How to ensure government plan to operate ports through PPPs works

The Sh56 billion Dongo Kundu Special Economic Zone at the Port of Mombasa. FILE PHOTO | NMG

Inadequate infrastructure impedes Kenya’s economic growth and international competitiveness. To stimulate growth, it is therefore imperative to improve the supply, quality and affordability of infrastructure and services in the country. 

Public-private partnerships (PPPs), radically different from traditional public procurement, and currently enabled under the Public Private Partnerships Act, 2021, provides for the participation of the private sector in the financing, construction, development, operation or maintenance of infrastructure or development projects. 

PPPs combine the strength of the public sector mandate to deliver services and its role as regulator and coordinator of public functions, with the private sector focus being on profitability and commercial efficiency.

With most of the global trade carried by sea, ports are critical gateway infrastructure which connects an entire region and its inland transportation network to the international market.

Therefore, developing strong, well-functioning maritime transport infrastructure is a key element of economic growth for many developing and emerging countries like Kenya.

PPPs in ports, therefore, become a strategic means to manage port operations more effectively, as well as to develop new port infrastructure. 

Different port management structures are used worldwide but in the majority of large and medium-sized ports, the landlord port model is used.

In this model, management responsibilities are delegated to the private party, while the titles in the land and assets remain with the government.

As the Kenyan government explores the possibility of introducing PPPs in at least five of the country’s ports operations — sections of Kilindini Harbour, Dongo Kundu Port, Lamu Port, Kisumu Port and Shimoni Fisheries Port — it should ensure appropriate allocation of risks between the public sector and private parties for the projects to succeed.

From the perspective of the public sector contracting parties, transferring risk to the project company is a significant benefit of any PPP.

At the same time, the private party will need to be compensated for the risk taken up and borne. The rule is that, the more the risk that is transferred to the project company, the higher the cost of capital. 

From the perspective of the contracting authority, transferring risk to the project company is a significant benefit of a PPP.

Transferring too much risk to the project company can unduly increase the cost of the project and even result in project failure.

Appropriate allocation of risks between the parties, therefore, remains a key determinant for the success of any PPP project. 

Key considerations in structuring PPPs for ports include ensuring that there is value for money and affordability to the public.

This means that there is a net benefit accruing to the contracting authority and the public as defined in terms of cost, price, quality, quantity, timeliness or risk transfer. 

For overall PPP success, it remains critical to ensure that there is adequate and real competition, transparency and accountability and that there is availability of supporting and associated infrastructure such as road and rail networks that connect the port to the inland region.

The writer is a Legal Counsel and a Certified Public Private Partnerships (CP3P) Professional. [email protected]