Faced with a significant infrastructure funding gap above Sh218.22 billion, Treasury is going all-out to woo private sector participation via a raft of sweetener deals aimed at unlocking multi-billion shilling investments.
Newly published proposed subsidiary regulations, which will guide implementation of the public-private-partnership (PPP) Act of 2021 signed by retired President Uhuru Kenyatta in December, show determination by the State to win private-sector backing through clearer transaction guidelines and preferential terms.
“The regulations provide a consistent and predictable process for the public and private actors involved in the PPP contracting process, as well as the main distinctive elements of the type of contracting,” says Treasury.
“The regulations will ensure the implementation of controls necessary and pertinent to each PPP project to guarantee correct execution, in accordance with its scope, duration, risks and fiscal and economic implications” it adds.
Top brains
In the proposed rules, the Treasury has for instance dangled a carrot for top brains to coin the best project blueprints with guaranteed chances of implementation.
In a significant move, it has also doubled the limit of fees payable to transaction advisors behind successful PPP projects.
Treasury has capped the success fee at one percent of the total cost of a PPP project—double the current rate.
“The success fee charged on a project shall not exceed one percent of the total project cost. Where the directorate or a contracting authority incurs the services of a transaction advisor in a project, the private party shall pay such costs incurred in full in the manner advised by the directorate or the contracting authority” says Treasury.
A success fee is a conditional agreement whereby a consultant or advisor is paid a set rate if a PPP project’s outcome is positive. If the outcome negative, there is no obligation to pay the fee. It serves as motivation to consultants or advisors to do their best and earn the maximum.
The rate will form part of subsidiary laws in the new PPP Act 2021. Presently, the success fee is provisioned in Kenya under Section 28 of the PPP Act, 2013, and Regulation 57 of the PPP Regulations, 2014.
The law currently caps the success fee at 0.5 percent of the contract value of the project or 100 percent of the transaction advisory service provided for the project, whichever is higher.
The law, which is now set for repeal, also dictates how the success fee shall be imposed and the amount to be imposed shall be stated explicitly in tender documents.
Where a successful bidder is required to pay a success fee, that bidder shall pay the fee, through the project company, on achieving financial closure of the project. Where a success fee is charged, that fee shall be paid into the Project Facilitation Fund under section 68 of the PPP Act 2014.
The PPP Regulations add to the sweeteners contained in the PPP Act 2021 that seeks to unlock billions in project funds.
The PPP Act 2021 sweetened conditions of project concessions by expanding procurement options and setting a more investor-friendly process for unsolicited proposals to lure private investors into multi-billion shilling projects.
A review of the new PPP law shows that Kenya made a raft of investor-friendly provisions terms including increasing the period of concession for projects to up to 30 years from 25 years—aligning the concession timeframe to the global standard.
A review of key Build-Operate-Transfer (BoT) projects globally shows that concessions are typically for a period of 25 to 30 years – which is considered sufficient time for investors to fully recoup their major initial investments.
Under BOT contracts, private investors finance and build projects, and operate them for a period to earn a profit before eventually transferring ownership to the government.
The new PPP Act now provides for a significant expansion of the procurement options available for contracting agencies including direct negotiation for Privately-Initiated Investment Proposals (PIIPs). This is a shift from the old arrangement whereby public agencies were limited to competitive bidding processes.
The new PPC Act also addresses previous bottlenecks to good governance by creating a new entity known as the PPP Directorate that sits within the National Treasury and, unlike its predecessor the PPU Unit, has functions that are largely separate from those of the PPP Committee which primarily approves projects.
Broader mandate
The newly created PPP Directorate has a much broader mandate than that of the PPP Unit. The new outfit will initiate, guide, and coordinate selection, ranking, and prioritisation of PPP projects within the public framework.
Analysts said it also has powers to originate and lead in project structuring and PPP programmes in Kenya.
“The PPP Directorate will have a hands-on role in assisting contracting authorities with oversight and technical support, and contracting authorities will be required to involve it in every stage of a project,” Claire Barclay and John Woolley, partners at United Kingdom-based law firm, Pinsent Mason said in a review of the new PPP law.
Unlike before, the new PPP enlists more partnerships with the PPP Directorate, including when monitoring the implementation of a project agreement; liaising with key stakeholders during the project cycle; and preparing and appraising each project to ensure its legal, regulatory, social, economic, and commercial viability.
Once feasible projects have been identified through this process, a project implementation team made up of a representative from the PPP Directorate and experts from within the contracting authority is then established to deliver specific PPP projects.
The PPP Directorate will also be required to assess whether the contracting authority has the technical expertise to carry out the project—a shift that enhances governance.
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