REVIEW OF THE PUBLIC PRIVATE PARTNERSHIP (AMENDMENT) BILL, 2021
The Public Private Partnership (Amendment) Bill, 2021 (the “Bill”) is sponsored by Amos Kimunya, Leader of Majority Party. The Bill went through the third reading on 30th June 2021 before the National Assembly.
The principal purpose and objective of the Bill is to provide for the participation of the private sector in the financing, construction, development, operation and maintenance of infrastructure through public private partnerships; and to streamline the regulatory framework for public private partnerships.
The Bill seeks to introduce a substantial number of amendments to the principal Act, Public Private Partnership Act, 2013 such as streamlining the regulatory framework for Public Private Partnerships (PPP); enhancing efficiency in the PPP process through reducing the number of oversight approvals; and proposing timelines on key project processes and stages. The Bill also seeks to seal the existing gaps in the 2013 Act.
In this article, we highlight some notable proposed amendments to the Principal Act brought about by the Bill.
The Bill provides for the establishment of the PPP Committee whose functions slightly differ from the one under the current Act. Some of the functions of the PPP Committee under the Bill include formulating policies on public private partnerships, overseeing the implementation of PPP contracts, and approving negotiated PP contracts.
The Bill replaces the PPP Unit, which had been established under the Act, with the Directorate of Public Private Partnerships, which shall be the lead institution in the implementation of PPP projects. The Directorate will also be in charge of originating, guiding and coordinating the selection, ranking and prioritization of PPP projects. It will oversee project appraisal and development activities of contracting authorities.
This proposal is beneficial as it will centralize the PPP processes and functions. Equally, the establishment of a Directorate with greater responsibilities is likely to enhance efficiency and result in better general coordination, given the complexity of PPP procurement processes. It is interesting to note that a Director-General of the PPP Directorate was appointed earlier this year, possibly in anticipation of the enactment of the new PPP law, as captured by Louise Mathu.
The Bill proposes the establishment of project companies by the contracting authorities and private parties to undertake public private partnership projects. It also provides for the preparation and amendment of project agreements entered into by parties in relation to a project. Further, the Bill provides for the implementation and management of a project, as well as the establishment of a Petition Committee to determine petitions and complaints in relation to a project.
The PPP Bill also proposes to do away with PPP Nodes, that were established under the principal Act, to act on behalf of a contracting authority, and to prepare project agreements to be entered into between a contracting authority and a private entity. The PPP Nodes currently report to the contracting authority. The Bill proposes that the contracting authority directly reports to the Directorate.
The Bill makes it mandatory for the publication, in at least two newspapers of national circulation, of the details of an executed project agreement regarding a PPP. It is our view that this proposal will enhance the principles of public participation and access to information in the procurement and award of PPP projects. It is noteworthy that this is not provided for under the principal Act.
Public Private Partnerships Procurement Methods
Under the principal Act, there are two procurement methods for PPPs: Competitive Bidding and Privately-Initiated Proposals (PIPs). PIPs are the subject of much scrutiny due to concerns of lack of transparency and lack of objectivity associated with the tendering process. The Bill tries to curb this shortcoming by setting out clearly the circumstances in which PIPs are to be initiated. A good example is if the project is aligned with national infrastructure priorities, if it meets a demonstrated societal need, and if the project provides value for money.
The Bill proposes additional procurement methods for PPPs such as direct procurement. It, however, reserves this method for exceptional circumstances, such as where the works or services are only available from a limited number of private parties; when there is urgent need; and where direct procurement shall significantly lower the cost of the project. The projects that qualify for direct procurement must also be linked to specific parties on account of national interest or external trade. We are of the view that, although this is good progress, there is a risk of this method being misused, given the procurement scandals that have rocked our country in the past.
The Bill provides for the applicable procedure for the establishment of various committees in the procurement process. The Bill provides for the establishment of prequalification committees by a contracting authority for the evaluation of the bidders. It also provides for the constitution of constitution dialogues. Further, it provides for the manner in which the evaluation of bids, negotiations and approval processes are to be carried out; the establishment of a project company by a bidder for the carrying out of a project; the manner in which a tender may be cancelled; and the publication of information on the results of a tender process.
The Bill proposes to make it mandatory for PPPs to give priority to local services or content. It defines the term ‘local content’ as the added value brought to the Kenyan economy from PPPs by way of local distribution of accruing benefits, including through the procurement of locally available workforce, services and supplies, and systematic development of national capacity and capabilities.
Once the Bill is enacted, the PPP Committee, on the advice of the Directorate, will issue guidelines, standards and practices notes on the application of local content for effective implementation and operationalization. We are of the view, however, that the implementation of this provision may be difficult to achieve.
Implementation of PPPs by county governments.
Another significant change to the framework of PPPs under the Bill is the entering into PPP agreements between county governments and private entities, and providing more provisions for the implementation of PPPs by County government. Where county governments intend to undertake a public private partnership project, it shall obtain approval of the County Assembly before embarking on it. It also has to obtain the written approval to undertake the project from the PPP Committee and the Cabinet Secretary in charge of finance, where the project would require a measure of government support, or where the project exceeds the fiscal ability of the county.
To this extent, the Bill is laudable for bringing into focus the role that county governments play in the PPP framework, as envisioned under the Constitution.
The Bill gives the Directorate the power to impose a mandatory success fee of not more than one percent of the total project cost, payable into the Public Private Partnership Facilitation Fund, on a private entity that achieved financial close on a project. Financial close, unlike in the Act, is defined as the date when all conditions thatprecedent requires to be met to achieve first drawdown on senior debt under a project agreement are met.
Under the Principal Act, it is not mandatory for the private entity to pay the success fee. For Privately-Initiated Proposals, the Bill introduces a non-refundable review fee payable into the fund by the private entity. It is possible that these changes end up discouraging investors, as they would have to part with the fees or otherwise face a penalty.
The Bill is likely to create a conducive business environment that will foster Kenya in achieving its developmental growth. The Bill shows good progress, noting that the journey of a thousand miles begins with a single step.
By Dennis Kachero