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Treasury cuts red tape in fresh bid to tap PPPs

FINANCIAL STANDARD
By Macharia Kamau | Apr 12th 2022 | 4 min read
By Macharia Kamau | April 12th 2022
FINANCIAL STANDARD
Treasury CS Ukur Yatani (left) shares a light moment with National Assembly Majority Leader Amos Kimunya (C) at Parliament Buildings,  April 7, 2022. [Elvis Ogina, Standard]

Over the years, the government has talked big about tapping private capital in developing mega infrastructure projects.

This has, however, achieved little success, with the most visible success story under the Public-Private Partnership (PPP) sphere being the nearly-complete Nairobi Expressway. There are a few other projects scattered across sectors but mostly in power generation.

But the National Treasury reckons it may have figured out what has kept private firms away from pumping billions of shillings into infrastructure projects.

In addition to the review of the legal framework with the new PPP Act enacted in December last year, Treasury Cabinet Secretary Mr Ukur Yatani has proposed further interventions that will be put in place over the next financial year as the government seeks to attract more private sector capital.

The PPA Act cuts the bureaucracies that, according to Treasury, were previously embedded in the processes of engaging private sector players in infrastructure building.

The law review was aimed at getting rid of the too many approvals that investors had to get before a project was approved. “The PPP programme has gained traction under the new PPP Act, 2021 that has reduced the number of approval processes, introduced timelines and strengthened the institutional framework by elevating the PPP Unit to a Directorate in the reasury,” said Mr Yatani when he presented the Budget Statement last Thursday in Parliament.

"So far, the government has achieved closure on a number of projects, of which a key one seeks to deliver over 4,000 housing units to frontline Kenya Defence Forces personnel."

The new law also transforms the PPP Unit at Treasury into a directorate, giving it more autonomy. CS Yatani also said the government is putting in place other measures that are expected to make PPPs a success.

"To ensure projects with the highest socio-economic returns are selected and implemented, we are putting in place a joint public investment management and PPP planning framework and strengthening the coordination between the Public Debt Management Office and the PPP Directorate for effective control of fiscal exposure as envisioned in the new PPP Act, 2021,” he said.

“Further, the government will fully operationalise the PPP Project Facilitation Fund to support activities of PPP Directorate and those of the contracting authorities in the preparation phase of a project during the tendering processes and project appraisal,” added the CS.

Treasury hopes to build on the Nairobi Expressway, whose implementation can be viewed as a major success in implementing projects through the PPP model.

China Road and Bridge Corporation (CRBC) designed the 27.1km expressway between Mlolongo and Westlands, sourced funds and will operate it for the next three decades, charging motorists road tolls for maintenance but also to recoup its investments.

A section of the Nairobi Expressway.  [Elvis Ogina,  Standard]

The road has been put up at Sh88 billion.

Construction of the Nairobi-Mau Summit Road is set to commence this year.

The Rift Valley Highway Company is expected to build the 233km road at Sh160 billion through the same model.

The company is a consortium of Vinci Highways SAS, Meridian Infrastructure Africa Fund, and Vinci Concessions SAS.

Analysts at Deloitte Kenya noted that the law review is a starting point for getting more private capital into the local infrastructure scene.

"The government took a step in the right direction, with the PPP Act, 2021 coming into effect in December 2021, setting fit for purpose laws for the participation of the private sector in development projects. The reprioritised PPP pipeline targets to unlock an estimated Sh350 billion in new development capital for priority projects in 2022,” said Deloitte Kenya in its post-budget analysis.

“Developing Kenya’s infrastructure is one of the key factors expected to support economic growth in the medium term as the country plans to establish itself as a gateway to East Africa.”

The firm noted that there is an appetite within private companies for pumping money into mega projects, citing the 19-year infrastructure bond that the government floated recently and the kind of response it got from the market.

“The government floated a 19-year Sh75 billion infrastructure bond in February 2022 for funding of infrastructure projects in the 2021/2022 budget estimates, with the CBK (Central Bank of Kenya) taking up Sh98.6bn at an average rate of 12.965 per cent. This performance underlines the massive advantage drawn by infrastructure bonds from their high return and tax-free status,” said Deloitte.

“The Kenyan government should also look to expand access to reliable and clean energy to all households by investing in power generation programmes in geothermal, wind and solar in line with its target of attaining full transition to renewable energy by 2030,” added the firm.

Other than the numerous projects that have been earmarked for development through the PPP model that appear may never get off the ground, the government has in the past attempted the implementation of the Roads Annuity Programme.

Through the programme, which is a variation of PPP, the government had hoped to build or rehabilitate 2,000 kilometres of roads (and eventually build this to 10,000km) by engaging private contractors who would raise an agreed portion of the funds required to do the roads. The money would then be paid by the government over time.

The programme, however, proved unsustainable as many of the contractors selected struggled to get capital, including credit from banks.

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