Changes afoot in Kenya’s public private partnerships law
The private sector undeniably plays a key role in contributing towards the attainment of Kenya’s developmental objectives. In fact, Vision 2030 pays particular cognisance to the need for strong partnerships between the Government and private sector, if the country is to achieve its developmental goals. The Big Four Agenda which is made up of the resource thirsty priority areas of manufacturing, affordable housing, food security and universal healthcare, will also rely heavily on private sector resources for its success.
An additional dynamic has now come into play with the Covid-19 pandemic, as the Government will need to ensure that conditions for a resilient and inclusive recovery are put in place. According to the Kenya Economic Recovery Update Report recently published by the World Bank, it will be critical for the Government to create a conducive business environment that encourages private sector innovation, growth and the level of productivity required to put us on a recovery path.
One of the ways through which the public sector taps into private sector resources and innovation is through public private partnerships (PPPs). The current legal framework governing PPPs has however performed dismally when it comes to tapping into private sector resources and innovation, as only a handful of projects have been concluded under the existing regime.
The Government is now proposing to overhaul the legal and regulatory framework governing PPPs with the recent publication of the Public Private Partnerships Bill, 2021, which proposes to introduce a raft of changes, some of which are analysed below.
To begin with, the Bill simplifies the approval process for PPPs carried out by County Governments. Currently, Counties intending to implement projects through a PPP arrangement require approval not only at the County level, but also at the National Government level. Under the Bill however, Counties will, as a general rule, only require approval of the relevant County Assembly to undertake a PPP. Approval for County projects by the National Government will only be required in special circumstances where a County requires support e.g. where the project exceeds the fiscal ability of the County. This is in line with the principles of devolved government as enshrined in the Constitution of Kenya, as it respects the fact that Counties have been assigned specific public functions which they should be able to undertake directly, including through PPP arrangements.
The Bill also seeks to introduce direct procurement of PPPs. While direct procurement has for a long time been allowed under the Public Procurement and Asset Disposal Act, which governs traditional procurement methods, the same is currently not an option for PPP projects. Given the procurement scandals that have rocked the country in the recent past, it can be argued that it is more difficult to achieve a high level of transparency and objectivity through direct procurement than would be the case in a more structured competitive procedure. In a bid to address concerns around the risks that may arise while using direct procurement, the Bill reserves this form of procurement for exceptional situations such as urgency (where the circumstances giving rise to the urgency were not foreseeable), or where direct procurement shall significantly lower the cost of delivering a project.
An interesting inclusion in the projects that qualify for direct procurement, is projects linked to specific parties on account of national interest, bilateral or international cooperation or external trade. These would likely include projects financed through concessional loans and grants from foreign governments, commonly referred to as ‘government-to-government’ procurement. Currently, the Public Private Partnerships Act does not allow for government-to-government procurements and the proposed amendment, if passed into law, will bring such procurements under greater scrutiny through the PPP regime.
In line with the constitutional provision that grants every Kenyan citizen the right of access to public information, the Bill provides that on the execution of a project agreement, the public entity involved will be required to publish information on the project in at least two newspapers of national circulation, including the name of the successful bidder and key terms of the project agreement. This is a step in the right direction as it shall promote transparency in the procurement and award of PPP projects.
Of interest to investors will be the proposed introduction of a mandatory success fee of not more than one percent of the total project cost, payable by a private party that achieves financial close on a PPP project. While there is provision for a success fee under the current law, the same is not couched in mandatory terms as is the case with the Bill.
With respect to unsolicited proposals, that is, proposals submitted by a private party for the purpose of undertaking a PPP project and not in response to an invitation for bids from the relevant public entity, the Bill proposes to introduce a non-refundable review fee. The review fee shall be payable upfront by private investors who submit unsolicited proposals. This is ostensibly aimed at ensuring that only serious investors submit unsolicited proposals and that the cost incurred by the public body in reviewing such proposals is catered for.
While the Bill is not perfect and is likely to undergo further amendments in Parliament, it is a step in the right direction as it seeks to re-energise the PPP dream, which will be much needed for the country’s economic recovery.
The article was featured in the Business Daily on 11 May 2021 and can be accessed here.