PPPs the way to go to ensure development of infrastructure
What you need to know:
- Current estimates indicate that nearly two million people in and around Nairobi need modern, decent and affordable housing. The development of housing for this majority is envisaged to be achieved through PPP arrangement, among other approaches.
- In fact, the government is evaluating bids, with the successful bidders to put up houses on three sites in the next three years.
- Other projects being considered for implementation under the PPP model are health facilities, prisons, roads and bridges, ports, airports and railway infrastructure, power generation, transmission and distribution plants, inland container depots and logistic hubs, petroleum storage depots and distribution systems and solid waste management.
Despite substantial increments in the development budget in the last couple of years, the government still cannot provide adequate housing, healthcare, educational facilities, transport, among others, mainly due to a shortage of funds for infrastructural development.
Yet it should develop the country without necessarily increasing the national debt. so that other macroeconomic aspects remain stable and make the country attract more investments. This would enable the government to focus its resources on other public priorities, says Mr Kaara Wainaina, the Public Private Partnerships (PPPs) Unit’s external affairs expert.
Consequently, the government must seek other sources of finance for its development agenda, Mr Wainaina, notes, adding that public private PPPs are an ideal alternative.
Indeed, this was the main rationale behind the adoption of public private PPPs, with the government adopting a PPP policy and the subsequent Public Private Partnership Act (PPP Act) of 2013.
“A PPP is an arrangement between a public body or contracting authority and a private party in which the private party undertakes to perform a public function, or to provide a service on behalf of the contracting authority, and receives compensation through user fees, government payments or a combination of both,” says Mr Wainaina.
Unlike public procurement, where the government buys a service of function, PPPs are largely collaborations between the public and private sectors, in which “public” includes the government or government bodies such as ministries, departments and agencies and private sector players, in which the latter provide funding for the design and management of the project,” he explains.
“In exchange for the service or function, the private party receives compensation from a public fund, or charges, or fees, or both, from users or consumers of the project.
However, Mr Wainaina notes, “The PPP model does not mean that the government surrenders its functions to the private sector. PPPs simply enable the country to undertake more development projects by partnering with the private sector, thereby ensuring access to a larger pool of resources,” says Mr Wainaina.
“There are also areas in which the private sector is more efficient in delivering, maintaining and projects than the state. As a result, the PPP model enables better maintenance and schedules of projects, ensuring that wananchi get better services.
This means that low-cost housing, as well as housing for civil servants, police officers, prison warders could benefit a great deal from this model, Mr Wainaina says.
Indeed, many urban centres in the country have an acute housing shortage, especially for low-income earners. This has led to the proliferation of slums and squatter settlements.
The current housing policy, which is in line with Kenya’s Vision 2030 for urban housing, requires an increase in the annual provision of housing units from the current 35,000 to 200,000 annually.
Current estimates indicate that nearly two million people in and around Nairobi need modern, decent and affordable housing. The development of housing for this majority is envisaged to be achieved through PPP arrangement, among other approaches.
In fact, the government is evaluating bids, with the successful bidders to put up houses on three sites in the next three years.
According to the Ministry of Lands, Housing and Urban Development, the contracts will cover three sites in Nairobi: one on Park Road, which will house 1,600 units; the second in Shauri Moyo to house 2000 units; and the third in Starehe, which will house 6,400 units.
The houses are intended for low-cadre civil servants.
There are also upcoming projects that target the low- and middle-income segment, which have largely been shunned by private developers in the past due to their low profit margins, and other targeting housing upgrades in Eastlands as well as for the police and prison services.
The county is also looking to establish office blocks and other amenities.
Kenyatta University is one of the public universities that have adopted the PPP model to build student hostels. Negotiations are at an advanced stage and should be concluded soon so that the project can begin.
Other projects being considered for implementation under the PPP model are health facilities, prisons, roads and bridges, ports, airports and railway infrastructure, power generation, transmission and distribution plants, inland container depots and logistic hubs, petroleum storage depots and distribution systems and solid waste management.
Transaction advisers (consultants who assist in the preparation of feasibility studies and transaction documents) are already on the ground, retained to support road projects like the operation and maintenance of the Nairobi-Thika road; the development,operation and maintenance of the Mombasa-Nairobi Road and the Nairobi-Nakuru road; the operation and maintenance of the Southern Bypass (from Mombasa road to Kikuyu) and also the proposed second Nyali Bridge, says Mr Wainaina. Once the transaction advisers finish packaging these projects, they will be brought to the market, he adds.
Mr Wainaina stresses that a stable regulatory framework, as exemplified by the PPP Act of 2013, bankable projects and private capital are critical factors for the success of PPPs, adding that Kenya is fortunate to have all three.
“PPPs run for many years and the private sector is wary of legal, financial and political changes. It is, therefore, important to address their concerns and offer strong assurance through firm legal instruments. And the Public Private partnership Act of 2013 provided this strong legal assurance to investors that the covenants they enter into will be respected, even if there is a change of government,” says Mr Wainaina.