Kenya will benefit from partnerships in big projects

Opinion and Analysis

  

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By BAHATI MORARA

Google CEO Sundar Pichai. With Larry Page heading up Alphabet, Sundar Pichai, a long-time Google executive who most recently served as the company's senior vice president of products, will head Google. PHOTO | FILE |  AFP

Kenya has for a long time employed traditional procurement methods but has recently introduced Public Private Partnerships (PPPs) as a way of enabling private sector participation in infrastructure development.

In 2013, Kenya enacted the PPP Act which paved way for capital and infrastructure projects to gravitate towards PPPs. The National List of Priority Projects currently includes over 60 infrastructure projects earmarked for PPPs.

This in essence allows for risk sharing while encouraging innovative ideas by the private sector.

PPP projects involve long term contracts between public authorities and private partners aimed at providing public infrastructure or services, where the private partner bears significant risk in terms of financial, operational and management responsibility.

PPP projects have various delivery models, like service contracts, management contracts, lease contracts, and concessions which focus on long term agreements.

The PPP Act requires a transaction advisor to guide the government from the PPP procurement process to its financial close. This is so because many agreements ought to be reached and a proper feasibility study carried out to give comfort to both investor and the government.

The introduction of PPP projects in Kenya’s infrastructure development is a major milestone for the government in providing services at an accelerated and an affordable rate.

Unique

Depending on the project and sector, the typical contractual structure involves a number of agreements. The government has identified and prioritised some specific projects under the PPP model.

PwC has defined a typical contractual structure as involving government agencies, a Special Purpose Vehicle, contractors, lenders and equity providers.

This arrangement involves project agreements, engineering, procurement and construction contracts, operations and maintenance contracts, and funding agreements.

In many PPP projects the government has engaged in, the infrastructure projects have been unique in that it has been the first time projects have deviated from the traditional procurement process.

In all this, PwC’s role has been to help institutions achieve Value for Money (VfM) through optimisation of risk allocation and ensuring deliverability.

Due to the mentioned risks, it is vital for road PPP projects to consider the payment mechanism, VfM and affordability to achieve an optimal balance between the costs and the benefits.

For Kenya to benefit from such arrangements, an efficient procurement process must be put in place which is clear, transparent, robust, fair, cost-effective and competitive, so that the highest value for the procuring authority is attained