Outrage over JKIA transfer exposes hidden costs of Kenya's PPP deals

What started out as banter talk on social media of a planned sale of the country’s main port of entry by air has quickly evolved into a classical manifestation of the country’s elite capture.

For days, it all seemed to be some mischievous endeavour between the responsible Ministry of Transport and the Kenya Airports Authority (KAA). This is until President Ruto weighed in on the matter last Sunday evening, during a townhall meeting at Mombasa.

This confirmed beyond any reasonable doubt that the controversial deal had the full blessings from the highest office in the land.

While many details remain unclear without full disclosure of the details of the privately initiated proposal or any actual contract, this exposé has opened a lid to the mischief evident in our Public Private Partnerships (PPP) agreements. Unfortunately, this wicked voyage to exploit strategic national assets and infrastructure for private greed appear to have been pre-meditated in the Amended PPP Act in 2021.

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The Law

While it came as a surprise to the publics when the KAA clarified that this was a privately initiated proposal still at the early stages of consideration, it actually turns out there is nothing illegal up to this stage in the process. When repealing the PPP Act of 2018, the 2021 PPP Act in Section 37 provides the procurement methods for PPP arrangements as direct procurement, privately-initiated proposals, competitive bidding and restricted bidding. In the subsequent sections, the Act prescribes the circumstances under which and the modalities of use for each of the methods.  

It may not be of any legal significance, but the four allowable methods are listed in that order in the Act. Nothing may look odd with the provisions of this Act until we draw connections to the overall public resource management architecture; but more specifically, the Public Procurement and Asset Disposal (PP&AD) Act  of 2015. For avoidance of doubt, the Procurement Act is the singular Act contemplated under Article 227 to align all government procurement with the Constitution. Once enacted in 2015, it repealed the 2005 Procurement Act, and came complete with its own set of Procurement Regulations (expected within 12 months after enactment) but which Parliament never approved until July 2020.

The primary objective of the PP&AD Act was to bring all public procurement, including Kenya’s missions abroad under a single legislation. To the best of my recollections, there is no public agency that is excluded under this Act. Further, the primary method of procurement envisioned in the Act is open tendering. All the other methods are to be used in specific circumstances as contemplated in the Act itself. In current practice, the most abused provisions, often exploited to plunder public coffers has been the direct procurement, restricted tendering and request for quotations. If anyone doubts this, then the dramatic and obscene tales by the COVID billionaires and many other emergency response programs is your answer.

Now, let’s go back to Section 37 of the PPA Act 2021, how did this piece of legislation then create a parallel system of procuring PPPs? Curiously, prominence seems to be given to the weakest links in the main procurement Act. Furthermore, the PP&AD does not exclusively contemplate for the privately initiated method, now been applied to surrender one of the country’s most strategic asset to a private foreign investor in a secret deal surrounded in mystery. While the PPP Act itself seems to set some structures, it does not require a genius to notice a pre-meditated process to sanitize mischief.

Section 6 of the PPP Act sets the top governing organ for PPP arrangements as the PPP Committee consisting of the Principle Secretaries (PSs) responsible for Finance (Chair), planning and infrastructure. Other members are the Solicitor General, nominee of Council of Governors, three persons (non-public officers) appointed through a Gazette notice and the Director General for the PPP Directorate, who shall be the secretary.

There seems to be several overlaps in the functions of the committee, the directorate and the contracting agency, making it difficult to assign specific accountability to anyone. For example, on the controversy over JKIA, has the directorate for PPP already done its part? Have the submissions already been considered by the Committee? If so, how comes the president seemed fully seized of the deal? Does it mean then that this deal has been considered in the Cabinet? At what point is the mandatory public participation under Article 201 done?

On the questions of credibility been raised on the Adani Group that submitted the privately-initiated proposal, Section 40(2) demands for demonstrable societal need for the public infrastructure, value for money, sufficient information to assess fiscal affordability and fair market price, among others, as key consideration for such proposals. Further, Section 41 sets conditions that the proposer must not have been deburred by any country or international body, corrupt, insolvent, show tax compliance in all jurisdictions and its officers or directors must not have been convicted of any criminal offense.

Have all these considerations already been undertaken or evaluated? More importantly, how did the Adani group know there was a need to refurbish JKIA when billions of shillings was blown in an upgrade of the facility in under five years ago?

However, the question that must bother us most is: Is this JKIA deal an isolated case?

The quick answer to this question is that it is not. PPPs have become the latter day conduits to fleece public coffers and transfer strategic national assets and infrastructure to private pockets of both political and bureaucratic elites. Under the Jubilee administration, the Standard Gauge Railway, the Express Way and captive Private Power Producer agreements serve as perfect examples. In the Kenya Kwanza administration, public land is quietly moving into private hands under the phony Affordable Housing Scheme, completely oiled by a forced housing levy to de-risk shadowy private investors. To this date, nobody knows their faces, directors, beneficial interest, contractual terms and the demand for those houses once the keys are handed over to the government.

Pitfalls of PPPs

There is unimpeachable evidence in economic literature that PPPs offer strategic opportunities to complete large-scale government projects through private funding. Done well, they bring in private sector operational efficiency, technical expertise and access to best technologies, both domestic and foreign, into the performance of public projects.

Having said that, the sanctity in PPPs lie in the sharing of risks and appropriation of the accruing benefits to both the public entity and the private sector. According to www.investopedia.com common risks for private sector investors in PPP agreements include technical defects, inability to meet quality standards and lack of sufficient public demand. For the public entity, the major risk is that the user fee may not be supported by demand. A good case in point would be our toll fees on the Nairobi Express way.

The main criticism for PPPs is that this contracts blur the lines between legitimate public purpose needs and private for profit ventures. More fundamentally, there is emerging exploitation of the publics due to self-dealing and rent seeking that is common, especially in corrupt jurisdictions like ours. In essence, PPPs now represent latter day corrupt dealings, pay-offs to political cronies and general rent seeking for bureaucratic elites in society.

In our short experience since the era of the Rift valley Railways’ PPP deal, Kenya represents a classic case study of how not to do a PPP. For this reason alone, the Airport deal must collapse at whatever cost to preserve public interest and curtail the KK wheeler-dealers in their tracks!