The World Bank Group has cautioned Kenya against seeking unsolicited public-private partnership (PPP) deals following the cancellation of Sh2.7 billion contracts linked to Adani Group companies.
The multilateral lender is concerned that the privately initiated proposals (PIPs) could undermine public confidence in the search for private investors to build infrastructure, triggering protests that could turn deadly.
With the government running out of space to tap additional loans, it has turned to deep-pocketed private investors such as India’s billionaire Gautam Adani to close mega infrastructure projects.
Under PIPs, investors initiate the process of building public infrastructure using their resources in a procedure that circumvents competitive bidding.
They recoup their investments through avenues such as tolling.
The World Bank wants Kenya to seek competitively sourced PPPs and not the PIPs amid concerns that the unsolicited deals are shrouded in secrecy, leading critics to believe that the contracts do not offer taxpayers value for money.
“I think with PPPs, it’s very clear. International good practice leans on competitive tendering and I think the same applies to Kenya,” said Marek Amush, the lead economist for the World Bank’s economic policy division in Kenya.
He echoed comments captured in the World Bank’ the Kenya Economic Update report, which is normally published twice a year.
“Going forward, the country’s success in PPP projects will depend on putting in place good governance, oversight, planning and accountability… including strengthening of practices around unsolicited project proposals to foster predictability and confidence in PPP project development,” the World Bank said in the report published Tuesday.
The World Bank, however, says PPP projects are key for Kenya in closing the infrastructure gaps.
“Closing infrastructure gaps remains a priority in Kenya and the government is increasingly looking to draw on the private sector innovation, efficiency and financing solutions to help deliver major infrastructure projects through PPPs,” the World Bank said.
“Kenya has a progressive PPP framework, implementation of which can be further strengthened, and an initial portfolio of promising PPP projects.”
The Adani projects in Kenya—building of electricity transmission lines and upgrading of Jomo Kenyatta International Airport (JKIA) — were through PIPs.
Kenya has turned to PPPs to finance the construction of highways and other infrastructure after public debt ballooned and now consumes over 65 percent of taxes in annual service costs.
Under the proposed Adani deal worth nearly $2 billion (Sh258 billion), the Indian conglomerate was to add a second runway at the Jomo Kenyatta International Airport and upgrade the passenger terminal in exchange for a 30-year lease.
It also secured a $736-million (Sh95 billion) deal that an Adani Group firm signed with the Energy ministry in October to construct power transmission lines and base stations.
President William Ruto on November 21 ordered the cancellation of a procurement process for the JKIA and the electricity contracts after group founder, Gautam Adani, was indicted in the US for allegedly paying about $265 million (Sh34.2 billion) in bribes to Indian government officials.
Before this, the deals with the Adani Group were hugely unpopular in the country, and there were concerns of corruption before they were frozen by the courts.
The government has prepared a list of mega projects which it plans to implement across different sectors in partnership with private sector players. The increased use of PPPs to finance infrastructure projects is aimed at reducing the use of debt and taxes to build roads, airports, power plants and electricity transmissions lines
Public debt went up following five years of increased borrowing, making it unsustainable.
The Treasury says the government has so far approved 39 PPP projects, with 36 of them estimated to cost $13 billion (Sh1.68 trillion).
Out of the 39, the Treasury says, projects valued Sh136 billion have been contracted.
On PIPs, the State lists 17 projects, including the Chinese-funded Nairobi Expressway, which was opened in 2022 and will be under the China firm for 30 years before its transfer to the State.
Unsolicited PPPs include Galana Dam, the Second Nyali Bridge, the Nairobi-Mombasa Expressway and the Galana Kulalu Food Security Project.
The government will revive the stalled Kimwarer and Arror dams under PPPs, breathing life into the controversial project that was terminated amid an irregular multi-billion shilling loan deal.
The World Bank’ influence on Kenya’s economic policy planning has increased to levels that would require the government to implement tough conditions across sectors.
This is the product of mounting loans Kenya has recently tapped from the bank, which hitherto gave project loans for poverty alleviation, but is now offering cash directly to the Treasury for budget support—including paying salaries.
It is Kenya’s largest foreign lender, with its unpaid loans standing at Sh1.8 trillion from Sh692 billion in 2019.
The government has mobilised an estimated Sh129.3 billion ($1 billion) in private capital and currently has 29 projects in the PPP pipeline estimated at Sh1.4 trillion ($11 billion) at various stages of development, according to the World Bank.
