Advancing Success :Navigating Kenya’s PIP Approval Process

Introduction

Turning Proposals into Projects

Public-Private Partnerships (PPPs) have emerged as a strategic tool for Kenya to address infrastructure gaps and enhance public service delivery. These collaborative arrangements between government and private sector entities to finance, design, construct, and operate public infrastructure or services, offer a viable alternative to traditional public sector project implementation.

PPPs can take various forms, including Build Operate Transfer (BOT), where the private entity builds, operates, and maintains a facility before transferring it back to the government; Build Own Operate (BOO), where the private entity retains ownership; Build Own Operate Transfer (BOOT), combining ownership with eventual transfer; Build Transfer Operate (BTO), involving ownership transfer followed by a leaseback arrangement; and Design Build Finance Operate (DBFO), where the private sector undertakes all project phases and is compensated through service payments.

Successful PPPs are anchored on three core principles. They must deliver exceptional value for taxpayers’ money, be financially sustainable, and effectively manage risks. This means balancing project costs and quality, ensuring affordability without overburdening the public, and strategically transferring project risks to the private sector.

The Public Private Partnerships Act (the “Act”) provides the legal framework for PPPs in Kenya. The Act empowers government agencies to collaborate with the private sector on various projects through direct procurement, privately initiated proposals (PIPs), competitive bidding, and restricted bidding.

Notably, PIPs offer a unique opportunity for private entities to proactively propose projects that align with the country’s development goals. However, navigating the approval process for these proposals can be challenging. This article unravels the complexities of getting a PIP greenlit, providing insights for businesses and private entities looking to partner with government agencies.

Unpacking PIPs

As the name suggests, a PIP is a proposal that is originated by a private party without the involvement of a contracting authority and may include information that enables the complete evaluation of the proposal as if it were a bid. The Act lays out a clear roadmap for evaluating and approving PIPs, as a core  function of the Public Private Partnership Committee (the “Committee”).

Submission and Requirements of a PIP

For a private entity to get a PIP on the government’s radar, it must meet a strict set of criteria. The PIP must demonstrate clear alignment with Kenya’s development goals, offering compelling value for money and a solid financial blueprint. It’s essential to showcase the project’s feasibility, transparency, and how it effectively manages risks.

Further, a comprehensive proposal is a must. This includes a detailed project overview, in-depth analysis of societal needs, robust environmental and social impact assessments, clear technical specifications, and a convincing financial model. The proposal should also outline the project’s operational plan, identify potential risks, and transparently disclose any required government support. Justifying why the project is not suitable for open competitive procurement is also crucial.

There is a financial commitment involved in submitting a PIP. The private entity pays into the Public Private Partnership Project Facilitation Fund, a non-refundable fee, calculated at the rate of 0.5% of the estimated project cost or USD. 50,000, whichever is lower.

Upon submission of the PIP, the contracting authority forwards the proposal to the Directorate of Public Private Partnerships (the “Directorate”) for assessment and approval.

Evaluation of a PIP

The evaluation process begins with the Directorate, through appointed transactional advisors, conducting a thorough background check on the proposing private entity. This includes verifying the entity’s financial health, legal standing, tax compliance, and any history of corruption or misconduct. The aim is to ensure that only reputable and capable partners are considered for PPP projects.

Once a PIP clears the initial due diligence hurdle, it enters a rigorous evaluation phase. The Directorate, in collaboration with relevant government agencies, establishes specific criteria to assess the proposal’s merit. These criteria encompass the project’s alignment with public interests, its technical feasibility, suitability for a PPP model, and overall affordability.

 This comprehensive evaluation process, which typically takes about three months, culminates into  a detailed assessment report, that is presented to the Committee, determining if the project proceeds to the project development phase.

Project Development Phase

Once a PIP gets the Committee’s green light, it enters the development phase. This critical stage requires the private entity to conduct in-depth studies and develop a comprehensive project plan. Within six months, the project must be outlined in detail, including its geographical scope, technical specifications, financial projections, legal implications, and environmental and social impact assessments. The goal is to create a detailed blueprint that demonstrates the project’s feasibility, financial viability, and alignment with public interests.

This phase also involves crafting a risk management strategy and outlining the proposed partnership structure. Crucially, the project must demonstrate a plan for stakeholder outreach and public participation to ensure social acceptability of the project.

To ensure thoroughness and impartiality, the contracting authority, in co-ordination with the Directorate, ordinarily enlists external experts to review the project plan and studies conducted by the private entity. Their independent assessment provides an additional layer of scrutiny.

Ultimately, the Committee makes the final decision based on the project’s alignment with public interests, feasibility, suitability for a PPP, and affordability. The Committee may approve the project to proceed to the procurement stage, recommend alternative approaches, or reject the proposal altogether.

Negotiating the Deal

Once the project development plan is approved, the contracting authority,  in consultation with the Directorate forms a negotiating team to hammer out the finer details with the private entity. These discussions cover a wide range of aspects, including technical specifications, commercial terms, legal agreements, social impacts, environmental considerations, local content, and financial terms of the project agreement.

The goal is to reach an agreement that balances the interests of both parties while adhering to the original project parameters. Upon conclusion, the negotiating committee submits to the contracting authority a project and financial risk assessment report which specifies the negotiated terms, the contingent liability in respect of the project and the committee’s recommendations, for further approval.

Final Approvals and Project Commencement

Once the contracting authority gives the green light to the project terms and the negotiating committee’s recommendations, the next step is to pass the project and financial risk assessment report to the Directorate. The Directorate reviews and forwards it to the Committee for the final stamp of approval.

With approval in hand, the contracting authority drafts the final project agreement and sends it to the Attorney-General for clearance. Once cleared, the project agreement is presented to the private entity for signing. The clock starts ticking and the private party must kick off the project within 12 months of signing the agreement.

Conclusion

Navigating the labyrinth of Kenya’s PIP approval process requires careful planning, meticulous execution, and a deep understanding of the regulatory landscape. While the potential rewards of successful PIPs are substantial, the journey is fraught with complexities. From crafting a compelling proposal that aligns with national priorities to securing multiple approvals and navigating complex negotiations, the process demands attention to detail.

By demystifying the steps involved and understanding the key decision points, private entities can enhance their chances of successfully partnering with the government to deliver impactful projects that benefit the nation.

For more insights and expert advice on PPP/ PIP Contact

Esther Omulele – [email protected]

Margret Muiruri – [email protected]

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