The National Assembly Committee on Finance and National Planning in Kenya has proposed to cap the concession period for public-private-partnership (PPP)-funded projects at 30 years.
The committee chaired by Gladys Wanga said that the move is aimed at addressing gaps in the regulatory framework for investors involved in State-owned build-operate-transfer (BoT) projects. The proposal is contained in amendments to the PPP Act, 2013 that are before Parliament for debate and approval.
In a BoT model, a government entity grants a private investor the rights or concession to construct and operate a project over an agreed period in exchange for payments. At the end of the contract period, the management of the project is transferred to the government.
“A contracting authority shall not enter into a public-private partnership arrangement for a period exceeding thirty years,” said Gladys Wanga.
The PPP Act allows private investors to own infrastructural projects for a given period to recoup their funds before ceding the ownership to the State.Globally, concessions are typically for a period of 25 to 30 years which is considered sufficient time for investors to fully recoup their major initial investments.Investors who fund the multibillion-shilling infrastructural projects, mainly the construction of roads, charge toll fees for use of the facilities to recover the money. The concessionaire normally obtains most of its revenues directly from charges to the infrastructure users. In Kenya, there have been no legal timelines on the period that investors can operate BoT projects to recoup their funds.
The country’s first major project to be carried out through a PPP model is the Nairobi Expressway project. It will be owned by the investors for 27 years upon completion. The private firm will be granted a concession to operate the 27.1-kilometre road upon its completion in December next year. Construction of the US $1.5Bn toll highway from Nairobi to Mau Summit that will start in October will also be funded through the PPP model.
Source: Construction Review Online