for finance and submit a list of the projects to the Directorate for inclusion in the published national list of projects. In addition, the county government is required to obtain the approved of county assemblies before undertaking the project.
The PPP provides a mechanism for the government to close the funding gap in infrastructure development by providing avenue for the participation of the private sector in the financing, construction, development, operation, or maintenance of infrastructure or development projects of the Government through concession or other contractual arrangements. The structure of the PPP arrangements is broad enough to accommodate different forms of arrangements between the contracting authority and the private
The Act provides for a local content requirement as a policy objective of PPP. The parties to a PPP agreement are required to give priority to Kenyan suppliers of goods and services that meet the specifications of the industry and ensures mechanisms for technology transfer.