New PPP unit boss has work cut out

Seasoned investment banker and a former senior executive at Standard Chartered, Chris Kirigua, has been appointed the first director-general of the Public Private Partnership (PPP) at the Treasury.

Methinks the appointing authority expects him to make a big impact in that office. The department had to be elevated to a full directorate perhaps to reflect his skills and professional experience and probably to bring the appointment in line with the weight of expectations attached to the functions of this office.

Until this appointment was made, the Treasury only had four five full directorates. The PPP programme was run by a thinly staffed unit under the Directorate of Portfolio Management.

We have not been very successful at rolling out the PPP projects. Nearly 10 years since we introduced a PPP law, complete with a bureaucracy to roll out projects, the only successful PPP projects you can count are the ongoing Nairobi Expressway and Lake Turkana Wind Power. The Rironi-Mai Mahiu-Nakuru project is in its initial stages. The procurement of KenGen’s 140 megawatt (Mw) geothermal project is currently stuck in court.

Many people who used to tout the PPP model as the panacea for infrastructure development have long become cynics.

The former Nigerian finance minister Ngozi Okonjo-Iweala is widely quoted to have said that the PPP model had failed in Africa. There is a popular school of thought that infrastructure development is best when it is funded directly by taxpayer money, with the private sector only coming in to manage the assets under concessions.

In theory, and as proponents of the PPP model will tell you, the risks on PPP projects are born by the private sector. Yet the truth of the matter is that the State ends up carrying huge contingent liabilities in its books.

Today, PPP proponents tout the Kenya’s Independent Power Producers (IPPs) programme as a success. Yet the truth is that since the IPPs’ contracts stipulate they must be paid in dollars, their most enduring impact in this economy has been to saddle Kenya Power with expensive dollar loans.

How do you get into a contract where you pay in dollars when your revenues are in Kenya shillings especially in a context of an economy whose sources of earning foreign exchange has badly dwindled? The power purchase agreements are blatantly lopsided.

Indeed, the $370 million that you see in the books of the State-controlled power utility today is largely on account of the contracts and arrangements that Kenya Power has with IPPs. Kenya Power can’t breathe because of expensive dollar payments it has to make at the end of every month, even when it has not consumed power from these IPPs — all in the name of capacity charges.

Mr Kirigua must lead us to a complete rethink of the PPP model. In the first place, it seems to me that we are yet to make our minds up what goes as a PPP project and therefore in the jurisdiction of the PPP directorate at the Treasury, and what should be handled under the legal framework covering privatisation transactions.

Was the aborted concession of Kenya Railways a PPP transaction? Currently, we are in the process of concessioning State-owned sugar companies to privateers. What role should the PPP directorate play?

But the biggest flaw of our PPP model happens in the area of procurement of large projects. First, there are too many Cabinet and ministerial committees who wield wide powers and must grant approvals at every stage of the procurement process and can intervene at any stage to demand last-minute changes in bidding documents.

If you think that I am exaggerating, go back to the shenanigans we witnessed in August 2015 during the aborted attempt to procure a concession of the second terminal at the Kenya Ports Authority (KPA).

KPA was well in the middle of tender evaluation stages when the Treasury, completely out of the blue, directed that changes be introduced in the tender documents. The process collapsed.