The treasury is seeking to reassure government contractors of payment in case they carry out projects that do not generate enough revenue to pay for themselves. Private companies will get compensation from the government for the jointly-developed public projects. This will only apply for projects that fail to generate enough revenues to cover their costs.
The treasury has revealed that there will be a reserve fund under the Treasury that will be used to help meet part of the capital expenditure and set-up costs associated with public-private partnerships (PPPs). Treasury cabinet secretary (CS) Henry Rotich has published the long awaited new regulations to effect this public-private partnership project facilitation fund.
PPP projects may also apply to the fund to help pay for land acquisition, which has come to be a major component of infrastructural projects in Kenya. These costs are however recoverable. The CS said the object of the fund is to provide financial support for the implementation of public-private partnership projects under the Act, which may be provided in the form of grants, loans, equity, guarantees and other financial instruments.
PPP projects that have the public as end-users will get funding provided by the government to ensure that companies engaged in the arrangements can still make a profit while providing service that is affordable to the end user. Some of the projects targeted by this financing model include roads. A funding gap has been identified by national highways authorities in the current models they use. The authorities who include Kenya National Highways Authority (KeNHA) have proposed to introduce highways with toll stations. This is in order to encourage private investors to build highways and thereafter recoup their investments by charging the road users. In the case of road tolls which, if charged at market costs, could be unaffordable for some motorists, the government would step in.
The regulations that the CS has introduced, however, restrict viability gap funding to a maximum of 51 per cent the cost of a project. Contractor will also be able to draw from the fund to cover unexpected eventualities that affect the completion of the project, for instance, default on the part of the state partner.
Government authorities and companies in PPPs will also apply to the fund to cover initial costs of projects such as feasibility studies and transaction costs. The PPP Act of 2013 provided for the establishment of the fund although regulations to operationalize it have been pending for three years.