PPPs project rights capped at 30 years in proposed law

The concession period for investors involved in State-owned build-operate-transfer (BoT) projects will be capped at 30 years if Parliament passes proposed changes to the law.

In a BoT model, a government entity grants a private investor the rights or concession to construct and operate a project over an agreed period in exchange for payments. At the end of the contract period, the management of the project is transferred to the government.

The concessionaire typically obtains most of its revenues directly from charges to the infrastructure users.

In Kenya, there have been no legal timelines on the period that investors can operate BoT projects to recoup their funds.

The National Assembly Committee on Finance and National Planning has proposed to cap the concessions at 30 years.

“A contracting authority shall not enter into a public-private partnership arrangement for a period exceeding thirty years,” the committee chaired by Gladys Wanga said in its report on the proposed amendments to the PPP Act, 2013.

The committee did not disclose the reasons for introducing the time ceiling but says that the changes are aimed at addressing gaps in the regulatory framework for public-private-partnership (PPP)-funded projects. The proposal is contained in amendments to the PPP Act, 2013 that are before Parliament for debate and approval.

A review of key BoT projects globally shows that concessions are typically for a period of 25 to 30 years – which is considered sufficient time for investors to fully recoup their major initial investments.

Investors who fund the multibillion-shilling infrastructural projects, mainly the construction of roads, charge toll fees for use of the facilities to recover the money.

Kenya has allowed international investors to own projects for more than 20 years amid concerns that by the time the facilities are handed over to the State, taxpayers will incur more expenses to maintain the already ageing infrastructure.

The PPP Act allows private investors to own infrastructural projects for a given period to recoup their funds before ceding the ownership to the State.

The country’s first double-decker highway — the Nairobi Expressway— will be owned by the investors for 27 years upon completion.

The private firm will be granted a concession to operate the 27.1-kilometre road upon its completion in December next year.

The expressway will cost Sh59 billion to build and links Jomo Kenyatta International Airport (JKIA) to the James Gichuru junction on Waiyaki Way, easing traffic on the busy Nairobi-Mombasa highway.

Construction of the Sh160 billion toll highway from Nairobi to Mau Summit that will start in October will be funded through the PPP model.

A French consortium made up of Vinci Highways SAS, Meridian Infrastructure Africa Fund, and Vinci Concessions SAS will design and fund the project and operate it for 30 years before handing it to the State. Investors have since October last year been operating the 91-kilometre Ngong-Kiserian-Isinya to Mashuru-Isara road for eight years before handing it to the State.