Summary of the Public Private Partnerships (PPP) Process

Nairobi, 24th of June 2015

Public Private Partnerships are approaches where government bodies and public entities come together to deliver a service to the population by development of needed infrastructure.The service need to be fulfilled by development of a piece of infrastructure is identified followed by generation of project proposals. A decision of whether to procure the project as a PPP or by regular government tendering is done. When the PPP option is chosen, the contract structuring and project development must take into account three key aspects politics, economics and execution. A dedicated unit to handle the transaction in form of a PPP unit is essential. After successful bidding the contract needs to be managed through construction and operation and finally over the life of the contract to its end ensuring value for money for the public.

The process of development and the essential aspects of each stage of a PPP project is as summarised below.

To illustrate, an example of the development of a Geothermal Power Plant in the Olkaria reservoirs in Kenya, similar to the captioned plant below, proposed by GeothermalAreUs Limited (GAU) with suggestion of a 25yr BOOT concession is offered. This is to be done in collaboration with KenGen (a publicly owned electricity generation company managing the Olkaria fields. 

The 280 MW Olkaria Geothermal Power Plant in Kenya. Picture courtesy of Power Engineering International

 
Upon reception of this unsolicited proposal, KenGen should proceed to check the fundamentals of the proposal. This includes whether the proposal is within the law (Kenya's PPP Act, 2013), whether it delivers on the need for cost effective energy generation, whether it negatively affects the debt exposure of the company and its majority shareholder, the Government of Kenya and finally whether there are efficiency gains in implementing this as a PPP. KenGen has the option of undertaking a similar project on its own as it had previously done for earlier Olkaria projects.

If the preliminary analysis returns a positive assessment for the PPP option then a transparent and competitive tendering process for the project as suggested by GAU should be undertaken to ensure that the most efficient approach is selected for implementation and that KenGen gets value for money. GAU could be given a right of matching any better bid or extra points for project origination in the evaluation process. KenGen would also be well advised to engage the PPP unit based in the Treasury as well as comply with regulator information requirements.

Supposing no other bid is as good as the GAU's bid, the focus should now be on the economics, politics and execution of the project to ensure value for money.

In the economics focus, KenGen must carry out due diligence on GAU to confirm the company has the power to enter into contract as well as being in good financial standing to acquire debt and deliver the project. The requirements must be clearly defined. This could be the delivery of 140MW of geothermal generated electricity in the most environmentally friendly and efficient manner, operation of the plant and transfer of the plant after 25 years. The cost, revenues and other fundamentals of the project as proposed must be checked to be sound. The roles of KenGen and GeothermalAreUs must be clearly defined. An example would be KenGen to ensure steam supply while GAU ensures electricity production and export to the grid operator. Risks should be allocated to parties best suited to handle them. KenGen would carry the steam resource risk while the technology and construction risks would be carried by GAU.

As to the political side of the project, the parties should get a political champion, in this case the Cabinet Secretary for Energy would be an ideal champion. The parties must also ensure that the stakeholders are identified, engaged and briefed all through the development of the project. The Energy Regulatory Commission, local communities and the off-taker are an example of key stakeholders. The environmental and social impacts of the proposed project should also be sufficiently addressed and a monitoring plan set up.

When it comes to execution, a PPP unit within KenGen would need to be set up to work with the Treasury's PPP unit to manage the project development. Local and foreign experts should be used by KenGen to strengthen its capacity. The development contract should include penalties and incentives for delivery of project milestones linked to the payment schedule.  Quick and fair conflict resolution mechanisms should be set up and political interference with the deliverables and timelines avoided. No negotiations outside of the PPP technical teams should be allowed.

Contract management is also an important factor in the success of the project. KenGen should assign persons and resources to monitor and evaluate the project and later the project company throughout the period of the contract. The quality of service and fiscal situation as well as compliance with set environmental and social standards should be monitored and regular reporting to KenGen undertaken by GAU.

At the end of the 25 years, KenGen should ensure smooth handover of the facility and decide whether to retender  for operations management, shut down the plant or otherwise.

Disclaimer: The project alluded to in this article is fictitious and is in no way related to any actual project being undertaken by any of the mentioned real and fictitious parties.

Taping the elements for development

Renewable energy has emerged as the panacea of our future existence on the planet earth. With the horrors that humanity has committed against the environment in the race to outdo each other in development, there has been a widespread increase in emissions that continue to choke our environment. The heavy polluters of the world China and US are now being increasingly joined by the nearly developed BRICs (Brazil, Russia, India and China) which are experiencing phenomenal growth that is increasing their energy appetite. It is foreseeable that  the rest of developing world including Africa will join in this craving.

Fukushima and Chernobyl have taught us that though nuclear is considerably environmentally friendly, things can go wrong and it can be the deadliest source. The recent move by the German chancellor Angela Merkel to map out a shut down plan for the country's Nuclear power plants are a pointer to a reduced global dependence on Nuclear.

Turning to the might of nature is the one way that such huge producers of energy as nuclear can be effectively replaced.

It is with the havoc that non-renewable sources wreak on our common resource in mind that Nations in Rio 92' agreed on agenda 21( http://www.un.org/esa/dsd/agenda21/) to promote sustainable development practices by emphasising on renewable energy ventures as a way to conserve our planet for future generations.

Renewable energy has been touted as being too costly a venture thus the continued expansion of fossil fuel based sources. However, in recent years there has been a renewed vigour to develop renewable energy sources and especially so in the area of Wind and Solar power. A key determinant in viability of solar and wind power projects has been the size of the Project. The bigger the size of the project the more viable the project.

Size has been a big determinant in the success of the Roscoe Wind farm in the USA (781.5MW) and the Thannet offshore wind Plant in the UK(300MW). Another interesting development has been in the Concentrated Solar Power (CSP) sector with the Solar Energy Generating Systems (SEGS) in California (354MW) and the  Spanish Andasol solar power project (150MW).

Closer home, there are plans to tap the potential of the Sahara desert  at its most fierce points in Libya, Algeria and Saudi Arabia to create a super plant that will cater for the energy requirements of the European continent and also assist in an ambitious attempt to re-green the Sahara. The DESERTEC Foundation (http://www.desertec.org/) is at the forefront of this venture to harness the energy that mother nature pours out on the world's deserts. It is claimed that the sum amount of energy the deserts of our world receive in 6hrs is enough to supply Global demand for 1year (Dr Gerhard Knies). The desertec project will create a super-grid that will supply energy in the Terrawatts to much of Europe effectively replacing the non-renewable sources currently in use in the European economies.

Much closer is the Lake Turkana Wind Power Project (LTWPP) that aims at infusing 300MW of green wind energy to Kenya's National grid. Recent Forays into Geothermal energy in the Rift valley also underpin the significance of Green energy to the future of this developing economy. It is essential that as we develop we embrace renewable energy and exploit the potential that Kenya has in areas such as solar energy to cushion the country from power rationing in times of drought when the Sun is bearing down on us. Also, development of a much broader working group with the countries in East and Central Africa is of utmost importance going forward.

A unified grid would allow for projects such as the proposed 39TW Grand Inga Dam on the River Congo, DRC to supply all the energy requirements of Africa and parts of Europe on HVDC lines. Hydro power being amongst the cheapest sources would lead to dramatic reduction of energy costs in the region and spur greater economic development.

These will however need a multi-sectoral approach that would see environmental conservation being at the forefront so as to ensure catchment areas such as that of the Congo river and the windy lands of Turkana are maintained and peaceful coexistence of neighbouring countries/communities is ensured. Collaboration and outsourcing is the key driver of economies today and will also forge the way for the future of the developing world.

Our combined future is green and renewable energy will be the way out of environment-driven self destruction of our world.

Visionary: Vision 2030 and Infrastructure

Visionary: Vision 2030 and Infrastructure: "Kenya's vision 2030 plan presents various challenges in the area of infrastructure that will need a multi-faceted approach. both the governm..."

Vision 2030 and Infrastructure

Kenya's vision 2030 plan presents various challenges in the area of infrastructure that will need a multi-faceted approach. Both the government and the private sector will need to be in the boat if we are to sail to the promised land.

In the area of energy, recent developments in the field of Geothermal technology where there is renewed effort to  expand capacity are a step in the right direction and will lead to more generation capacity. With the entry of GDC and expansion of KENGEN into geothermal in a dedicated way things can only be good. This however will not be enough to satisfy our energy needs. Sources such as wind power as proposed by the Mega Lake Turkana Wind Power Project will prove essential. A jump into the world of Nuclear energy also seems inevitable owing to the grandiose nature of the Plan. Facilities such as electric/ high speed trains will increase substantially our appetite for energy, thus necessitating Nuclear energy.

With these new developments, roads and cities will crop up in areas where they were not before. A new transportation thirst will then develop. Airports, trains and roads will then be the next frontier as population dispersion to fill the vacuum of opportunity starts to occur.

With an expanding knowledgeable and skilled population dispersed all over the width and breadth of the country, a new need will arise. The need for recreation facilities. Stadia, parks, pools, concert halls, museums and other facilities will then present a new frontier. These will be necessary to provide social support for skilled labourers who will have moved to the new towns and ports.

The chain effect will cause reawakening of all spheres of society in the hope of meeting the needs that will now be apparent.

A consistent drive towards  recognising and achieving essential milestones in this plan is however crucial. We must wake up from our dreams and start working to achieve them. Everyone in their small way needs to work at being globally competitive at every sphere.

We cannot have have a LAX and no Virgin Atlantic, Wimbledon and no Roger Federer, Wembly and no Messi, Sepang circiut and no Schummacer, Grande Museums of Natural history and no leakeys, Birds nest and no Tergat/Bolt/Isbanyeva.... and the list goes on and on.

The sum of all our efforts is Vision 2030.