To finance infrastructure projects, developing countries like Kenya are increasingly looking towards public-private partnerships (PPPs). PPPs do indeed present an opportunity for governments to receive private sector funding for infrastructure projects, whilst keeping such funding off sovereign balance sheets. PPPs allow the private sector to significantly contribute to the development, operation, and maintenance of public infrastructure projects by providing innovation and efficiency. Globally, private-sector participation in infrastructure development has proven to be effective in both emerging and mature markets. In Kenya, the Public-Private

Partnerships Directorate (the Directorate) reports that ten (10) PPPs, cumulatively worth USD 450,000,000, are presently in the post-procurement stage.

The country has recently introduced a new PPP regulatory framework through the Public Private Partnerships Act, 2021 (the PPP Act). The PPP Act was intended to address many of the pitfalls of its predecessor, including in the procedure required for Privately Initiated Proposals (PIPs).

This article explores the regulatory framework for PIPs under the PPP Act, the challenges that may arise, and how such challenges can be mitigated against.

Essence of PIPs

The PPP Act now enables private parties to propose projects to contracting authorities for implementation, aside from the standard direct procurement method where the government or contracting authority issues a tender for a proposed project. Generally, PIPs involve a private sector entity reaching out to the government with a proposal to develop an infrastructure project that may not have been budgeted or planned for. For this reason, PIPs are required to be in line with government policies and development objectives.

Accepting PIPs allows governments to benefit from the knowledge and ideas of the private sector on how to provide services people need. This is a significant advantage where limited government capacity means that the private sector is better placed to identify infrastructure bottlenecks and to devise innovative solutions. PIPs also provide the government with information about where commercial opportunities and market interests lie.

A PIP, as defined by the PPP Act, is a proposal that is originated by a private party without the involvement of a contracting authority and may include information that enables the complete evaluation of the proposal as if it were a bid. Such a proposal should justify why open competitive bidding would not be a suitable method of pro-curing the project. A review fee, capped at the lower of zero-pointfive percent (0.5%) of the estimated project cost or USD 50,000, is then paid to the contracting authority.

The receiving contracting authority then evaluates the proposal, including its alignment with national priorities, social necessity, value for money, fiscal affordability, contingent liabilities, fair market pricing, the sufficiency of supporting documentation and risk transfer efficiency. If satisfied, the authority submits the proposal to the Directorate.

Thereafter, the Directorate is expected to assess the private party’s compliance with set criteria within ninety (90) days, where such criteria may include public interest, project feasibility, partnership suitability and affordability. Following its assessment, the Directorate then submits an assessment report to the Public Private Partnership Committee (the Committee), which decides whether the project should proceed to the project development phase and what procurement method should be applied to the project.

Once approved, the proposal then enters the project development phase, where the private party undertakes essential activities like scoping, feasibility studies, impact assessments, partnership suitability evaluation, risk analysis and creating a comprehensive risk matrix. This phase is usually concluded within six (6) months of the Committee’s acceptance but may be extended for legitimate reasons.

Benefits of PIPs

PIPs provide governments with a unique opportunity to leverage the private sector’s ideas and expertise regarding the provision of essential services and other public goods. They utilise the unique knowledge the private sector has as a result of being in close contact with people at the grassroots level, which knowledge is crucial in the provision of services that are relevant to the people. Through PIPs, the government may benefit from proprietary information, trade secrets and intellectual property that is owned by private parties. In addition, PIPs provide foreign investors with the opportunity to pick sectors to contribute to, thereby participating in Kenya’s ongoing development.

PIPs are particularly advantageous in situations where governmental resources are constrained, since the private parties would play the lead role in identifying an opportunity for development and subsequently bear the cost of developing, building, operating and maintaining the project. The government, on its part, ensures that there is value addition to the public through these projects as it looks to improve and enrich the lives of its people. In addition, by giving private parties a leading role in building public infrastructure, PIPs allow for private parties to present joint proposals where they may undertake the proposed infrastructure project with a suitable partner who may best add significant value. This allows them to share risk, thereby presenting a more attractive opportunity for private sector players keen on getting involved in infrastructure and development.

PIPs can also expedite project development if used properly by allowing private entities to lead the fact-finding phase of PPP projects, minimising bureaucratic delays and enhancing the contracting authority’s approval speed. Likewise, the expertise and experience of private entities, either jointly or individually, would allow for increased efficiency at all stages of the project.

Ultimately, PIPs aid in creating an enabling environment for the growth of PPPs and, consequently, overall economic development as a result of increased PPP activity.

Challenges and Mitigation

Although PIPs encourage increased PPP activity, such proposed projects are still required to be undertaken for the benefit of the public at large and as such, should be in line with government development plans and priorities. A key concern relating to the use of the PIP method is that it may deny projects the benefit of a competitive procurement process. It is arguable that PIPs limit transparency, competition, and ultimately the value for money on the overall project due to how the procurement process is undertaken.

In a PIP method, a single bidder puts forward a proposal for consideration by the government agency based on the assessment of the proposed project. Had open competitive tendering been used, different private companies would have submitted bids to participate in the PPP project, where such competition generally aids in determining fair prices and quality, ultimately securing the government’s best deal. Generally, competition in a project helps boost value for money for the project by ensuring that the public receives the optimum balance between delivery of the project and price. With the reduced competition seen in PIPs proposals, concerns may be raised about the value for money of the proposed project.

To counter these concerns, the government can proactively work to enhance transparency by furnishing clear guidelines and practices pertaining to PIP submissions. An example of this may be through encouraging an additional round of bidding for projects that have already received submissions, to give an opportunity for price discovery. Another option that may be considered is the use of incentives, such as a “bid bonus system”, where the government grants an advantage to the original project proponent in the form of a premium used in the bidding procedure. This acts as an incentive to encourage private-sector involvement in PPPs through PIPs.

Further, PIP proposals may foster corruption due to the lack of transparency and competition that is inherent to their procedures. It is therefore important for contracting authorities to ensure that the assessment and approval of PIP proposals are free from external influences. In addition, it is important to put in place proper measures and procedures to ensure proper scrutiny and a competitive edge for each PIP. For instance, the “Swiss challenge” system may be of use where the PIP proposer is granted the right to counter-match the best offer from the competitive process and if they manage to do this, they are awarded the contract.

Lastly, the existing shortcomings of government agencies entrusted with various aspects of PPP execution may be dealt with by providing regular training to boost their knowledge and competencies in the respective procedures and processes of PPPs and PIPs. This will significantly strengthen their proficiency in overseeing PIPs.

Conclusion

PIPs may be a significant tool to unlock Kenya’s growth potential by filling gaps in development and infrastructure in the economy. PIPs provide further opportunities for the government and the private sector to join forces to finance and implement projects that benefit the public sector. By embracing PIPs and providing additional initiatives to address its existing concerns, Kenya can unlock new opportunities for private sector engagement, stimulating economic growth and ultimately improving the quality of life for its citizens through the successful implementation of PPP projects. In moving towards a more sustainable and inclusive future, these proposals can play a vital role in shaping our nation’s development landscape.