By, Eng. Stanley Kamau. He is the Director, PPP Unit at the National Treasury
Public Private Partnerships (PPPs), as the name suggests, refer to collaborations between public agencies and the private sector. PPPs are, however, neither privatization nor government outsourcing. Unlike in outsourcing, PPPs require the private sector partner to assume substantial risks. Unlike privatisation, ownership of the new or rehabilitated infrastructure asset remains with the Government.
This will entail, for instance, the private party designing, building, financing and operating a certain infrastructure before finally transferring it to the Government after a certain period. The fact that the private party assumes some or all of the risks results in greater due diligence in project selection ensuring that only the very sound projects are cleared for implementation, as investors are highly cautious with their capital.
Traditionally, it is a key role for governments to provide key infrastructure such as roads, rail, power plants, ports, education, health facilities etc. Unfortunately many governments especially here in the developing world face huge infrastructure funding deficits, implying only a few of the many desired infrastructure projects are ever implemented as planned. For most development projects, it takes some time before resources to implement them are mobilized. Infrastructure, being a key catalyst for economic growth, this result even to a greater cost in terms of delayed benefits to citizens and bridled economic performance.
This has resulted in many governments providing a greater role for private sector to partner with governments to provide key infrastructure. That said, PPPs are never meant to have the private sector replace the government as the main provider of public infrastructure. Indeed this is the very essence why governments exist. What PPPs do, is allow the government assume a monitoring role, in fields which are best run and maintained by the private sector or in which they state is short of funds to invest. The role of such a service hence still ultimately rests with the government.
And whereas the private sector players view PPPs as business opportunities thereby expecting a return on their investment and rightly so, there is broad consensus that it is economically more beneficial to have modern and well maintained infrastructure even if at a slightly higher price, than have a dilapidated one or worse, none.
PPPs therefore aim to tap private sector capital and expertise to enhance the total budget available for development in a country. A simple example would for instance is when the government is only able to finance construction of only 100 KM of tarmac road at a particular period due to budgetary constraints. The state could however invite the private sector to construct 1,000 KM of roads instead and either pay them gradually through public funds, have the end users pay a modest fee or have a combined method of compensating the private sector. PPPs in essence enhance the pot of available funds to undertake development projects for the benefit of the common man.
There are many other benefits to PPPs are well. Not only do PPPs tap private sector money, they also benefit from efficiencies normally characteristic of the private sector. Private capital and efficiency result in lower needs for the government to borrow more, hence less debt and the attendant stable macroeconomics, less delays in project completion hence greater project price certainty and higher levels of maintenance throughout the life of an infrastructure asset among others. On the other hand, PPPs create more investment opportunity for the private sector.
These factors have seen PPPs adopted by many developed and developing nations particularly in the last three decades as nations compete to provide modern infrastructure which in turn translates to competitive business environments and higher standards of living for their citizens. The United Kingdom has for instance attracted £54 billion spread over 725 projects by close of 2013. India has closed deals worth well over US$ 700 billion through the PPP model since the turn of this millennium. Closer home, South Africa has attracted a couple of billions of dollar worth PPP projects in tourism facilities, roads, rapid rail and hospitals among others.
Kenya which is leading the foray into the PPP market in the East African region has also had a fairly tested experience with PPP projects. The electricity sub sector has witnessed substantial investments by the private sector in the form of Independent Power Producers (IPPs) which have complemented government’s role in provision of electricity over the last twenty years or so.
Kenya’s desire to spread the benefits of PPPs among other sectors of its economy has gained momentum and sharper focus with the enactment of the PPP Act of 2013. This law provides a predictable and straight forward process of procuring and implementing PPP projects. This is to ensure quality and affordability checks so that only projects with maximum benefit to the country and its citizens cleared for implementation. Other than detailing the PPP steps, the PPP Act has also established key institutions within the Treasury and the Contracting Authorities to guide and support origination and execution of PPP projects in the country.
With a stable PPPs legal regime, Kenya has witnessed great enthusiasm by various national government agencies as well as county governments keen to employ the PPP model to implement different infrastructure projects. Some of the priority projects have been on the cards for years owing to inadequacy of resources. So far, the National Treasury has pipelined sixty eight (68) infrastructure projects to be undertaken through the PPP model. These range from education facilities such as university hostels, to roads, airports, sea ports, power plants, solid waste management plants etc.
With a couple of respected investment reports placing Kenya as a strong favourite in the emerging markets, there is positive sentiment among many investors eyeing to undertake PPP projects in the country. These feasibility studies are being undertaken or concluded by the different line agencies in readiness of taking the projects to the market.
By adopting global best practice, assembling well-capacitated institutions to drive the PPP agenda, a consistent legal framework, a robust of promising projects and finally a keen interest by local and international capital markets, PPPs appear poised to send Kenya into a middle income country in line with Vision 2030. Modern infrastructure will be both the means through which to competitively produce our goods and also distribute the accruing goods.