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New dawn for PPP projects in counties

County governments play a crucial role in providing and maintaining infrastructure.  This is particularly with respect to the public functions that have been constitutionally assigned to the devolved units under the Constitution of Kenya, including county health services, county roads, street lighting, water and sanitation services, amongst others.

As public funding is limited, it is critical for County Governments to diversify sources of financing for infrastructure development and to leverage on private resources for the provision of public services. Public-private partnerships (PPPs) present an opportunity for County Governments to benefit from private sector funding and innovation in infrastructure development and service provision in the Counties.

The recent enactment of the Public Private Partnerships Act, 2021, presents a new dawn for County PPP projects as Counties will now play a bigger role in policy formulation as well as identification, development and implementation of PPPs.

Under the repealed PPP Act, policy formulation and oversight over PPP projects was largely a function of the National Government, through a PPP Committee whose membership was mainly comprised of appointees of the National Government. Under the new PPP law however, County Governments, through the Council of Governors, shall have power to nominate members for appointment to the PPP Committee. This means that Counties will now play an active role when it comes to policy formulation and oversight over PPP projects in the country. Collaboration between the National and County Governments in this respect is in line with the constitutional principle of consultation and cooperation in the performance of public functions and exercise of powers by the two levels of Government.

The PPP Act 2021 is also a win for County Governments as it simplifies the approval process for County PPP projects. Under the repealed PPP Act, Counties intending to implement projects through a PPP arrangement required approval not only at the County level but also at the National Government level. Under the current framework, 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 the County requires support of the National Government, for instance where the project exceeds the fiscal ability of the County. This is in line with the principles of devolved government as it recognises that Counties have been assigned specific public functions under the Constitution and they should be able to undertake their assigned functions through PPP arrangements, without having to seek approval from organs of the National Government, except where support of the National Government is required.

The Council of Governors has also been given power under the new law, to nominate two members to the PPP Petitions Committee, which is a body that has been set up to consider and determine complaints from private parties arising from the process of tendering or entering into a PPP contract.  Under the repealed PPP Act, there was no requirement for input from the Council of Governors in the process of identifying members to join the PPP Petitions Committee.

Further, while County Governments were empowered under the repealed PPP Act to enter into PPP arrangements, the Act was silent on whether a county corporation could enter into a PPP arrangement. The new law expressly recognises county corporations as entities capable of entering into PPP arrangements, thereby removing any ambiguity that may have existed in this respect.

One of the challenges that County PPP projects may face is concerns around creditworthiness of the devolved units. Access to credit is crucial as a significant proportion of financing for PPP projects is derived from debt.  In order to promote investor appetite for County PPP projects and to allay any concerns around a County’s ability to meet its financial obligations, creditworthiness will be critical. Steps will therefore need to be taken to support counties that do not have a favorable credit rating to bridge any gaps and address issues that may impact creditworthiness.

Counties may also require support in planning, identification, selection and structuring of PPP projects, given the complex nature of these projects. Capacity building in this respect will go a long way in ensuring that only viable projects are considered for development through a PPP arrangement and that the proposed projects are structured in a manner that elicits private sector interest.

While implementation of the new PPP law will not be devoid of challenges, if these are properly addressed and managed, the law has great potential in spurring investment in the Counties through PPP arrangements.

The article was featured in the Business Daily on 8 March 2022 and can be accessed here