Kenya needs hybrid PPPs model based on best practices to get value for money

The recent wave of public-private partnerships (PPPs) in Kenya has created an influx of experts from various parts of the globe.

Expatriates from the UK, Canada, US, Australia, China, India and South Africa have flown in their masses into Kenya to maximise on the available opportunities in the PPP space.

This has been triggered by the requirement to procure transaction advisers with requisite expertise in accordance with the provisions of the PPP Act, 2013.

The transaction adviser is also required to guide and support bidders during the procurement process and thereafter during the construction and operational phase of projects.

The private sector needs advisers who understand the complexity of PPP projects and thus enable them to understand and manage their risks.

The PPPs are recommended as one of the tools for emerging economies given that a significant number of them face various difficulties due to limited infrastructure compromising service delivery often associated with rationing, unnecessary costs and unwarranted delays.

Successful implementation of PPPs can assist governments to assemble the supplemental financing required in streamlining infrastructure.

The PPPs are designed to enhance value for money in infrastructure development through risk mitigation and transfer, innovation and optimal asset utilisation, and service provision.

The Government of Kenya aims to ensure compliance and adherence to the PPP Act, 2013 and its implementing regulations as the legal framework.

Under the PPP ACT 2013, PPPs in Kenya can be implemented through management and operating contracts, leases/affermage, concessions, build-operate-transfer projects, design, build and operate, joint ventures or partial divestiture of public assets or full divestiture.

In this respect, PPPs in infrastructure can result in less pressure on sourcing public expenditure to meet budgetary constraints and release funds for development of other sectors.

Kenya’s growing economy is placing demands on infrastructure. The government has recently earmarked more than 70 priority projects for PPP implementation to enhance infrastructure development.

However, contracting authorities and implementing agencies are still struggling to understand the provisions of the PPP Act, 2013.

They have been several occasions of misinterpretation of this Act even after National Treasury Cabinet secretary Henry Rotich issued a circular attempting to demystify PPPs to all ministries and parastatals.

This has necessitated intervention by various organisations through seeking opportunities for training and building capacity of their human resources.

Courses such as those offered by Euromoney, International Law Institute and Institute of Public Private Partnerships have quickly gained popularity with several developing nations opting to pay the price and send senior government officials to gain as much knowledge on PPPs as possible.

In the same spirit, board members and management teams from various parastatals in Kenya are increasingly taking part in benchmarking and study tours to learn mostly from developed countries how they succeeded in PPP implementation.

Policymakers are keen on adapting ‘best practice’ by learning from more developed nations.

Notably, it is great to learn from others but it is always important to be careful not to “copy and paste” without customising to the fit the requirements of the particular jurisdiction.

Copy and pasting without a full understanding of what lies behind each clause in project documentation is a recipe for disaster.

Notably, each transaction adviser recommends a particular methodology in PPP implementation based on his or her experience and familiarity of their jurisdiction.

The main inherent challenge with this approach is that a PPP model that worked in UK or India may not necessarily be wholly applicable in Kenya.

Output specifications and method statements applied in the developed nations may be too advanced for a developing nation.

Payment mechanisms conforming to UK standards may recommend best practice but might potentially be too complex for the local bidders to comprehend.

For the PPP programme to succeed in Kenya, it is imperative that we generate a hybrid model that incorporates best practice and is adapted to Kenya environment.

However, it is equally important that the model used, maximises on the use of “tried and tested” clauses. Every change to best practice norms, every uncertainty is considered a risks by bidders and their financiers or investors.

Risks are priced at a premium and potentially undermine the value for money of a project.

Configuration of a new model takes time and planning. Strategy needs to be developed for the progression from initial pilot projects to the full blown Kenyan PPP model.

Pilot projects based on simple output specifications, method statements and payment mechanism are increased in complexity on each iteration as the institutional capacity in the market improves.

As we continue to put our heads together and walk in the PPP path, we need to think of practical solutions. The configuration of a Kenyan PPP model is definitely a good place to start.

Ms Morara an infrastructure and PPP Specialist and has previously worked for PriceWaterhouseCoopers.