Project Appraisal and tendering procedures...•Constitution of Kenya (e.g: Article 227 re...
Transcript of Project Appraisal and tendering procedures...•Constitution of Kenya (e.g: Article 227 re...
Project Appraisal and
tendering procedures
John Ponsonby, Ponsonby Consultants Limited
April 24, 2019
Radisson Blu Hotel, Nairobi
Module Contents
Introduction to PPPs, and the Kenyan PPP Context
PPP Project Appraisal and Value for Money Assessment
PPP Tendering Procedures
Affordable Housing Programme procurement process
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Introduction to PPPs
Source: World Bank
• “A long-term contract between a public party and a private party
• for the development and/ or management of a public asset or
service,
• in which the private agent bears significant risk and management
responsibility through the life of the contract, and
• remuneration is significantly linked to performance, and/or the
demand or use of the asset or service.”
Typically also includes the provision of private finance.
An International Definition of PPP
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A Typical PPP Contractual Structure (Design Build
Finance Operate and Maintain example)
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National or County Government or
Agency
Debt Providers
Design & Build (Contractors)
Equity ProvidersSpecial Purpose Vehicle
Operators (Operations &
Maintenance)
Procuring Entity/
Contracting Authority
Makes Periodic
PaymentsReceives Services
SponsorsEquity
Returns
Equity
Stake
Loans
Debt
Services
Banks
Subcontractors
Multilateral
Development Banks
MDBs
Key differences from Conventional Contractual
structures
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Conventional Contractual Structures Public-Private Partnerships
• Government specifies Assets/ Services as inputs
• Government procures separately the different elements of delivery (design, build, operate and maintain)
• Private sector largely paid during construction. Private sector is only liable during the period of hold-backs and
extended warranties – much shorter than the asset’s useful life
• Government retains most risks. Private
sector not incentivised to provide long-term quality asset
• Government specifies requirement in output terms. Private sector has opportunity to respond to procurement with innovative solutions.
• Elements of delivery are procured as a single service (design, build, finance, operate and maintain) facilitating
integrated, efficient service delivery.
• Private sector paid over the life of asset and linked with operational performance,
incentivising construction of a high quality asset and effective life cycle management.
• Significant levels of risk transfer to the private sector over life of contract. Risks are
allocated to the party that is best able to manage them
The first PPP projects date back to 1959:
• Mtwapa and Nyali Bridges Concessions signed in 1959;
• The 75 MW Tsavo Independent Power Project tendered in 1995,
Olkaria III (48MW Geothermal Plant), lberafrica (56MW thermal
power plant), Mumias (34MW power plant);
• Port of Mombasa Grain Terminal on a Build Own and Operate
awarded in 1998;
• Concession of Kenya Railways Corporations freight services for 25
years and passenger services for 5 years in 2006;
• The 90 MW Rabai Independent Power Project in 2006
PPPs are not new in Kenya
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Rationale for increased Kenyan focus on PPPs
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Vision 2030 targets the
transformation of Kenya into a
middle income country by 2030.
Significant investment in infrastructure required to
achieve this.
Government policy set out as the Big 4
Agenda, including
development of Affordable
Housing
Government
fiscal
constraints
from levels of
Government
borrowing.
Govt. strategy -
reduce debt to
GDP (ratio) to
below 45% in
the medium
term
Additional funding from
private sector, hence
reduction of funding gap
Utilise private sector
efficiency & innovation to deliver public
services
Increase business
opportunities for the
domestic market
The focus on PPPs led to the development of Kenya’s PPP policy, with
the objective of achieving international best practice:
• Specific PPP legislation;
• Formation/ clarification of bodies and committees responsible for
PPPs (PPP Committee, PPP Unit, PPP Petitions Committee,
Contracting Authority nodes and project committees responsible
for each stage of the procurement process)
• Specification of procurement processes aligned with PPP
requirements
• Development of a pipeline of PPP projects
Development of Kenya’s PPP policy
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Kenya’s PPP legislative framework
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The key pieces of legislation governing the development of PPPs in Kenya include:
• Constitution of Kenya (e.g: Article 227 re requirement for procurement to be
conducted in a fair, equitable transparent, competitive and cost-effective
manner; and Article 10(2) re democracy and participation of the people)
• The PPP Act No.15 of 2013 (noting also proposed changes via the PPP
Amendment Bill currently in parliament)
• PPP Regulations and guidelines (PPP Regulations 2014, L.N. No.171 of 19
December 2014; PPP Petition Guidelines, 2015; PPP (Project Facilitation Fund) Regulations, 2017; PPP Disclosure Framework, 2018)
• Public Finance Management (PFM) Act, 2012
• County Governments Act, 2012
Source: Kenyan PPP Act 15 of 2013 & Regulations 19th December 2014
• "Public private partnership" means an arrangement between a contracting
authority and a private party under which a private party—
a) Undertakes to perform a public function or provide a service on behalf of the
contracting authority;
b) Receives a benefit for performing a public function by way of-
i. Compensation from a public fund;
ii. Charges or fees collected by the private party from users or consumers of a
service provided to them; or
iii. A combination of such compensation and such charges or fees; and
c) Is generally liable for risks arising from the performance of the function in
accordance with the terms of the project agreement;
Kenya’s Definition of a PPP
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The PPP Act’s definition of PPP types
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PPP Types
1. Management contract;
2. Output performance based contract;
3. Lease;
4. Concession;
5. Build-Own-Operate Transfer (BOOT);
6. Build-Own Operate (BOO);
7. Build-Operate-and-Transfer (BOT);
8. Build-Lease-and-Transfer (BLT);
9. Build-Transfer-and-Operate (BTO);
10.Develop-Operate-and-Transfer (DOT);
11.Rehabilitate-Operate-and-Transfer (ROT);
12.Rehabilitate-Own-and-Operate (ROO); and
13.Land Swap.
PPP Project Appraisal
and Value for Money
AssessmentAn Overview
Contracting Authorities wishing to investigate the viability of undertaking a PPP
project have to set out their project appraisal in a feasibility study in prescribed
form, including:
• Project technical requirements;
• Legal requirements to be met by parties to the project;
• Social, economic and environmental impact of the project; and
• Affordability, value for money and public sector comparator for the project.
PPP Feasibility study
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The sections that deal with, or are affected
by, the choice of project delivery /
procurement option
Typical components of a PPP Feasibility Study
Project Rationale
Project Scope and Description
Identification of Project Delivery
Models
Project Objectives and
Constraints
Procurement Objectives and Considerations
Project Delivery Options Analysis
and Short List
Qualitative Assessment of Project Delivery Models
Quantitative Risk
Assessment
Value for Money
Assessment
Risk Identification
Integrated Recommendatio
n
Procurement and
Implementation Planning
Project Funding and Affordability
Quantitative Assessment of Short-Listed Project Delivery Models
Finalization
Assessment of Project Delivery models within a PPP
Feasibility study
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• Identification of potential project delivery models and how well they meet the Contracting Authority’s objectives and constraints:
Qualitative assessment of Project Delivery models
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Qualitative
Analysis
(multi-criteria,
weighted)v
Identification of
Procurement
Objectives and
Constraints
Identification of
Project Delivery
Models
Development
of Evaluation
Framework
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Short-Listed Project
Delivery Models
Qualitative Assessment
Market Soundings and Jurisdictional Scan
Example objectives and constraints
• Contracting Authority’s funding available during construction and operation periods
• Timing requirement for project signing and project delivery
• Potentials for efficiency in project delivery and risk transfer
Traditional types
VFM Assessment
Recommended Project Delivery Model
Quantitative Assessment
VFM Methodology
Description of Project Costs
Financial and Project Financing
Assumptions and
Rationale
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Short-Listed Project
Delivery Models
PPP type
s
Quantitative assessment of Project Delivery models
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• The Value for money assessment in the Feasibility study compares the estimated cost under a PPP structure (the ‘Shadow Bid’) with the cost under a traditional procurement/ contracting strategy (the ‘Public Sector Comparator’) – under base case assumptions and sensitivities
Value for money assessment
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Base Costs
Other Costs
Financing
Costs
Retained
Risks
Retained
Risks
Financing Costs
Other Costs
Base Costs
Retained Risks are the risks that are retained by Government.
Other Costs include transaction and project management costs.
Financing Costs reflect the expected difference in borrowing rates under a PPP.
Base Costs are comprised of the design and construction costs. The base costs under the PSC and PPP are assumed to be the same.
Positive Value for Money
Public Sector
Comparator
(traditional procureme
nt)
Shadow Bid
(PPP)
KES C
ost
(N
et P
rese
nt V
alu
e T
erm
s)
Qualitative
AssessmentQuantitative
Assessment
Optimal
Project
Delivery
Model
Recommended Project
Delivery Method
Procurement Strategy and
Implementation Plan
Recommendation of Project Delivery Method
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PPP Tendering
Procedures
The two stage PPP Procurement process
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• The standard procurement is set out in the PPP Act s.29 and following and specifically excludes applicability of the PPADA. It is based on a two stage solicited (competitive) process, allowing fair price discovery, aligned with the Constitution s.227;
• I.e it is designed to achieve Value for Money through a fair and transparent process:
Request for Qualification Invitation to Bid
Sets out criteria that demonstrate that a proposed
bidder is able to undertake the project (technical
capability, financial and legal capacity to undertake
the project, not being bankrupt or otherwise
precluded from entering into the contract)
Sets out details of the project, the specifications that
tenders will need to meet, levels of bid security
required, the draft contract and the criteria that will be
used to evaluate bids. Requests for technical and
financial proposals on the project (provided in
separate envelopes).
Does not ask for proposals relating to the project Allows for interaction with bidders during the process
to refine the tender
Any party that meets the criteria qualifies for the
Invitation to Bid stage
Most terms of the contract are completed during the
competitive phase, before the preferred bidder
nominated
Price may not be increased in subsequent negotiations
Gateway approvals under the PPP Procurement process
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Step 1PPP Project
Proposal
Step 2 Feasibility
Study Report
Step 3
Evaluation
ReportStep 4
Project & Financial Risk Assessment
ReportStep 5
Contract Execution
Financial Close
PPP
Committee
Approval*
PPP
Committee
Approval
PPP
Committee
Approval
PPP
Committee
Approval
Cabinet
Approval
Privately Initiated Investment Proposals
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The PPP Act does allow (s. 62) for Privately Initiated Investment Proposals:
• Since this is a non-competitive process, the use is restricted primarily to
cases that have an urgent requirement; or are proposed by a party
with significant intellectual property in relation to the proposed project
design; or there is only one feasible bidder;
• The Contracting Authority still needs to demonstrate that the project
represents value for money, is affordable and transfers appropriate
risks.
Affordable Housing
Programme
Procurement Process
Procurement legislation and procurement
process
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• The procurement process is the ‘Specially permitted procurement procedure’
introduced by s.57 of the Finance Act 2017 as a new section 114A of the Public
Procurement and Asset Disposal Act 2015. It allows the Cabinet Secretary to
prescribe the procedure to be followed.
Applications for Strategic Partners Subsequent negotiations
Single stage selection of Strategic Partner for a project.
Combines:
• Information on technical capability, financial
capacity (including re commitment fee) and legal
capacity to undertake the project, advisors; with
• Information on the project: Proposed land
location, project description (details of the units &
other facilities to be constructed), Project
Development and implementation plan, and
preliminary project economics (supported by
audited financial model)
Negotiations with applicants in order of ranking.
Second ranked applicant to be requested to extend
the validity of its application.
Project to be developed/ negotiated from the
preliminary project economics stage through to
financial close.
Applicants ranked by an AHP Committee Allows for interaction with bidders during the process to
refine the tender
• Gateway approval process also
proposed for Affordable Housing
Programme
• Gateways aligned to conventional
procurement type processes
• But position of tendering stage approval
may be changed under a different
procurement process
• Project Steering Committee approves
progression options
Gateway approvals for the
Affordable Housing Programme
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• How / whether the requirements of the Specially Permitted Procurement
Procedure under the PPADA interact with the requirements of the PPP Act,
where the contractual structure would be defined as a PPP?
• Transparency of evaluation process / selection of first ranked Strategic
Partner for an AHP project (where more than one has bid for a project)?
• including comparison of separate development partners v consortia?
• Integration of Strategic Partners?
• How the Government of Kenya will be able to demonstrate value for
money, with the extent of project development post selection of first ranked
development partner?
• Extent to which Government might consider entering into Joint Venture
arrangements?
Discussion topics on legislation, approvals and
tendering procedures
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Questions?
Thank You