What you need to know:
- The number of PPP projects that have achieved financial closure has increased significantly.
- Negotiated well, the road annuity programme is a win-win deal for the investor and the taxpayer.
Significant developments have happened in the public-private partnerships (PPP) space. You don’t hear about them since we have an obsession with the political theatre.
With the general elections around the corner, even game-changing economic policies with far-reaching implications on citizens’ livelihoods have been put on the back burner, crowded out by our rather huge appetite for the politics of tribe and ethnic coalitions.
We in the press will one day be called to take our full share of blame for fuelling the national obsession with sterile politics while giving short shrift to important happenings in the economic front. So what exactly has happened in the PPP space that we have given inadequate attention?
First, within a very short time, the number of PPP projects that have achieved financial closure has increased significantly. For example, under the road annuity programme, projects worth hundreds of billions of shillings have just been signed off. I need not cram the column with the list.
Secondly, the vibes you get out there from discussions with private sector players is that, for the first time in many years, letters of support, critical to bringing projects to bankability, are being issued promptly.
I consider these developments significant because the PPP solution is how we will manage to build more roads without spending or borrowing too much money — at least in the short run.
Negotiated well, the road annuity programme is a win-win deal for the investor and the taxpayer. The project is paid for from a dedicated annuity fund, which means you don’t have to rely on weekly Exchequer issues. Established more than six years ago, this fund, which gets money from a fraction of the road maintenance levy, has accumulated billions of shillings.
Yet another significant and interesting PPP project that has progressed is the staff housing project the Kenya Defence Forces (KDF) is developing. I gather that KDF is going out shortly to tender to invite interested contractors to build staff houses.
That KDF has managed to get this project to this stage is no mean feat, considering that this is a complex transaction requiring capacity in investment banking skills and ability to vet and procure bids.
Under the arrangement, KDF will be inviting to design, finance and build houses for the men and women in uniform based on an agreed periodic payment plan.
When the tender for the project is finally put out, expect to see a huge appetite for it from the private sector. As opposed to projects funded directly from the Exchequer, the money to pay the contractor will come from funds pooled from house allowances paid to members of the armed forces.
By adopting the PPP model, KDF can now spend billions of shillings on building houses for its staff while staying within limits on public spending and public debt.
Should the experiment work, we may have accidentally bumped into a solution for the intractable problem of the crippling shortages in police housing. A PPP solution for police housing would be viable. Police stations have a lot of idle land only used as parking space for derelict accident vehicles.
Still, by far, the most significant development in the PPP space is the introduction of the recently published PPP Bill 2021. At last, we’re going to have a legal basis to introduce a strong institutional framework for running and overseeing PPP projects.
The centrepiece of the Bill is introduction of a powerful entity with ultimate authority on matters PPP. Until now, the responsibility has been in the hands of a tiny bureaucracy at The National Treasury known as the PPU Unit, whose funding depends on the precarious benevolence of the World Bank.
Worse still, responsibility for PPP projects is spread across so many autonomous entities and contracting authorities that it was impossible to hold anyone to account for the success rate. Under the proposed law, it would be possible to allow privately initiated proposals from investors. The options for procuring PPP projects would also be expanded.
Yet another significant change in the Bill is that it provides a clear framework for county PPP projects. Under the current law, county governments are only permitted to contract PPP projects if they did not give rise to contingent liabilities. If you ask me, this is a foolish restriction because all PPP projects must, by definition, come with contingent liabilities.
The Bill seeks to remove this restriction.
The appointment of an experienced investment banker to run the PPP directorate proposed by the Bill is yet another important sign of the times. PPP contracting cannot be left to armchair bureaucrats with neither domain knowledge nor experience in the complex world of arranging and putting deals together.