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Projects in limbo as public private pacts lose shine

By Lee Mwiti | Updated Tue, April 11th 2017 at 08:18 GMT +3

Kenya has little to show for major infrastructural projects developed by the private sector under public private partnerships (PPPs). This is despite the Government’s praise for the pact as an alternative way to mobilise capital to fund infrastructure.

Kenya legally embraced the deal four years ago. The country’s annual infrastructure deficit stands at between Sh200 billion and Sh300 billion according to Treasury Cabinet Secretary Henry Rotich in a past interview.

Mr Rotich while praising PPPs said Treasury allocated Sh405 billion, against Sh2.1 trillion budget for the Financial Year 2016/17 to infrastructure, underlying the huge funding gap. “In Kenya, they have worked well. They are much better than privatisation. This is because the government only shifts the financial and operational risks associated with a project to the private sector, instead of yielding the entire project and its returns to the sector,” Mr Rotich said.

Experts however opine that there is little to show in terms of their impact in the local economy.

They argue that employing private capital which expects heavy returns is more expensive in the long run while putting up public projects.

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Patrick Macharia, a senior manager at PriceWaterHouseCoopers observes that unlike the highly held notion that PPPs have been working , their effect is yet to be felt. “PPPs have only been able to work in the energy sector alone. They are not working in other sectors. It is wrong for Rotich to say PPPs have achieved anything within such a short time span,” Mr Macharia says. He said the government’s reluctance has slowed down PPPs even in the energy sector.

“Back in 2000, power rationing became a problem and the government needed to partner with Independent Power Producers (IPPs) to get more power injected into the national grid. That is when a loose PPP policy that was not supported by the law was cooked up to accommodate the IPPs,” he noted.

The government came up with a comprehensive power purchase agreement which lured a lot of private capital into the energy sector.

Macharia blames failue of PPPs on lack of commitment by the national government. “After an investor does a feasibility study, he presents the report to the national government to recommend whether to go ahead with the project or kill it,” Macharia says. “Sometimes the government takes too long or ignores the report all together making the investor to suffer losses. This lack of commitment is locking away investors.”

Dr Alex Awiti, a consultant with Eco-Build Africa, which develops and invests in urban development and housing projects, and a director at the East African Institute, Aga Khan University says misplaced priorities in engaging PPPs puts key sectors in dilemma  - such as placing energy sector above agriculture.

“If investors could have been lured to come and invest in areas like water harvesting and dam construction, we would not be suffering food shortages during drought. Instead, incentives go mostly to energy,” Dr Awiti says.

The PPP Unit at Treasury headed by Stanley Kamau is supposed to vet investors and pinpoint viable projects that can be financed through such arrangement.

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Mr Macharia says the unit is a toothless entity without capacity to serve its mandate fully. “The PPP unit is understaffed,” he says. “If you want a PPP to work, the unit must have an expert for that specific area. For a PPP for a road construction, you need an expert in the same, but the unit doesn’t have experts,” Macharia says.

Since the PPP Act was enacted, not a single project has come to fruition outside the energy sector.

The first project that was proposed was the building of Kenyatta University hostels which has been unable to go past a PPP agreement stage. Investors say wrangles between the national government and counties have made it difficult for PPPs to work. Corruption especially in counties has not made things any easier.

Humphrey Watanga, a senior partner at Afcorp says wrangles between government and counties have been  a disservice to investors . “When you want to do a PPP with a country government, the national government is the only legal guarantor to the investment. When the State and the county wrangle, you miss out on the project,” he said.



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