The Private Public Partnership (Amendment) Bill of 2023 was adopted in Parliament in June 2023 adding another signal to investors that Tanzania wants foreign investors and private sector to invest in Tanzania. This Bill aimed at addressing the challenges encountered in the implementation of the PPP Act which has been causing lower participation of private sector in the implementation of development projects through partnership.
A public-private partnership (“PPP”) is a contractual arrangement between a government or public sector entity and a private sector company. The objective of a PPP is to bring together the resources, expertise, and efficiencies of the private sector with the public sector’s objectives to deliver infrastructure projects or public services. PPPs are typically used for large-scale projects like transportation infrastructure, utilities, healthcare facilities, or education institutions. Tanzania’s priority areas for PPPs are agriculture, infrastructure, industry and manufacturing, exploration and mining, education, health, environment and waste management, information and communication technology (ICT), trade and marketing, sports, entertainment and recreation, natural resources and tourism, and energy.
Some key changes in the legislation are as follows:
- To allow contracting authority with solicited projects to procure private party directly and exempt from the public procurement processes provided that the project deliverable is of an urgent need which was unforeseeable, that the private parties possess intellectual property rights to the key approaches or technologies required for the project, or that the private party has exclusive rights in respect of the project.
- To remove obligation to the private party to deposit a refundable amount of not exceeding 3 percent of the estimated cost of the project to be conducted.
- That preferred bidders who shall implement the PPP project must establish project company in the form of a special purpose vehicle (SPV). This amendment intends to ring-fence the new project against other duties and obligation of the private party in other projects not related to PPP project to be undertaken. The SPV may have a public entity as a shareholder who holds at a maximum of 25% of the shares and the shares must be paid up by the public entity.
- To enable the PPP investors who are eligible to receive tax incentives to receive such incentives like other investors. Previously PPP investors were not eligible to any tax incentives therefore making it unattractive for investors.
- to enable the resolution of disputes to take place based on the agreement of the parties to the PPP agreement. The amendment aims at giving parties the right to determine dispute resolution mechanism namely arbitration in accordance with the Tanzania Arbitration Act, or international arbitration under ICSID or a Bilateral and Multilateral Investment Treaties that are applicable.
While these are all positive changes to the PPP Act, the big elephant in the room that has not been addressed by this Act is the provision of government or sovereign guarantee to private investors. To date, the Government of Tanzania does not provide government or sovereign guarantees which is a big disincentive for investors particularly those investing in large scale projects. Sovereign guarantees enhance the creditworthiness and credibility of a country in the eyes of foreign investors. The guarantee demonstrates the government’s commitment to support and protect investments, which can result in improved access to international financing and lower borrowing costs for projects. Sovereign guarantees can help facilitate project financing by enabling investors to secure loans or attract private capital. When it comes to African countries particularly, because of the perceived risk, financial institutions and lenders may be more willing to provide financing when they have the backing of a sovereign guarantee, as it provides an additional layer of security for their investment. This access to financing supports the implementation of large-scale projects and encourages foreign investors to participate which would be a game changer for countries in Tanzania that desperately need to develop and implement more energy projects for example to reach their development targets. The amendment of the PPP Act at section 18A (2) (c) provides that where the public entity is a shareholder in the SPV, it must demonstrate capacity to bear and mitigate risk associated with the implementation of the project. Therefore, we can interpret that where the partner is the public entity, a sovereign or government guarantee will be provided as a demonstration of capacity to bear and mitigate risk associated with the implementation of the project. Although when speaking to members of the government involved in the PPP amendment Bill what has transpired is that the government guarantee will be provided for only for the contribution of the public entity in the PPP.
For more information, please contact amnesuedi@shikanagroup.com or DM me on LinkedIn @AmneSuedi.