Public Private Partnership in Real Estate: A Growth-Centric Approach in Kenya
Governments across the globe have had to drastically realign their mindsets from the conventional approach that sidelined help from private entities to achieve their set targets. Today, governments have realized that to achieve their targets, the synergy between the public and private sectors, especially through Public Private Partnership in Real Estate, is very critical.
Reforms in the housing sector, and essentially affordable housing, are a key pillar in the country’s Vision 2030 and the current Kenyan Government’s Big Four Agenda. Through Public Private Partnership in Real Estate, the Government was able to make significant progress in the following projects:
- In collaboration with Edderman Property Limited, the Government was able to commence and make tremendous steps in River Estate, Ngara (2,720 units).
- In collaboration with Tecnofin Kenya Limited, the Government was able to commence the Pangani Housing Project (1,562 units).
- In collaboration with Hydro Developers Limited, the Government commenced Hydro City, Kamiti (30,489 units).
- In collaboration with Africa Integras (Kenya LLC), EPCO Contractors, Triad Architects, and Broll Kenya Facility Managers, the Kenyatta University Hostels (10,000 beds) projects were rolled out.
- In collaboration with Meridiam, JV Unicamp, PDM-Roko-CBA Capital, and JV Unicamp, the University of Embu Hostels (4,000 beds) project was rolled out.
- In collaboration with Kesa, Meridiam, JV Unicamp, PDM-Roko-CBA Capital, and Chinese Overseas, the Moi University Hostels (15,000 beds) project was rolled out.
- In collaboration with Kesa and PDM Roko-CBA Capital, the South Eastern Kenya University Hostels (5,400 beds) were rolled out.
Looking at the above projects, it is evident that the introduction of public private partnership (PPP) has been quite instrumental in the Government’s execution of its big four agenda. This article interrogates wholly the concept of the public private partnerships Act, the legal framework, and whether there is room for improvement.
Demystifying the Positives of the Public Private Partnership Act No. 14 of 2021
The current Kenyan government has been riddled with numerous corruption scandals which have punctured public confidence in the Government. Many of these scandals involved high-ranking Government officers awarding tenders to private entities whose footing in the market was very questionable. A classic example is the Arror and Kimwarer dams’ saga.
The inescapable constraint on the public budget leads to inevitable gaps in the financing of Government infrastructure projects. Therefore, the inflow of private capital from private investors is quite strategic in the realization of the country’s goals. The introduction of the Public-Private Partnerships Act No. 14 of 2021, implemented on 9th December 2021 is thus a move that ought to be lauded. It brought about a ray of light, though not fully lucent, but still a triumphant foot in the right direction. It borrows heavily from the repealed Act with modifications that serve a very critical function in enhancing transparency and extinguishing unnecessary technicalities and in general simplifying the process.
The major highlights are discussed in the segment below:
The Public Private Partnership Committee
The Act retains the presence of the public private partnership committee already established in the repealed law. However, certain safeguards are put in place. They include the provision that members of the committee are mandatorily obligated to attend all meetings of the committee either in person or through a proxy. Another improvement in the law on PPPs is the reduction in the term of office for members of the committee from five to three years.
Another major highlight of the New Act is that it outlines the functions of the committee, unlike it was in the previous legislation. With the committee’s functions clearly defined, enforcement of the Act ceases to be an uphill task. The committee is tasked to oversee the process of implementation of partnerships between the public and private sectors, from the point of policy formulation to procurement to approval of negotiated contract terms.
Government Support Measures
The repealed law limited Government support to giving guarantees, undertakings and issuing binding letters of comfort. The new law is alive to the tense surrounding in the nation. The country is highly polarized along ethnic lines. The subversive influence of bureaucracies cannot be ignored either. Political scenarios can either promote or discourage the entry of private investors into the commercial atmosphere of any state. A country with a high propensity to political risks tends to be overlooked by investors. It was thus critical that for public-private partnerships to thrive, political risks had to be addressed and the new law did just so.
Section 28 of the Act makes additions to the modes of support advanced by the Government. It provides that the Government may issue an approval for the issuance of partial risk guarantees and political risk insurance. The bracket of government support is still left unclosed because the provision states that the Government may issue any other instrument that the Cabinet secretary responsible for financial matters may, on the advice of the committee determine, in strict consideration of public finance management laws.
Success Fees and Recoverable Project Development Costs
The repealed law provided that success fees and recoverable project development costs were to be guided by prevailing market rates. This provision was inelegantly written, as it left assessment of the costs to the whims and caprice of major players in the transaction. To cure this, the new law provides in section 29 that the success fee payable upon successful completion of the project shall not exceed 1% of the total project cost, for private parties that achieve financial close on a project. This is a very welcomed approach to attracting and creating a safe space for private investors willing to wheel resources into the country’s PPP projects.
Project Agreements
The repealed Act established a PPP Node which was tasked to act on behalf of a contracting authority to prepare project agreements to be entered into between the contracting authority and a private entity. This PPP Node was to report to the contracting authority, which would then report to the Directorate.
Section 31 of the new law speaks of a project implementation team constituted by a contracting authority. The team would comprise a representative of the directorate, technical, financial and legal experts of the contracting authority whose main role would be to oversee the conduct of feasibility studies of the project, preparing the project for procurement, conducting the tender stage of the project, and negotiating project agreements.
The inclusion of a representative from the directorate in the implementation team is a laudable move as opposed to the repealed law’s position where the unit’s role was merely consultative.
Conduct of Feasibility Studies
The new law ropes in, the directorate to the center of the study when it provides that feasibility studies are only conducted under the directions of the directorate as opposed to before when the unit’s role was peripherally consultative.
Implementation of Public Private Partnership by The County Governments
Devolution is a major component of our constitution’s basic structure. The new law makes a significant change to the framework of PPPs when it allows agreements between the county governments and private entities. Private sector players can now move their expertise and fiscal muscle to infrastructural developments at the County level. The law also ensures that the process is simplified. The county governments are required to obtain approval from the county assembly before embarking on the PPP projects as well as obtaining written approval from the PPP committee and Cabinet Secretary in charge of finance to exceed the fiscal ability of a country. This will in turn encourage more accountability and transparency between the national government and the county governments when undertaking PPP projects.
Promotion of Local Businesses
The Act has provided for the promotion of local business by accepting ideas from the country’s market. This is to add value to Kenya’s economy by procuring workforce, services, supplies, and systematic development of national capacity and capabilities. The PPP Committee with the Directorate is in charge of issuing guidelines, standards, and practice notes on the local content.
Procurement Methods
Under Section 37 of the Public-Private Partnership Act, a contracting authority may procure public procurement in the following ways:-
- Direct procurement;
- Privately-initiated proposals
- Competitive bidding;
- Restricted biding
The same shall be guided by the principles of transparency, cost-effectiveness, and equal opportunity. This is in line with the national values under Article 10 of the Constitution of Kenya, 2010.
Eventually, a conducive environment for growth and development in the private sector will be created in line with the vision 2030 towards sustainable and development goals.
Conclusion
The new law on PPPs addresses a significant number of obstacles and creates a safe space for private investors. Infrastructural development is at the heart of public-private partnerships. In the introduction, we listed seven projects done under the old law and some ongoing; it is noteworthy that a significant number of these projects are housing projects. Therefore, we have reason to expect a lot of positive development in the future. Public private partnership in real estate development holds great potential for future projects. Implementation is the only way to identify any existent loopholes left. Contact CR Advocates LLP for real estate legal consultancy on your PPP projects.
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