CABINET MEMORANDUM ON THE POLICY, LEGAL AND INSTITUTIONAL

FRAMEWORK FOR PUBLIC PRIVATE PARTNERSHIPS IN KENYA

1.0

OBJECTIVE

1.1

In the Budget Speech for 2007/08, it was stated that in order to

attract more financial and management resources to enhance our
countrys productive capacity, the Government was in the process
of finalizing the Policy, Legal and Institutional framework for the
implementation of Public Private Partnership (PPP) projects. As
stated in the speech, the framework would allow private sector
participation in the provision of key infrastructure services such as
water, energy, roads and other transport services. It was similarly
pointed out that the framework would be critical for the financing
of the flagship projects under Vision 2030. It was also indicated that
as part of this framework, the Government would create an
institutional framework to assess the fiscal risks associated with these
PPP projects. The objective of this memorandum is to present the
proposed Policy, Legal and Institutional Framework for PPPs and the
proposed regulations to the Cabinet for consideration and
approval.

2.0

BACKGROUND INFORMATION

2.1

A Public Private Partnership (PPP) is a contractual agreement

between a public entity (including Government Ministries and
Departments, Local Authorities and Government Institutions) and a
private party, whereby the private party performs a public sector
entitys service delivery function. A wide spectrum of PPP
arrangements exists, differing in purpose, service scope, legal
structure and risk sharing. At one end of the spectrum would be an
outsourcing of some routine operation, while at the other, PPPs
could involve the private sector designing, building, operating,
maintaining and financing a project, thereby taking a considerable
proportion of risk. A PPP may for example involve the private party
acquiring existing government property, rehabilitating it,
modernizing it or redeveloping it to meet increased demand and
standards. In return, the private party would recover its investments
through service tariffs or user charges, payments by the
Government or a combination of both user charges and
Government budget.

2.2

The PPP programme offers an opportunity for the country to attract

more private sector investments in financing infrastructure projects.
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Through the programme, the country would accelerate infrastructure

development by leveraging public sector financial resources with
private sector investments. This would accelerate availability of
public services to the consumers while improving the quality of life
for Kenyans.
Through this framework, many countries have
managed to accelerate up-scaling of their national infrastructure
and therefore to accelerate their economic competitiveness and
development.
2.3

For the PPP programme to yield the desired results there is need to:(i)

(ii)
(iii)

(iv)
(v)

(vi)

Create an environment conducive to encouragement and

attraction of private sector investors and operators to play a
greater role in infrastructure investments. Among other things,
the environment should reduce private sector risks to
internationally acceptable levels as a means of increasing
uptake.
Ensure risks are identified and placed with the party best
placed to bear and manage them at the lowest cost.
Ensure that projects are adequately packaged, consistent
with long term national objectives and priorities and are
subjected to competitive mechanisms to ensure affordability
for services at both user and national levels and value for
money.
Articulate Governments commitment to PPPs as this is an
absolutely essential component of any national PPP program.
Establish a strategic framework comprising of: a clear guiding
policy; appropriate legal provisions and institutional set up
capable of efficient implementation of PPP projects which
would ensure that PPP implementation is uniformly
coordinated and managed to optimize expected outcomes
for the country.
Ensure adequate implementation capacity including
adequate transaction, technical, contract management and
project monitoring expertise

3.0

CONSULTANCY ON PPP FRAMEWORK

3.1

In order to benefit from international experiences and best

practices on PPPs, with financial assistance from the PPIAF of the
World Bank, the Treasury procured the services of the Institute for
Public Private Partnerships (IP3) of Washington DC to advise on the
strengthening and harmonization of the Policy, Legal and
Institutional Framework for the PPP Programme in Kenya. These
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services were procured through an international competitive

process.
3.2

The consultant worked under the oversight of a Steering Committee

consisting of senior officers drawn from the relevant departments of
the Treasury, Office of the President (Vision 2030 Secretariat), the
Ministry of Planning and National Development, Attorney Generals
Office, Ministry of Lands, Ministry of Local Government and Public
Procurement Oversight Authority. The Institute commenced the
assignment in March 2007 and submitted the Final Report in
September 2007. Among other activities, the consultants held
Consultations with all major stakeholders including ministries, state
corporations and the private sector bodies to receive their views.
The views were considered prior to finalization of the final report.

4.0

FINDINGS AND RECOMMENDATIONS OF THE CONSULTANTS

4.1

The consultants observed that there is already a significant amount

of PPP activity underway and substantial potential in Kenya for the
use of PPPs in accelerating development of infrastructure. They
pointed out that since mid-1990s, Kenya like many other emerging
market economies, had engaged in a number of contracts and
had awarded licenses to private operators to provide
telecommunications, electricity, railways, municipal services, and
other key public services. Nevertheless, while a number of PPPs had
been implemented successfully, the weaknesses outlined below
had hampered effectiveness of PPPs as an effective option for
financing public services:
(i)

Experience with PPPs had largely been on a case-by-case

basis. There was neither official PPP policy nor standardised
procedures. As a result of the case-by-case approach, each
individual PPP contract had required considerable effort to
prepare and experienced unnecessarily long delays and
higher development costs.

(ii)

The development of PPP projects in the absence of a fully

developed national PPP framework had created, and
continues to create, potential unforeseen fiscal risks to the
national budget. There are concerns regarding protection of
the interests of Government and whether the projects have
actually achieved the desired PPP objectives.

(iii)

(iv)

There was a significant number of unsolicited projects

proposed by the private sector, most of which had not been
progressed significantly due to absence of guidelines on
handling of unsolicited projects.
Possibilities of PPP contracts being signed and implemented
that do not deliver more or better services, and which may
cost the Government more than it anticipated, in terms of
both direct financial costs and exposure to high levels of risks
throughout the PPP contracts term.

4.2

The consultants recommended establishment of a policy and

institutional framework in which PPPs can be implemented in a
more consistent manner, with appropriate standards and
procedures enabling fiscal control. A framework that will enable
PPP activity to continue, without creating undue and/or
unanticipated fiscal burdens in the years to come.

5.0

LEGAL FRAMEWORK

5.1

In view of the critical role anticipated to be played by PPPs in

future, stakeholders recommended that in the long run PPPs should
be given explicit recognition and status in a dedicated PPP Law. It
was however noted that the process of enacting a comprehensive
PPP law may take considerably long time while there is a pressing
need to deal with PPP proposals and projects that are emerging.
The consultants also advised that a comprehensive law is not
essential at this stage of the evolution of PPPs in Kenya. In this
respect, existing laws of Parliament, including the Public
Procurement and Disposal Act, whose regulations expressly provides
for issuing of PPP Guidelines, provide an opportunity for
Gazettement of PPP regulations to govern the process. The
consultants therefore recommended issuing of PPP regulations
under the existing laws. The Public Procurement and Disposal Act
(2005) also readily provides an appeals framework which is
necessary to expedite resolution of complaints.

6.0

INSTITUTIONAL FRAMEWORK

6.1

Without a centralised framework to facilitate systematic review of

PPPs and either approve or disapprove them, there will be continued
uncertainty about the Governments exposure to risks from the PPP
transactions, continued delays in processing of PPPs, limited focus in
PPPs as an alternative source of financing public services and limited
number of projects. In this respect, it has been recommended that a
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PPP Steering Committee and a technical unit to support the Steering

Committee, the PPP Secretariat, be formed. The Steering Committee
and its Secretariat will take the lead in coordinating the overall policy
and legal & regulatory framework for PPPs in Kenya.
6.2

In view of PPPs several financial implications: first as an alternative

source of financing for public infrastructure; second with respect to
expenditure to purchase services provided through the PPPs; and
third with respect to contingent liabilities that arise from
Government commitments, it is proposed that the PPP Secretariat
be placed under the Treasury. As per the analysis by the
consultants, establishing a PPP Secretariat under the Treasury offers
the simplest option for implementing a speedy start-up, urgently
needed to respond appropriately to PPP projects already being
proposed by various stakeholder government bodies and private
sector sponsors. The Secretariat would be close to the existing
resources under the Treasury (Procurement, Investments, External
Resources, Debt and Economic Affairs Departments) hence
keeping overall operational costs reasonably low and start up
mechanisms simple. It would also be legally simple to create and
could commence work quickly. This will give the Treasury a gatekeeper function to enable it to ensure proper fiscal management
and public investment planning. It will also enable it to monitor and
control current and future commitments and obligations, many of
which are likely to be of a contingent nature. A framework with one
overall coordinating unit within government would also reduce
overlap between the different parts of Government by specifying
the extent and limits of their respective roles in the identification,
promotion,
development,
assessment,
procurement,
implementation, monitoring, and contract compliance for PPP
projects.

6.3

The main functions of the Steering Committee would be to:(i)

(ii)

(iii)

Champion the PPP process and promote

understanding and awareness of PPPs among key
stakeholder groups;
Establishing PPP standards, guidelines and procedures
including development of standard procedures for
conceptualisation,
identification,
prioritisation,
development, assessment of PPP projects and
development of standardised bid documents;
Serve as a resource centre for best PPP practices in
Kenya including supporting capacity building in PPP

(iv)
(v)
(vi)

(vii)
(viii)
(ix)

projects planning, co-ordination and contract

monitoring;
Ensure compliance with the PPP standards, guidelines,
and procedures at all stages of the PPP project life
cycle;
Assess direct and contingent liability risk exposure of the
Government and advise on the acceptable levels of
liabilities;
Ensure that all proposed PPP projects are consistent
with the countrys Medium Term Expenditure
Framework and national priorities outlined in other
National Development policy documents;
Coordinate with the Public Procurement Oversight
Authority to ensure that all tender phase activities of
PPP projects conform to procurement regulations;
Manage the PPP project development fund discussed
under paragraph 8.0; and
Provide
interim
approvals
and
coordinate
processing of final approval/disapproval from the
Cabinet, after ensuring that there has been a
quality analysis of the PPP projects (testing for
Affordability, Risk Allocation, Value for Money e.t.c.) to
aid decision-making processes.

6.4

The PPP Secretariat will report to the PS-Treasury in his capacity as

Chairman of the PPP Steering Committee. The other members of
the Steering Committee will be the Attorney General; the
Permanent Secretary Office of the Prime Minister; the Permanent
Secretaries for Ministry of Energy, Ministry of Transport, Ministry of
Roads, Ministry of Water and Irrigation, Ministry of State for Planning,
National Development and Vision Twenty Thirty, Ministry of Local
Government, Ministry of Lands, Nairobi Metropolitan Development;
the Director General - Public Procurement Authority, the Investment
Secretary, Department of Government Investments and Public
Enterprises and the head of the Secretariat.

6.5

It is also proposed that the Steering Committee should report to a

Cabinet Sub Committee chaired by the Prime Minister, consisting of
Ministers from the Ministries of Finance, Energy, Transport, Roads,
Water and Irrigation, Ministry of State for Planning, National
Development and Vision Twenty Thirty, Local Government, Lands
and Nairobi Metropolitan Development.

6.6

As part of the institutional framework, Ministries, Local Authorities

and
other
Government
institutions
(Public
entity
promoting/sponsoring the project) will establish PPP Nodes to assist
them in implementing PPP projects. Through the PPP Nodes, the
public entities promoting the projects will play promotional,
sponsorship, project management, procurement, contractual and
monitoring roles. In this connection, they will carry out the related
activities and seek approvals of the PPP Steering Committee and
the Cabinet as per the approval process outlined in ANNEX 1.

7.0

STAFFING OF THE SECRETARIAT

7.1

Based on international models of successful PPP programs, a core

team of five (5) persons is recommended. As the set of skills needed
to implement PPP transactions are in very high demand, the
consultants recommended that a mechanism be developed
through which the PPP Secretariat can pay market rates to the
Unit's staff, possibly by seconding them from the Privatization
Commission or other Government Institutions. Taking this into
account, in consideration of the need to develop a strong
Secretariat that will not entirely depend on seconded staff, it is
recommended that Senior Staff, headed by a PPP Secretary, be
recruited at the Civil Service levels outlined in ANNEX 2A of this
Cabinet Memorandum. Other specialist in economic analysis,
financial analysis, engineering, and law will be contracted
externally on consultancy basis, based on demand, rather than
building up a permanent, expensive internal capacity within the PPP
Secretariat. Annex 2B lists specialised skills required to support the
PPP programme.

8.0

PROJECT DEVELOPMENT FUND

8.1

While infrastructure Sector Ministries and public authorities in Kenya

are clearly interested in many of the benefits that PPPs can offer,
almost all of them lack the experience and skills to adequately
analyze, prepare, and tender PPP contracts. Most of them also lack
the financial resources to hire experienced PPP project consultants
and transaction advisors who can manage these tasks. In this
respect, many Sector Ministries try to turn to private developers to
conduct their own PPP feasibility studies and proposed risk
structures. This puts the Line Ministry at the disadvantage of having
to review a PPP project study and proposal clearly written in the
interests of the private developer. It also pressures the Line Ministry

to grant exclusions to the developer and to limit the possibility for

the benefits of competition.
8.2

It is important for the Government to focus on the long-term benefits

of better value for money for a PPP project, rather than the shortterm benefits of avoiding to spend 7 to 20 Million Kenya Shillings to
hire own PPP project consultants. In this respect, it is recommended
that a PPP Project Development Facility (PDF), initially under the
management of the PPP Steering Committee be put in place. The
Secretariat will evaluate each application for PDF funds
independently and recommend to the Secretariat either approval
or disapproval of requested funds. To ensure quality and
completeness, the fund will also be used to hire transaction advisors
to assist in all other stages of the project.

8.3

The PDF will be funded from Government revenue as well as donor

funds which may be available for this purpose. The PDFs longevity
will be enhanced by operating it as a revolving fund. In this respect,
PDF funds will be recovered from the winning bidder. In cases where
PPP project development costs are met from donor supported
projects, agreement will also be reached with the donor to recover
the project development costs and pay the same to the PDF. Also
in cases where sponsoring public entities are able to meet the
development costs from their own resources, they will be
encouraged to do so. The Steering Committee will be required to
prepare and circulate criteria for approval for funds from the PDF.

9.0

COMPETITION & TRANSPARENCY IN THE PROCUREMENT OF PPPS

9.1

Sound fiscal management requires that all projects and project

financings be subjected to a competitive selection process. This is
necessary to ensure that maximum Value for Money is attained. For
the competitive process to remain the preferred option for public
procurement there is need for it to be streamlined to deliver desired
results on timely basis and at least cost. In this respect, it is essential
that Government continues streamlining bidding processes to
minimize the time and cost demands on bidders. Whenever
possible, PPPs should then use the streamlined competitive process
to maximize the important value for money benefits. There should
also be a requirement that unsolicited PPP proposals be exposed to
clear competitive analyses and bidding mechanisms.

10.0

UNSOLICITED PROPOSALS

10.1

Many countries have allowed for procurement of unsolicited bids in

consideration of the following:(i)
Intellectual property value associated with the
proposed project's design and the engineering costs
that have been incurred in developing the design;
(ii)
Saving of considerable time and expense in
conducting a marketing effort to search for interested
parties, or the proposer may have proposed a project
for which there is presently little interest in the private
sector;
(iii)
When direct negotiations in response to unsolicited
proposals can greatly increase the speed at which
important projects are developed.

10.2

The recommended process

proposals is as follows:(i)

(ii)

(iii)

10.3

for

procurement

of

unsolicited

Publish the proposed project for a specified length of time in

widely circulated daily papers. If no qualified bidders
express interest in the project, then direct negotiations can
proceed. But if one qualified bidder expresses interest then
a limited competition between the two parties should be
undertaken. If at least two qualified bidders express interest
based on the publication then full competition is required.
The publication is treated as a market sounding and then
an RfQ is issued and the standard procurement process
begins.
Once the project is advertised, award the original
proponent 5% bonus points in both technical proposal and
cost proposal as a reward for innovation, and credit for
reasonable and necessary development costs in the
financial proposal.
Automatic short listing with respect to which the original
proponent is not obligated to submit an Application for
Short-listing for the RfQ.

If the process outlined in paragraph 10.2 does not lead to a

competitive process, the procuring entity will, subject to approval
by the Steering Committee, enter into negotiations with the
Promoters of the project. If the process leads to competition, the
rest of the process will be carried out using the competitive process.

11.0

GOVERNMENT TO GOVERNMENT PROJECTS

11.1

Government to Government projects, which are similar to PPPs, are

excluded from these detailed guidelines but may be implemented
under the oversight of the Steering Committee.

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12.0

RECOMMENDATIONS AND REQUIRED APPROVALS

12.1 The Cabinet is requested to note the contents of this Memorandum

and to:
(i)
(ii)
(iii)
(iv)
(v)
(vi)

approve establishment of a PPP Steering Committee, a PPP

Secretariat under the Treasury and PPP Nodes under the
public sector agencies promoting PPP projects;
approve Gazettement of the Steering Committee, its
membership and functions under the Public Procurement and
Disposal Act;
provide approval for establishing of a project Development
Fund and provision for initial funding for the Fund in the
Supplementary Budget for the Financial Year 2008/09;
provide approval for the proposed process for dealing with
unsolicited bids;
Provide approval for issuing of PPP Guidelines by the Steering
Committee; and
direct that the Minister for Finance and the Attorney General
take the necessary action.

HON. JOHN N. MICHUKI, EGH, MP

MINISTER FOR ENVIRONMENT AND MINERAL RESOURCES
Ag. MINISTER FOR FINANCE

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ANNEX 1
STEPS IN PPP APPROVAL
Step 1: Project conceptualisation, identification, prioritisation, and
pre-feasibility analysis by public sector agency promoting or
sponsoring the project. Prior to preparation of the concept paper,
the public sector agency is expected to conduct a systematic
screening on all of their planned, priority infrastructure projects to
determine which ones might better be delivered through PPP
arrangements.
Outputs:
List of projects to be implemented through PPP
framework & Preliminary project concept.
Step 2: Carrying out of feasibility study and preparation of draft
Cabinet Memorandum. Step 1&2 activities should include feasibility
analysis and proposed risk allocation structure. These two steps
should clearly outline the projects required output levels of service,
demand analysis, technical feasibility analysis, financial feasibility
analysis, economic feasibility analysis, as well as environmental,
legal, and institutional feasibility analyses. Under these two steps the
agency should also identify and analyse all material risks to the PPP,
and especially the important proposed risk allocation structure for
the project as a PPP.
Outputs:

Clearly defined project concept, environmental and

social impact analysis

Step 3: Evaluation of the project concept and pre-feasibility

study/feasibility study by the PPP Secretariat.
Outputs:

Acceptance of the project concept including the risk

sharing arrangements and recommendations by the
Steering Committee to the Minister for Finance and
Sector Minister. If project concept is not accepted,
procuring entity will be given further guidance on any
other work required to be done

Step 4: Submission of Joint Cabinet Memorandum by the Minister

responsible for the Sector and the Minister for Finance.
Outputs:

Signed Cabinet Memorandum and Cabinet approval/

guidance
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Step 5: Procurement of Transaction advisory services & Preparation

of bid documents
Outputs:

Transaction Advisory services contracted. Draft bid

documents finalised.

Step 6: Approval by the PPP Secretariat of the bid documents

including the Request for Qualifications (RfQ), the Request for
proposals (RfP) and the proposed PPP contract. [Upon approval,
authority will be granted to advertise for RfQ and thereafter RfPs.
Firms who respond to the RfQ will be allowed to make comments on
the RfPs. If there are any material changes to the RfPs and the
proposed contract at this stage, further clearance will be required
from the Secretariat. If the changes result in a material departure in
the project concept and transaction structure from what had been
approved by the Cabinet, Cabinet clearance will also be required.]
Outputs:

PPP Secretariat approval for the draft bid documents;

Short-listed bidders; final bid documents; winning bidder

Step 7: Contract negotiation by the public entity promoting or

sponsoring project with assistance of the PPP Unit.
Outputs:

Negotiated contract

Step 8: Review of bid evaluation and negotiated contract and

granting of approval by the Steering Committee for the Project
Sponsor/Promoter to sign the PPP contract.
Outputs: Approved contract
Appeals - Public Procurement Appeals Tribunal.

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ANNEX 2 A
PPP SECRETARIAT STAFFING
POSITION

PROPOSED LEVEL IN
GOVERNMENT
JG T

Secretary to the PPP Secretariat

(Head of Unit)
Legal/Contracts Specialist
Financial Analyst
Economic Analyst
Engineer

JG S/ R/ Q *
JG S/ R/ Q *
JG S/ R/ Q *
JG S/ R/ Q *
NOTE:
*
The above three
levels provides for flexibility to
allow for identification of
suitable officers from any of the
three job groups i.e. JG Q to
JG S

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ANNEX 2 B
SPECIALISED SKILLS REQUIRED FOR PPP SECRETARIAT

Banking & investment

Asset management (utilities engineer)
Risk management and project structuring
Economic and financial analysis
Infrastructure development and service delivery
Bid and tender procedures and documentation
Project promotion and marketing
Legal contracts
Contract compliance monitoring and management
Transaction negotiation and analysis
Affordability, value for money, and risk allocation
Risk management
Media Communications /Public relations
Capacity building

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ANNEX 3
DRAFT GAZETTE NOTICE

16

ANNEX 4
DRAFT GUIDELINES

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