Economic/PPP Working Group

Transcription

1 Infrastructure Development Projects under Public Private Partnership (PPP) scheme Economic/PPP Working Group 18 June

2 Review Essences on Last Week (Page 2 to page 16) What is PPP? Usual PPP arrangement Hybrid PPP Financing Alternative PPP structure PPP Project Risk Synthesis of Rules 2

3 Statement announced by the PPP Unit What is meant by PPP? There is no single definition of PPPs, but broadly it refer to a long-term, contractual partnerships between the public and private sector agencies, specifically targeted towards financing, designing, implementing, and operating infrastructure facilities and services that were traditionally provided by the public sector 3

4 Why PPP is needed? Regional Government Infrastructure Financing Gap US$.mil. Total Total US$...mil. Authority Regional Gov. Central Government Extra Government effort required to enable ODA/private Funding Investment need Estimated Public financing capacity Gap x% growth target requires; US$ ****** of Investment during Central and Regional Government budget can only cover **% of total Investment Cost Opportunity for private investment through PPP ($***,or**%)

5 Usual PPP Modality BOT(Build Operate and Transfer), BT (Build and Transfer), BoT(Build own and Transfer), BLT(Build Lease and Transfer), BTO(Build Transfer and Operate), CAO(Contract added and Operate), DOT(Develop Operate and Transfer), ROT(Rehabilitate Operate and Transfer), ROO(Rehabilitate Own and Transfer), and Concession are usual modalities under PPP. PPP ACT No (Kenya) specify the further arrangement as; MC (Management Contract) OpbC(Output performance based Contract) Lease LS (Land Swap) 5

6 Public Private Partnership Arrangement -Second Schedule of Act No Management contract where a private party is responsible for the management and performance of a specified obligation, within well-defined specifications for a specified period of time not exceeding ten years, and the contracting authority specified retains ownership period of and time control not exceeding of all facilities ten years and capital the contracting assets and authority properties. retains 2. Output ownership performance of the based facility contract and where capital the assets. private party is 3. responsible Lease whereby for the private party pays the contracting authority rent or royalties the operation, maintenance and management of an infrastructure and facility manages, for operates a and maintains the facility or utilises the leased property for the purpose of exploration, production and development of minerals and receives fees, charges or benefits from consumers for the provision of the service or sale of products for specified period of time not exceeding thirty years. 4. Concession where contracting authority issues a contractual licence to the private party to operate, maintain, rehabilitate or upgrade an 6

7 (continued) 6. Build-Own Operate scheme where the private party designs, finances, constructs, operates and maintains the infrastructure facility and provides services for a specified period of time. 7. Build-Operate-and-Transfer scheme where the private party finances, constructs, operates and maintains an infrastructure facility and transfers the facility to the contracting authority at the end of a specified term which shall not exceed thirty years. 8. Build-Lease-and-Transfer where the contracting authority authorizes the private party to finance and construct an infrastructure or development facility and upon its completion lease it to the contracting authority for a specified period and upon the expiry of which the ownership of the facility automatically transfers from the private party to the contracting authority. 9. Build-Transfer-and-Operate where the private party constructs an infrastructure facility and assumes the costs and risks associated with the construction 10. Develop-Operate-and-Transfer where favourable conditions external to a of the building and upon completion, transfers the ownership of the proposed infrastructure project by a private party are integrated into the facility to the contracting authority and continues to operate the facility arrangement by giving that private party the right to develop adjoining on behalf of the contracting authority. property, and enjoy the benefits the investment creates as the parties agree on condition that the private party transfers the infrastructure facility to the contracting authority within a period not exceeding thirty 7 years from the commencement of the project and the developed property

8 (Continued) 11. Rehabilitate-Operate-and-Transfer where the private party refurbishes, operates and maintains for a specified period, an existing facility at the expiry of which the private party transfers the facility to the contracting 12. Rehabilitate-Own-and-Operate authority where an existing facility is transferred by the contracting authority to the private party to refurbish and operate it with no time limitation imposed on ownership and the private party abides by the conditions of the arrangement during the operation of the facility. 13. Land Swap where a contracting authority transfers existing public land or an asset to the private party in consideration of an asset or facility that has been developed by that private party. Other arrangement to be used in other country Contract-add-and-operate - A contractual arrangement whereby the project proponent adds to an existing infrastructure facility which it is renting from the government. It operates the expanded project over an agreed franchise period. There may, or may not be, a transfer arrangement Build-and-transfer in regard - A contractual to the facility. arrangement whereby the project proponent undertakes the financing and construction of a given infrastructure or development facility and after its completion turns it over to the government agency or local government unit concerned, which shall pay the proponent on an agreed schedule its total investments expended on the project, plus a reasonable rate of return thereon. This arrangement may be employed in the construction of any infrastructure or development project, including critical facilities which, for security or strategic 8 reasons, must be operated directly by the Government.

9 PPP Arrangements/Modality (defined by PPP in Infrastructure Resource Center of World Bank and modified by JICA Study Team) Public own the infrastructure Public and/or Private own the infrastructure Public Private Partnership, PPP Private own the infrastructure Utility Restructure Corporatization Decentralization Civil Management & Works Operating Service Contract Contract Lease BOT Cone- Privatization BT BTO ssion Affermage BOO etc Joint Venture Full Diverstiture Low Degree of Private Sector Involvement High 9

10 General Notion of Hybrid PPP Under the current market situation, it is rather hard to procure the enough finance based on the Revenue deriving from such infrastructure facilities. The solution is Hybrid PPP scheme. Small Public Funding Responsibility Large O&M by Private E&M Public Private Private Public ROW Civil & Building Civil & Building Public O&M] Private E&M ROW Public ROW E&M] Private E&M Public Civil & Building Public Hybrid PPP(1) Hybrid PPP(2) Hybrid PPP(3) 10

11 Implementation of Financing Alternative on PPP Schemes Project Feasibility Scheme Operation Construction A Economically Viable Financially not Feasible PRIVATE PUBLIC PUBLIC BUILD PRIVATE OPERATE PPP B Economically Viable Financially Marginal PUBLIC PRIVATE PRIVATE HYBRID PPP Mixed FINANCE C Economically Viable Financially Feasible PRIVATE PRIVATE CONVENTIONAL PPP(BOT, etc)

12 PPP Structure Public Build&Operate Fiscal budget by Public sector Beneficiary Social work etc Contracting Agency (Ministry Regional government State Enterprise Construction Contract Contractor /Supplier Department of Operation /Maintenance

13 PPP Structure BTO/BOT/BOO(All private finance) National/Regional Government Beneficiary Social work etc Investors Contracting Agency (Ministry Regional Government State Enterprise BOT Contract *1 Ownership *1 Transfer of Facility ; BTO-As completion of construction BOT/BOO-As maturity of BOT term Tariff, Toll, etc SPC (Special purpose company) Operation /Maintena nce Department of Operation /Management Lenders Insurance Company Contractor /Supplier

14 Example of PPP Project Second Stage Expressway System in Bangkok (SES) by Bangkok Expressway Co. Ltd (BECL) Gov. of Thai MOI ETA ETA Eng. Investor;KG 65% ADB 5% CK 5% Domestic Bank 20% Crown Property 5% Project Agreement 0.2 Bil.US$ BECL (1.0 Bil.US$) Lender Domestic Banks;0.57 Bil. Foreign Banks Syndication; 0.2 Bil. ADB; 0.03 Bil. 0.8 Bil. US$ Insurance Company Project Manager KG Co. Ltd IDC ICE Construction Company E&M Supplier Design UK company 14

15 Example of PPP Project Risk Second Stage Expressway System in Bangkok (SES) by Bangkok Expressway Co. Ltd (BECL) Composition of Project Finance- Extraction of Risks Item Risk before completion Risk after completion Extraction of Risks as time series 1Investment Risk;Fulfillment of equity contribution by Investor 2Completion Risk; Completion of construction/comissioning 3Delay Risk;Time Overrun, Cost Overrun 1Latent Defect Risk;Adverse impact on Revenue due to Latent Defect 2Operation Capacity Risk; No enough capability of management, technical, skill, maintenance, etc 3Market Risk; Fluctuation of demand, economy, etc. Common Risks throughout term Fluctuation of interest/exchange Risk; During construction and repayment term of debt. 2Environmental Risk; Adverse impact due to the project and unforeseen incidents in future. 3Force majeure Risk; War, Riot, Revolution, etc 4Country Risk; Change of laws, Nationalization, etc 15

16 Verification of Rules & regulations-synthesis of Rules- (the Union of Nyanmar) Foreign Investment Law Implementation Rules and Regulations Executive Order No. Executive Order No. Executive Order No. Executive Order No. MNPED YCDC PUBLIC Sector Ministry S y n t h S y n t h e s i s e s i s Regional. Government 16

17 How to Identify the PPP Project, and How to Select the PPP Arrangement Ref. Difference between BOOT and BLT 1. Four(4) fields to be considered by the Private Investors 2. Process to get the Approval by the Kenya Government 3. Selection of the PPP Arrangement by PPP Act No Procurement Process for the Private Investor 5. Typical classification of PPP Arrangement 6. Typical qualitative selection methodology 7. Typical quantitative selection methodology

18 Reference; Difference between Build Own Operate and Transfer (BOOT) and Build Transfer and Operate (BTO) Arrangement Facilities Ownership of Facilities BOOT Private Invest 100% Private own whole Property Tax Private to pay Recovery of Property Tax Private add the cost of tax to Tool, Tariff, Annuity, etc BTO Private Public own No payment Private silent for Invest whole of tax by tax expenditure 100% private Public intends to avoid the increase toll, tariff, annuity, etc. for the public interest point of view. Private is rather sensitive because; a) no property tax save its financial viability b) the financier dislike due to the lose of the physical collateral c) project may be exposed for the compulsory nationalization

19 1. What Private Sector consider for the participation to PPP project before their commitments. 1. General domain a) The project is established by politic including its priorities. (social acknowledge) b) Economically viable and financially feasible (financial nature) c) Establishment of the collaboration between Public and Private (elimination of bureaucracy) 2. Technical domain a) The responsibility of design and construction is clearly identified? b) Project finance methodology is established and implemented? c) IE (Independent Engineer) has been allocated for fare check system. 3. Financial domain a) Financial market is established and monetary market is operational? b) Project finance system has been established with guaranteed? c) Countermeasure for the risk which endanger the return of investors? d) Detailed financial analysis has been made? 4. Legal domain a) PFI/BOT Law has been promulgated and reliability for law is established? b) Law system has been synthesized? c) The culture/climate to give a honor for the law and agreement exist? d) The language/arbitration can be specified as third country? Source; JICA Study Team 19 19

20 2. Approval Procedure of PPP Project under PPP Act No.15 Source; PPP Act No.15 Member of the Parliament Cabinet Secretary Committee composition Secretary of Finance---Chairperson Secretary of Coordination Secretary of National Planning Secretary of Land Secretary of responsible of County Representative of Attorney General 4 Non- Public Officer appointed by Cabinet Secretary Member PPP Unit Secretary-----Director of PPP Unit Contracting Authority (CA) establish PPP Node. (CA will be ministry, agency, public corporation and county) PPP Node; A Head is accounting officer of CA. 4 field of member; financial, technical, procurement and legal Project size Threshold By PPP Unit Ksh > 85 million Ksh 85 million > Ksh 5 million Ksh < 5 million Parliament Cabinet Committee PPP Unit PPP Node

21 3. The Selection, CA to undertake and duration of the PPP Arrangement by PPP Act No.15 Source; PPP Act No.15 PPP Act clause 19 specified that a contracting authority may enter into a public private partnership with a private party in accordance with the Second Schedule or other arrangement approved by the Cabinet Secretary. Clause 20 describe that a CA shall undertake a sector diagnostic study and assessment covering the following (a) technical issues; (b) legal, regulatory and technical frameworks; (c) institutional and capacity status; (d) commercial, financial and economic issues; and (e) such other issues as the Cabinet Secretary may stipulate. Clause 21 describe the duration of a PPP. (a) the provisions of any relevant written law; (b) the life span of the technology to be employed; (c) the investment standards that are required to be maintained by each party to the project agreement throughout the duration of the partnership; (d) the economic and financial viability of the project and the economic life of the facilities to be provided; (e) the depreciation of the project assets during the life of the contract; and (f) the period of time that may be required by the parties to the partnership to (i)meet and maintain throughout the duration of the partnership, the service delivery standards and investment levels; and (ii) recoup their investment. 21

22 4. Procurement Process for the Private Investor 1. Invitation to RFP 2. Qualification of private 3. Pre-qualification commit. 4. Disqualification of privat 5. Preliminary bidders meet 6. Alteration of specification 7. Invitation to bid 8. Submission of bid 9. Competitive dialogue 10. Bidding by a consortium Source; PPP Act No.15 A contracting authority (herein called CA) shall invite requests for qualification by notice on media with specification of eligibility criteria of bidder A person or consortium qualifies if it meet the criteria, has technical/financial capacity, legal capacity, is not insolvent, is not precluded by a CA The CA constitute a pre-qualification committee(pqc) which consist with a representative of the unit and technical, financial and legal expert. A pqc shortlist the qualified bidders. A pqc shall disqualify a bidder if it submit false, inaccurate information or collude, connives or fail to meet criteria A CA hold a preliminary meeting with shortlist bidders where a CA deliberate on issues and respond to any questions. A CA may alter the specification which shall not affect the pre-qualification criteria. A CA prepare an invitation to bid and tender documents which include general information, specification of the project and final product, basic terms and conditions, the criteria for evaluation of bid, form of document, value of bid security and submission date/place.. A bidder shall complete and submit of a project with 2 envelop which technical proposal shall be opened for first screen then financial proposal to be opened. A CA may hold a competitive dialogue with each bidder and require to submit non-binding proposal for discussion A consortium submit to proof that each member 22 of the consortium has consented to join

23 (continued from previous page) 11. Evaluation technical 12. Evaluation of financil 13. Evaluation report 14. Non-restriction on. 15. Non-compliance by a bid 16. Negotiations 17. Risk assessment report 18. Submission to Cabinet 20.. Cancellation of tender 21. Establishment of SPC A CA constitute a proposal evaluation team(team) which consist one from a CA, node, regulatory body, unit and attorney general office. A team evaluate technical bid. A team open financial bid and evaluate to take into account of economic advantage. A team prepare an evaluation report before declaring the first ranked bidder. The CA shall submit the evaluation report to the Committee for approval. A CA shall not restrict the use by a bidder of innovation with regard to the meaning of financing, the application of technology or the management approach. AA proposal evaluation team shall reject a bidder s submission where he does not comply with the conditions and requirements A CA enter into negotiations with the successful bidder. The CA shall constitute a negotiation committee. The resolution of the negotiations shall not in increase price. The negotiation committee shall submit to the CA a project report. The CA shall review and submit to the unit.. The unit shall satisfy it. The unit submit the report and financial risk assessment report to the Commission who shall consider then submit the recommendation to Cabinet for approval. 19. Approval/Execution The Committee inform the CA the decision of Cabinet within 30 days. The CA execute the contract awarded to that bidder undertaking PPP under PPP Act. A CA may cancel a tender process before the execution of contract if adverse consequences are likely to occur. A successful bidder establish a project company 23under Company Act (Cap.486) which may include a public body.

24 No 5. Typical classification of PPP Arrangement Modality & arrangemen t Degree of Public participation Synthesis of laws & regulation Degree of finance by public/private Provability of private finance Provability beneficiary payment Main Operator 1) Public Build & Operate 100% Existing laws 100%/ 0% None Possible Public 2) Public Build & Private Operate w/risk 100% for construction PPP Act 100%/ α% Operating capital Beneficiary payment + Government support Private 3) Public Build & Private Operate wo/eisk 100% for construction PPP Act 100%/ α% Operating capital Beneficiary payment +government support Private 4) Affermage 100% for construction NA 100%/ α% Operating capital Beneficiary payment +government support PPP Act Deferred 100%/ 100% 100% advance for No beneficiary construction payment in general 5) BT, BLT 0% Deferred payment construction payment in general 6) BTO 0% PPP Act 0%/ 100% 100% + operation capital 7) BOT, BOO, DOT, ROT 0% Share % with Hybrid PPP Act 0%/ 100% Share % with Hybrid 100% +Operation Capital share % w/hybrid Beneficiary payment +government support Beneficiary payment +government support Private Public Private Private 8) Concession, Management Contract 100% for construction PPP Act 100%/ α% Operation capital Beneficiary payment +government support 9) Joint Venture Shared % NA Shared % Shared % Beneficiary payment JV co. Private/Pub lic 10) Lease 100% for construction 11) Land Swap Public land to be swapped with private facility Private PPP Act 100%/0% Operating capital Beneficiary payment Private PPP Act NA 100 % NA Public Source; JICA Study Team 24

25 No 6. Typical qualitative selection methodology Evaluation Category Conformity High Mid Low Applicabl e Scheme 1 Degree of financial burden of Public Little 2 Magnitude of economical impact to society 3 Magnitude of Contribution to GDP growth for County/National Government 4 Probability of beneficiary payment 5 Probability of participation of Private Invest 6 Development of local financial market 7 Difficulty to acquire the Right of Way 8 Importance of EIA and degree of compulsory relocation 9 Magnitude of project cost 10 Degree of accomplishment of Project 11 Credibility to the required technology 12 Legal synthesis Source; JICA Study Team chance of private finance, therefore Public Build & Operate or Public Build & Private Operate 25

26 7. Typical quantitative selection methodology Factors to be identified usually Project schedule Demand Forecast Evaluation category Proposed schedule to be on/earlier than specified Evidence of Optimistic, Base and Pessimistic case Remark Source;JICA Study Team High score with completion guarantee High score based on pessimistic case Capital Expenditure (cost) Comparison with CA s estimate High score to the similar with CA PPP arrangement Degree of government support High score with lower government support Economical IRR Ratio % High score on high ratio Financial (Project) IRR (Internal Rate of Return) Ratio % Reasonably moderately above the Treasury Bond rate for example Equity (Investment) IRR Ratio % Reasonably moderately above the Deposit Rate Debt Equity Ratio Ratio %=Debt/Equity Usually 4/1~2/1 DSCR (Debt Service Coverage Ratio) LCCR (Life Cycle Coverage Ratio) Allowance for Debt service (repayment ability) Availability of allowance through maturity period Usually > 1.5~2.5 Usually > 2.0 (to be confirmed) 26

27 In Addition; Introduction of brief outline of PPP Act No. 15 of Part I & II-Preliminary and PPP Committee 2. Part III & IV-PPP Unit and PPP Node 3. Part V-PPP Preparation by Government 4. Part-VI-The Selection of Private Party 5. Part VII-Procedure under Solicited Project 6. Part IIX-Procedure under Unsolicited Project 7. Part IX-Project Agreement and Third Schedule 8. Part X-Financial Provisions 27

28 1. Part I & II-Preliminary and PPP Committee Part I focus the definitions to be applied for the PPP Act No , and the Application specified the applicable projects and the public services that are the very contract for the financing, construction, operation, equipping or maintenance of a project or for the provision of public services undertaken as a public private partnership. Part II describes the Public Private Partnership Committee. Chairperson; Secretary of Finance Secretary from PPP Unit Secretary of Co-ordination Secretary of National Planning, Land, County. Attorney General Office 4 non-public officer appointed cabinet Secretary The Committee has the full function for the implementation of PPP project. The committee shall have all the powers necessary for the proper discharge of its functions under this Act. The Committee has the power to delegate the sub-committee, to co-opt a membership into subcommittee, to exercise any powers. 28

29 2. Part III & IV-PPP Unit and PPP Node Part III focus the establishment of PPP Unit which is within State department relating to finance. A Director Staff as the Cabinet Secretary appointed shall hold a degree from a university recognized in Kenya with fields of finance, economics, engineering and law with10 years experience. The PPP Unit has the function to serve as the secretariat and technical arm of the Committee and to provide technical, financial and legal expertise to the Committee and any node established under this Act. Part IV focus the Establishment of a node. (1) A contracting authority that intends to enter into a public private partnership arrangement with a private party shall establish a public private partnership node. (2) A node consists of the accounting officer as head, financial, technical, procurement and legal personal in consultation with the unit. A node shall have such functions on behalf of the contracting authority and shall report to the unit and shall implement the recommendations and guidelines issued by the unit. 29

30 3. Part V-PPP Preparation by Government Part V focus the necessary preparatory activities for the public part. Cl Items Outlined Descriptions 18 Entering into a project agreement A CA that intends to plan an infrastructure or to provide the service may inter a project agreement with any qualified private party in accordance with the provision of this Act. A CA may designate its assets for the use by a private party. 19 Public private partnership PPP) arrangement 20 Sector diagnostic study and assessment 21 Duration of a public private partnership (PPP) Subject to the provision of this Act, CA may enter a PPP with a private party. A CA shall undertake a sector diagnostic study such as technical issues, legal framework, capacity status, commercial, financial and economic issues. In determining the duration of a PPP, a CA shall tale into account the factors of written law, life span of technology, investment standards, economic and financial viability, depreciation of the assets and period of time required by party 22 Execution of an agreement A person shall not enter into a project agreement relating to the authority. 23 Submission of project lists Each CA shall prepare a list of PPP on priority basis to the unit for assessment. 24 Approval of projects by the Committee and Cabinet 25 Publication of approved projects 26 Pre-qualification procedures by contracting authority (CA) 27 Guarantee or letter of comfort by the Government 28 Price setting and success fee The unit shall assess the project lists and submit them to the Committee for approval. The Committee consider and submit to the Cabinet for approval. The unit shall publish in the electronic and print media and national priority list. ACA shall confirm that the private party has financial capacity, the relevant experience of a similar nature and the relevant expertise to undertake project. The Cabinet Secretary in consultation of Committee may, where it considers it necessary to support a project, issue a guarantee, undertaking or binding letters of comfort in relation to a project. (1) In setting the price to a project, the parties shall be guided by the prevailing market rates based on competition or international best practice in case. (2) The cost under (1) above shall be affordable to the Government and provide value for money to the CA. (3) The Committee may impose a success fee on a transaction to be paid by private. 30 (4) The Cabinet Secretary shall make rules for determining the success fee.

31 4. Part-VI-The Selection of Private Party Part VI focus on project identification and Selection of Private Party In procuring and awarding a contract to a private party, a CA shall be guided by the principles of transparency, free and fair competition and equal opportunity under this Act. The Committee shall issue guidelines for the identification, selection, pre-tender approval, tendering, negotiation, post-tender approval and monitoring processes of a PPP. A CA shall be responsible for conceptualizing or identifying projects with preparatory process. A CA shall consider the strategic and operational benefit compared to take by a CA. A CA shall constitute a project appraisal team for the purpose of overseeing the preparation. A project appraisal team consist of a representative of the unit, such professional and node. A CA shall undertake a feasibility study of the project for the purpose of determining the viability of undertaking the project under this Act. A CA shall consider the technical requirements, legal requirements, social, economic and environmental impact and affordability, value for money and public sector comparator. A CA shall prepare a report not later than two months after the study. (1) The CA shall submit the feasibility study report to the unit, (2) the unit shall submit them to the Debt management Office for approval of the fiscal risk, (3) The unit shall submit them to the Debt management Office to the Committee for approval (4) the Committee shall consider the report and the recommendations of the unit and the approval od Cabinet. The unit shall assess the technical expertise of the CA to procure the development of project. Where the unit finds a lack of technical expertise under this Act, the CA shall appoint transaction advisor to assist the authority. The engagement of transaction advisor shall be based on the principles of disclosure, transparency, equality free competition and equal opportunity. 31

32 5. Part VII-Procedure under Solicited Project-(1) 1. Invitation to RFP 2. Qualification of private 3. Pre-qualification commit. 4. Disqualification of privat 5. Preliminary bidders meet 6. Alteration of specification 7. Invitation to bid 8. Submission of bid 9. Competitive dialogue 10. Bidding by a consortium A contracting authority (herein called CA) shall invite requests for qualification by notice on media with specification of eligibility criteria of bidder A person or consortium qualifies if it meet the criteria, has technical/financial capacity, legal capacity, is not insolvent, is not precluded by a CA The CA constitute a pre-qualification committee(pqc) which consist with a representative of the unit and technical, financial and legal expert. A pqc shortlist the qualified bidders. A pqc shall disqualify a bidder if it submit false, inaccurate information or collude, connives or fail to meet criteria A CA hold a preliminary meeting with shortlist bidders where a CA deliberate on issues and respond to any questions. A CA may alter the specification which shall not affect the pre-qualification criteria. A CA prepare an invitation to bid and tender documents which include general information, specification of the project and final product, basic terms and conditions, the criteria for evaluation of bid, form of document, value of bid security and submission date/place.. A bidder shall complete and submit of a project with 2 envelop which technical proposal shall be opened for first screen then financial proposal to be opened. A CA may hold a competitive dialogue with each bidder and require to submit non-binding proposal for discussion A consortium submit to proof that each member 32 of the consortium has consented to join

33 5. Part VII-Procedure under Solicited Project-(2) (continued from previous page) 11. Evaluation technical 12. Evaluation of financil 13. Evaluation report 14. Non-restriction on. 15. Non-compliance by a bid 16. Negotiations 17. Risk assessment report 18. Submission to Cabinet 20.. Cancellation of tender 21. Establishment of SPC A CA constitute a proposal evaluation team(team) which consist one from a CA, node, regulatory body, unit and attorney general office. A team evaluate technical bid. A team open financial bid and evaluate to take into account of economic advantage. A team prepare an evaluation report before declaring the first ranked bidder. The CA shall submit the evaluation report to the Committee for approval. A CA shall not restrict the use by a bidder of innovation with regard to the meaning of financing, the application of technology or the management approach. AA proposal evaluation team shall reject a bidder s submission where he does not comply with the conditions and requirements A CA enter into negotiations with the successful bidder. The CA shall constitute a negotiation committee. The resolution of the negotiations shall not in increase price. The negotiation committee shall submit to the CA a project report. The CA shall review and submit to the unit.. The unit shall satisfy it. The unit submit the report and financial risk assessment report to the Commission who shall consider then submit the recommendation to Cabinet for approval. 19. Approval/Execution The Committee inform the CA the decision of Cabinet within 30 days. The CA execute the contract awarded to that bidder undertaking PPP under PPP Act. A CA may cancel a tender process before the execution of contract if adverse consequences are likely to occur. A successful bidder establish a project company 33under Company Act (Cap.486) which may include a public body.

34 6. Part IIX-Procedure under Unsolicited Project Part IIX focus on the Privately Initiated Investment Proposal (Unsolicited Proposal). (1) A contracting authority (CA) may consider a privately initiated investment proposal for a project and procure the construction or development of a project or the performance of a service by negotiation without subjecting the proposal to a competitive procurement process where; (a) there is an urgent need for a continuity in the construction, development, maintenance or operation of a facility etc. would be impractical: provided that circumstances of disruption were not foreseeable by the CA. (b) the cost of intellectual property in related to the project is substantial. (c) there exists only one person of firm capable understanding the project. (2) A CA shall, before commencing negotiations with a private party under this section; (a) prescribe a criteria which the outcome of negotiation shall be evaluated (b) submit the proposal to the unit for consideration and recommendation (c) upon the recommendation of the unit, apply for and obtain approval from Committee (3) A CA shall not consider a project for procurement under this section unless it is satisfied that; (a) the project shall provide value for money, (b) the project shall be affordable, (c) the appropriate risks are transferred to the private party 34

35 7. Part IX-Project Agreement Part IX focus on Project Agreement between CA and Private Investor Cl. Item Description 62 Substantive provisions of a project agreement (1) The parties shall specify the minimum contractual obligations as set out in the 3 rd schedule. (2) The Cabinet Secretary may specify the manner which a project agreement shall be drawn. 63 Applicable law (1) A project agreement by a CA shall be subject to the provisions of the Laws of Kenya and any provisions in the agreement to the contrary shall be void. (2) Where there is a conflict between the Act and others, this Act shall prevail. (3) Upon the approval of the Committee, any disputes arising under the project agreement shall be resolved through arbitration or any other non-judicial means. 64 Amendment and variation of project agreements (1) A party who intend to amend a project agreement shall obtain the approval of the Committee. (2) The Committee shall only approve in case of (a) to provide value for money, (b) the project continue to be affordable by a financial implication, (c) the continued transfer of risks to the private party, (d) the continued effective service to the public, (e) the continued protection and preservation of environment. 65 Project management (1) A CA shall ensure that the project agreement is properly implemented by monitoring the implementation, measuring the output, liaising with the private party & users, overseeing the management, periodic report and submitting the report to the Committee. (2) The CA shall appoint an independent expert to manage the construction (3) A project agreement shall not divest the CA of the responsibility for ensuring its function. (4) A project agreement of use of a CA of the responsibility for ensuring the property. (5) The Committee shall oversee the implementation of every project under this Act 66 Secondment of employees of CA (1) A CA may, upon the request by SPV, second such number of employee. (2) A employee seconded shall be deemed to be an employee of the SPV subject to its order. 67 Petitions (1) There is established a committee to be known as the Petition Committee. (2) The Petition Committee shall consist of----- (3) The Petition Committee shall hold office for 3 years (4) The decision of Petition shall be made within 15 days. (5) The decision of the Committee shall be final and binding on both parties. (6) The Cabinet Secretary may provide for the procedure under subsection (1) 35

36 THIRD SCHEDULE [Section 62.] MINIMUM CONTRACTUAL OBLIGATIONS REQUIRED TO BE SPECIFIED IN A PROJECT AGREEMENT 1. The nature and scope of works and services that the parties shall carry out and the conditions for their implementation. 2. The rights of a contracting authority, the project company, the lender, in relation including step in rights of lenders. 3. A description of any property to be contributed by a party to the projectagreement. 4. A description of any utilities to be provided in relation to the project and the responsibility thereof. 5. The ownership of the project assets, the obligations of parties related to the handover and receipt of the project site. 6. The responsibility for obtaining authorizations, permits, and approvals. 7. A description of any sharing of revenue between the contracting authority and the private party. 8. Mutual financial obligations including the requirements relating to performance bonds and guarantees. 9. The preparation and submission of financial and other reports and the carrying out of financial audits. 10. The product sale price or the service availability payment on which the project is based and the rules for its determination and amendment, either by an increase or decrease, as well as the indexation mechanisms to reflect inflation or changes in the interest rate, if required. 11. The means of quality assurance and quality control, supervision, financial and technical monitoring of the project operation, 12. The extent of the right of the contracting authority to vary the conditions, and the basis and mechanisms of compensation for any loss resulting from such variation order. 13. The types of insurance to be taken out on the project, and the risks of its operation or utilization, executive warranties issued in favour of the contracting authority, and provisions and procedures for their release. 14. The basis of risk allocation in respect of a change in the law, unforeseeable accidents, force majeure, or discovery of antiquities, and the resultant compensation. 15. The duration of the contract. 16. Early termination events prior to the expiry of the project agreement and the rights of the parties in relation to the termination. 17. The process of handing over the project on expiry or on termination of the project agreement by a party to the agreement. 18. Mechanism for dispute resolution including resolution of disputes by way of arbitration or any other amicable dispute resolution mechanism. 19. The events giving rise to compensation and the mechanisms for payment of such compensation or penalties. 20. Performance securities required when undertaking a project, the value and renewal mechanisms. 21. Appointment of independent experts. 22. Direct agreements and lenders rights where applicable. 23. Termination and expiry of the project agreement. 24. Obligations of, undertakings and warranties by contracting parties. 25. Cases of emergency step in by either contracting authority or lenders in case of private party default. 36

37 8. Part X-Financial Provisions Part X focus on the Financial Provisions 68.Establishment of Project Facility Fund (1) There is established a Fund to be known as the Public Private Partnership Project Facilitation Fund. (2) There shall be paid into the Fund (a) grants and donations; (b) such levies or tariffs as may be imposed on a project; (c) success fees paid by a project company to the unit; (d) appropriations-in-aid; and (e) moneys from a source approved by the State department responsible for matters relating to finance. (3) The moneys received into the Fund shall be applied to (a) support contracting authorities in the preparation phase of a project, the tendering process and project appraisal under this Act; (b) support the activities of the unit under this Act; (c) extend viability gap finance to projects that are desirable but cannot be implemented in the absence (d) of financial provide a support source from of liquidity the Government; to meet any contingent liabilities arising from a project: and (e) settle the transaction advisor s retainer fees. (4) The Fund shall be administered in such a manner as the Cabinet Secretary shall prescribe. 69. Financial reporting and audit (1) A project company or private party shall keep proper books of accounts and records in relation to the project and shall be open for scrutiny by the contracting authority. (2) A project company or private party shall submit the duly audited financial accounts and any other information as may reasonably be required by the contracting authority or the unit within six months after the end of each financial year. 37

38 Consideration for the evaluation & appropriate PPP Scheme The evaluation of priority project by categories The adoptability of priority projects out of 9 sectors will be verified in the classifications in items (i). For the methodology of verifications, No.1 to No.9 of table will be checked qualitatively. Bigger public involvement shall be categorized as A and least public involvement shall be categorized as E. Reducing the public involvement will be categorized from as B to D in order. Each priority projects will be adopted by plural modality classified in (i), since the characteristics of each project are ambiguous at present. The study which will be conducted individually from the middle of 2013 will reveal the concrete plan, prerequisite conditions, numbers and FIRR as well. Then most optimum and beneficial PPP modality for the society, YCDC and the Government shall be selected. 38