Ethiopia introduces a Public Private Partnership Law

27 March 2018

Ethiopia has recently enacted a new Proclamation facilitating Public Private Partnerships (PPP), recognising that the private sector is essential to support the country's economic growth and improve the quality of public services, particularly in infrastructure. This note summarises the Proclamation's key provisions.



Purpose and scope

The Proclamation sets out the new PPP legislative framework with a view to promoting and implementing privately financed infrastructure projects by enhancing transparency, fairness, value for money and efficiency through the establishment of specific procedures. PPP projects may be for either new or existing facilities and include design, financing, construction, rehabilitation, expansion, modernisation, operation, maintenance, administration and/or management.

Approval authorities

Whilst the Proclamation states that the Federal Government entity responsible for the relevant infrastructure service will normally initiate PPP proposals and transactions, these will be subject to the approval or direction of a new PPP Board. The Board will consist of The Ministry of Finance and Economic Co-operation (who will chair the Board), The National Bank of Ethiopia, The Ministry of Water, Irrigation and Electricity, The Minister of Transport, The Ministry of Public Enterprises, The National Planning Commission, The Ministry of Federal and Pastoralist Affairs and two members from institutions representing the private sector. This composition may, perhaps, give an indication of the likely areas of future PPP activity. Oil, mines, minerals and rights of air space are excluded from the scope of the Proclamation which also does not authorise privatisation or divestiture of public infrastructure or public enterprises.

A PPP Directorate will be established within the Ministry and act as Secretariat to the Board. The Directorate will promote PPP, conceptualise, identify and categorise projects, make recommendations, establish policy guidelines, coordinate activities and ensure compliance; these are core powers in the Proclamation, depending on the level of delegation to it agreed by the Board. The Board will approve appropriate structures and feasibility studies, set minimum standards and require value for money to be demonstrated.

Process

Once a potential PPP project has been identified, a public sector comparator will need to be developed for initial approval by the PPP Board, following which a feasibility study will need to be undertaken in order to seek authorisation to tender from the PPP Directorate.

Generally speaking, projects will be procured though an open bidding process. The private sector will be invited to prequalify. Following identification of suitably qualified bidders, they will be invited to submit bids pursuant to a Request for Proposals issued by the PPP Directorate setting out the technical and financial conditions required to be met. A preference margin may be granted to proposals reflecting local participation. Following any necessary clarifications, technical bids will be opened first and then, for those bids which are responsive, financial bids will be opened. An evaluation report will then be prepared to establish bidder rankings and the results published.

The Proclamation envisages various different methodologies for bidding: normally, either a two stage process or competitive dialogue. However, direct negotiation may be allowed where there is an urgent need and either (a) the former two processes are considered impractical; (b) the project is of short duration; or (c) the project relates to national defence or national security. The Proclamation sets out the process for each of these options. The Proclamation also contemplates PPPs proceeding by way of unsolicited proposals, provided these do not relate to a project which has already received approval or is being studied.

Successful bidders must establish an Ethiopian company as the project vehicle, which may include a public entity as a minority shareholder.

Core terms

The PPP project agreement will set out the terms of the PPP arrangement, respective obligations and fees payable to, or tariffs permitted to be levied by, the private sector party. If any Government support is justified and agreed on a value for money basis, direct payments, contributions in kind or guarantees may be provided. The public sector will assist the private sector party with any necessary land rights. Subject to approval, the private sector may create security interests over assets, rights or interests required to secure financing.

The Proclamation specifically contemplates:

  • private sector compensation for specific changes in law which substantially affect economic returns;
  • the ability for the public sector temporarily to take over the operation of a PPP facility to ensure effective and uninterrupted service delivery in the event of private sector failure;
  • the ability for the public sector to agree substitute private sector parties with financiers in the event of serious breach by the private sector party
  • termination and compensation payments; and
  • dispute resolution mechanisms in whatever forum may be agreed by the parties

Policy awaited

Whilst the Proclamation contains certain prescriptive processes and conditions, we will have to await further information on the approach the PPP Directorate will take in establishing relevant policies and procedures. No doubt, as the Directorate gains capacity and experience, the PPP market place in Ethiopia will become clearer, but a start has now been made.


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