Private companies will get compensation from the government for jointly-developed public projects that fail to generate enough revenues to cover their costs.
Treasury secretary Henry Rotich has published new regulations to effect a public-private partnership project facilitation fund.
This will be a reserve under the Treasury that will be used to help meet part of the capital expenditure and set-up costs associated with public-private partnerships (PPPs).
“The object of the fund is to provide financial support for the implementation of public-private partnership projects under the Act, which may be provided in the form of grants, loans, equity, guarantees and other financial instruments,” he said.
In cases where PPP projects have the public as end-users, funding will also be provided by the government to ensure that companies can still make a profit while providing service that is affordable.
A good example of such viability gap funding would be in the case of road tolls which, if charged at market costs, could be unaffordable for some motorists.
The PPP projects may also apply to the fund to help pay for land acquisition, although these costs are recoverable.
The regulations, however, restrict viability gap funding to a maximum of 51 per cent the cost of a project.
Firms will also draw from the fund to cover unexpected eventualities that affect the completion of the project, for instance, default on the part of the state partner.
Government authorities and companies in PPPs will also apply to the fund to cover initial costs of projects such as feasibility studies and transaction costs.
The PPP Act of 2013 provided for the establishment of the fund although regulations to operationalise it have been pending for three years.
Projects initiated before the Act came into force are not eligible for the funds.