Let's make PPP work for Kenya

The slow uptake of PPPs, where for example it has been reported that the value of private investments in PPPs in Kenya dipped by 90.5 percent in the financial year ending June 2024, and the fact that the private investors injected only KSh. 4.3 billion into PPP projects, down from the Ksh. 45.3 billion injected in the financial year ending June 2023 shows that there is need to review and align the PPP process and regime in Kenya. 

In 2022, PPP projects drew KSh. 80.6 billion with some of the funding going to the completed 27.1 km Nairobi expressway project. In the current financial year, the National Treasury had projected to draw KSh. 50 billion into PPP projects and in the 2025/26 financial year, the government intends to initiate ten (10) mega projects valued at over 131.9 billion Kenya shillings through PPPs including one irrigation project, one water and sanitation project, three energy projects, two housing projects, and three health projects.

 There is need to develop strategies to make PPP projects succeed in Kenya, because public financing of projects faces many challenges, despite the demand for more goods and services from the public sector. Successful PPPs must protect and ensure that Kenyans get Value for Money (VfM) throughout project preparation, implementation and life of contract. The PPP process management from appraisal, preparation, award to completion, and step by step and progressive process or the “gateway” process is key for success. Lack of VfM means PPP projects will become a failure and hence deny citizens the goods and services that they need to enjoy a high quality of life in a clean and secure environment as envisaged under the Kenya Vision 2030 development blueprint. 

PPP project failures are because of defects in the identification, assessment and preparation (appraisal) of project, poor structuring, poor management of tender process (inadequate transaction management capacity), and poor contract management. 

In addition, the existence of high risks and limited incentives for private players can lead to PPP failure. The Asian Development Bank analyzed 6,273 PPP projects globally between 1991 to 2015 and found out that 259 were cancelled (worth $ 76.4 billion and 4.4% of committed $1.7 trillion PPP project), 67 were in distress and only 216 were completed. More than half of the cancelled projects were in Asia (54.5%), Latin America (40.8%) and Africa (2.9%) and of course the low failure rates of PPPs in Africa are because of the limited number of PPPs in the continent, which will change because more and more countries in Africa are embracing PPPs. 

PPP project failure can broadly fall into three groups – Economic, Politics and Execution aspects. Economic failure arises from skewed responsibilities, improper risk identification, quantification, assignment and incentivization for parties to perform the assigned tasks, inadequate public sector capacity and poorly drafted contracts. The public sector should prioritize PPP projects based on the needs and sound economic principles and not based on purely political reasons. 

PPP projects should yield positive net social returns. Politics can cause failure of PPP project as evidenced by the failure to understand the political and operating environment of projects; the electoral cycles and the legal and regulatory environments, including the official and non-official policies that underpin projects of every nature. 

The third cause of PPP project failure is execution, that touches on how PPP projects are executed and implemented over time. In order for Kenya to successfully leverage on PPPs, there is need for strong project preparation, preparation of adequate project feasibility studies to minimize deviations for socio-economic financial projections in terms of project outcomes. This depends on the human capital and expertise in the country on all aspects of PPPs – legal, procurement, financial and technical, environmental and social safeguards.

Additionally, there is a need for effective and adequate local financing and capital raising mechanisms, wherein local banks must take up this role to avoid foreign denominated loans and finance products that have a huge bearing on the cost of projects and hence the user fees of the final projects, hence a tendency to drive people away from uptake of PPPs. 

There is a need to structure and sustain reforms at the local capital markets to reduce a lot of foreign currency denominated transactions, which are subject to price and exchange rate fluctuations making projects costly and unattractive. Effective uptake of PPPs should be preceded by the development of clear project goals, objectives, including the motivations of the PPPs – whether a debt avoidance and reduction strategy or a mechanism of embracing innovation, technology and managerial prowess of the private sector.

Uptake of PPPs should be anchored on the existence and operationalization of adequate governance systems and support. This could include but not limited to setting up special courts; transparent and timely decision making; building the positive publicity of PPPs. effective management of the PPP process; effective cooperation between players; creating room for interested parties to suggest improvements, critique, and innovations for fast-tracking the PPP project development.