By Daniel Mutegi Giti
We have experienced uncertainty in the last several months as counties threatened to shut down operations to protest what they said was a skewed revenue-sharing formula. If for nothing, lessons were learnt.
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As a result, we need to adopt ways for our devolved units to both develop much-needed infrastructure, and to mobilise extra resources for other services. One of the best methods is increasing the role of private sector, with one such method being Public Private Partnerships (PPPs). PPPs imply a variety of arrangements to facilitate participation of the private sector in development. It operates on a continuum between traditional procurement methods, where government has a high controlling stake in project finance and contracting, to full privatization. PPPs are accepted and endorsed by major international development organisations such as the World Bank and the European Union as a way for accelerating development in different sectors.
PPPs are not equivalent to privatization arrangements, in which governments lose control of assets and services. PPPs are attractive because they bring additional financing, technology, risk transfer, innovation in service delivery and effectiveness, which are central in final products pricing to end users. There are six implications for using PPPs in financing development and resource mobilisation for counties.
One,it is a long term contractual agreement, arrangement and relationship between government and private entity, through which such a private party contributes in the development of a public infrastructure or service. This contract must have clearly defined roles and responsibilities for each party, alongside strong enforcement mechanisms for compliance with agreed standards. Two, they entail introduction of private financing and substantial investments in the form of working capital, which makes the public budget to receive a boost in finances available for its development projects.
Three, the provision of infrastructure and services through the private sector under PPPsincreases the focus of the government from inputs to outputs. Four, there is considerable and practical transfer of project risks (investments, designs, construction or operations) to the party best suited to handle such and this turns out to be private entities, which is followed by elaborate reward system or compensation to the private party. It should be noted that county governments lose lots of resources in designs, construction or operational phases of projects, where in some cases, the assets are poorly constructed and have to be maintained at high costs or may be abandoned altogether in the traditional procurement methods.
Fifth, the private party must undertake complex contractual duties and deliverables and pre-specified project outputs. This means that the design and structure of a project must be agreed upon before commencement, which increases the project outcomes more than the traditional procurement methods.
Six, the developed infrastructure or services reverts back to the public sector at the end of the contractual term. This has the potential for increasing assets of a county and hence utilising the same to generate additional resources to finance development in other sectors. Lastly, infrastructure and services which were hitherto provided by the public sector are provided by the private sector under the design and build tasks conferred unto the contractor. Under a PPP arrangement, the county government will be charged with monitoring and evaluating the project outcomes, enforcing standards and regulations, setting the standards and policies and above all, participating in the definition of delivery strategies and outputs. The county and national governments undertake land allocation, transfer of assets, debt or equity financing and guarantees as may be needed to the private sector to enhance their performance. Counties have lots land which has not been not properly utilized and which can be sweeteners for PPPs deals under elaborate land swap models.
Kenya has demonstrated willingness to tap into PPPs through the PPP Act 2013, PPP regulations 2009, 2014, 2017 and the PPP Policy 2011, all of which guide PPP transactions. The County Government Act, 2012 Section 6 and the Urban Areas and Cities Act, 2011, Section 33 allows counties to use PPPs to deliver infrastructure and attendant services.
PPPs invoke three major issues constituting substantial resource mobilization for the county projects. Firstly, they are tools of governance, through introducing new governance paradigms in project planning and conceptualisation. The private party must deliver all project goals and objectives, while emphasizing adequate accountability from parties, making the project to run above board; this comes alongside reducing inefficiencies and inaction by the parties, thereby saving lots of resources for the county undertaking such a project.
Secondly, PPP is a financing tool,possible through private sector, who takes the huge burden of projects financing from the county, which can then concentrates and focus available resources to other areas which the private sector cannot profitably enter in like education – ECDE, polytechnics, staff salaries and health. Thirdly, PPPs are a development strategy through whichmany parties collaboratively work together and define the project objectives, deliverables, outputs, costs, timelines and more central the specifications. Many projects in Kenya are faced with extensions, delays and high cost variations due to unclear goals at the commencement of such projects. Other projects have low maintenance levels, hence shorter lifecycle, which makes it costly to deliver services.
Under a PPP, a project is conceptualised in such a way that all activities like design, finance, construction, operationalisation and maintenance are bundled together and handed over to the contractor, through the whole life cycle of the project concept. This incentivises the private party to seek ways to maximise the profits through ensuring that projects have adequate design, appropriate financing and adequate maintenance, in the process saving money, reducing variations and creating value. (
— Author is Urban Management, Monitoring and Evaluation, Specialist and a PHD candidate in Urban Management, University of Nairobi