Treasury assures investors of profit in PPP ventures
PPP-Unit director Stanley Kamau. The unit will set up a Project Facilitation Fund. Photo/FILE
What you need to know:
The Public Private Partnership Unit (PPP-Unit) says it will set up a Project Facilitation Fund in line with the law.
The fund will be used to meet the initial cost of targeted projects capital such as feasibility studies and appraisal expenses as well as compensate private investors in case an infrastructure does not generate enough revenues where user fees are down.
The Cabinet has already cleared a list of 47 projects worth Sh1.7 trillion to be financed through PPPs.
The Treasury will foot part of capital requirement and compensate for low revenues in a raft of incentives aimed at encouraging the private sector to invest in public projects.
The Public Private Partnership Unit (PPP-Unit), the division of the Treasury that oversees private investment in public infrastructure projects, said it will set up a Project Facilitation Fund in line with the law.
The fund will be used to meet the initial cost of targeted projects capital such as feasibility studies and appraisal expenses as well as compensate private investors in case an infrastructure does not generate enough revenues where user fees are down.
“The subsidies to PPPs will ensure that projects produce a net economic profit or a social profit, and are financially feasible,” PPP-Unit director Stanley Kamau said on Monday.
The Cabinet has already cleared a list of 47 projects worth Sh1.7 trillion to be financed through PPPs. The projects range from hospital equipment and student hostels to major highways, airports, seaports and energy.
Among the projects, a total of Sh850 billion will be used to generate 5,000MW of electricity in the next four years, Sh153 billion to construct the Nairobi-Mombasa road, Sh34 billion to upgrade the Nairobi-Nakuru road and Sh17 billion to construct Nyali Bridge.
Others are Sh170 billion for multipurpose dams, Sh85 billion for low-cost housing, Sh51 billion for Police Housing (69,000 units) and Sh25.5 billion for student hostels.
The government is banking on private capital to plug a huge financing gap for infrastructure projects as social programmes and constitutional implementation takes up the bulk of its revenues.
Private investors will mainly earn income from toll charges, especially on road projects.
The use of private money will help in faster completion of projects and reduce the need to borrow at a time when the International Monetary Fund (IMF) and the World Bank have expressed discomfort over the rising public debt.
Kenya’s debt load crossed the 50 per cent of GDP mark to stand at Sh2.11 trillion or 57 per cent of GDP by end of December 2013.
The IMF wants the debt ration to be kept below 50 per cent mark. The Treasury will also offer guarantees to encourage the private sector to provide long-term financing.
“We want to ensure that as long as the infrastructure has been built, the private investor is cushioned from uncertainties like demand risk such that they don’t have to worry whether a new road has enough traffic or not,” said Mr Kamau at a workshop organised in Nairobi on Monday for banks and other financial sector players.
The PPP-Unit is also mulling a number of tax incentives for private entities that put their money in public projects, but Mr Kamau said discussions had not been concluded on the form that these would take.
Experts from the International Finance Corporation (IFC) who are advising the Treasury on PPPs say most of the projects require long-term, local currency-denominated funding to cover certain local costs and match tenor and currency of project revenues.
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