The value of private investments into public-private partnership (PPP) projects dipped by a massive 90.5 percent in the financial year ended June 2024, official data shows, signalling further trouble for the Treasury this year following the cancellation of the Adani Group deals.
Fresh official data shows that private investors injected Sh4.3 billion into PPP projects in the year ended June 2024, down from Sh45.6 billion in the previous financial year ended June 2023.
It marked a second successive year of slumps since 2022 when such projects drew Sh80.6 billion in funding amid final touches on the 27-kilometre Nairobi Expressway.
The PPP cash woes are set to worsen in this financial year as the Treasury faces the reality of trying to meet a Sh50 billion inflows target amid the cancellation of the Adani-backed project contracts.
The PPP Directorate at the l Treasury blamed the huge underperformance on the “slowdown in the progression of two [undisclosed] projects to financial close”, but was optimistic mega deals will be reached this current year ending June.
Kenya turned to the PPP model about a decade ago in a bid to deliver capital-intensive infrastructural projects without tapping Exchequer funds or incurring direct loans amid a ballooning debt burden.
In a PPP-funded project, the investor recoups investment by charging user fees over a defined period. For example, the Chinese firm that funded the construction of the Nairobi Expressway is charging toll fees on motorists who will be using the road up to 2047.
The Treasury’s target of netting at least Sh50 billion in private capital is hinged on attracting investments largely into energy, transport, and water sectors through privately initiated proposals (PIPs).
“The PPP Directorate has a pipeline total of 31 projects at various stages of the PPP project cycle, with most of them being at the procurement stage. With these PPP pipeline projects, the government envisages mobilising Sh50 billion within the FY 2024/2025,” the Treasury wrote in its latest medium-term budget plans.
“With the government’s focus on achieving most of the infrastructural developments through the PPP framework, it plans to work with the private sector to develop projects in priority sectors which include water, transport, ports, housing, industrial parks, renewable energy, agriculture, ICT, aviation, hospitals, amongst others.”
Amongst the key PPP projects listed by the Treasury are the now-cancelled Adani Group’s deals.
These included Adani Energy Solutions Ltd’s high-voltage electricity transmission projects for an estimated cost of $907 million (about Sh117.91 billion) on completion.
The power transmission projects were for building a 197km/400 kilovolts (KV) line along Gilgil-Thika-Mala-Konza, a 101km/220KV line along Rongai-Keringut-Chemosit, a 90km/132KV line along Menengai- Olkalau-Rumuruti, 400km/220KV sub stations at Lessons and Rongai and 132km/33KV Thurdibuoro substation.
The Treasury had also listed the upgrade of Terminals 1E and 2E at Jomo Kenyatta International Airport (JKIA), a project that was expected to start this financial year subject to agreement with Adani Group, which had submitted a PIP proposal.
Adani’s $2 billion (about Sh260 billion) proposal for a 30-year lease to upgrade the passenger terminal, build a second runway, and operate JKIA was unpopular and sparked public outrage, with critics alleging it was a conduit for graft.
President William Ruto on November 21 ordered the cancellation of procurement for the JKIA deal and the construction of power transmission lines after group founder Gautam Adani was indicted in the United States for allegedly paying about $265 million (Sh34.45 billion) in bribes to Indian government officials.
The government is relying on PPPs to unlock private capital and free up public cash for pressing social needs such as education, health, water, and housing.
The preference for PPPs to finance infrastructure projects is aimed at reducing the use of debt and taxes to build roads, airports, power plants, and electricity transmission lines. Public debt went up following five years of increased borrowing, making it unsustainable.
The Treasury says the government has so far approved 39 PPP projects, with 36 of them estimated to cost $13 billion (about Sh1.69 trillion).
The implementation of the PPP projects, however, comes with increased financial risks such as possible breach of contracts, unfunded additional obligations, and changes in inflation and exchange rates.
“To mitigate these risks, the government will reduce implementation bureaucracy, strengthen PPP institutions, improve governance, and promote the framework for balancing risks with affordability and value for money while guaranteeing rapid service delivery through cutting down execution timelines and promoting local contents for greater national value capture in PPPs,” the Treasury says in its latest Budget Policy Statement.
“As part of de-risking public investments with respect to capital mobilisation for infrastructure development, the government will continue to provide Government Support Measures (GSMs) to private investors in PPP projects in the form of Letters of Support (LOSs), Partial Risk Guarantees and Indemnity Agreements.”
