Pay boom as Treasury doubles PPP adviser fee
The National Treasury office building. The Treasury has doubled the limit of fees payable to transaction advisers behind successful public-private-partnership(PPP) projects, a strategy aimed at boosting the implementation of such multi-billion shilling ventures.
What you need to know:
- In the new rules, Treasury has capped the success fee at 1 per cent of a project cost.
- The consultant is paid a success fee upon the positive outcome of the project.
- If the outcome is not positive, there is no obligation to pay the fee. It serves as motivation to the consultants or advisers to do their best and earn the maximum.
The Treasury has doubled the limit of fees payable to transaction advisers behind successful public-private-partnership (PPP) projects, a strategy aimed at boosting the implementation of such multi-billion shilling ventures.
A success fee is a conditional agreement whereby a consultant or adviser is paid a set rate if a PPP project’s outcome is positive.
If the outcome is not positive, there is no obligation to pay the fee. It serves as motivation to the consultants or advisers to do their best and earn the maximum.
In new proposed regulations, the Treasury has capped the success fee at one per cent of the total cost of a PPP project— double the current rate.
“The success fee charged on a project shall not exceed one per cent of the total project cost on a project. Where the directorate or a contracting authority incurs the services of a transaction advisor in a project, the private party shall pay such costs incurred in full in the manner advised by the directorate or the contracting authority,” the Treasury said.
The rate will form part of subsidiary laws in the new PPP Act 2021 that was signed by retired President Uhuru Kenyatta in December last year.
Presently, the success fee is provisioned in Kenya under Section 28 of the PPP Act, 2013, and Regulation 57 of the PPP Regulations, 2014.
The law currently caps the success fee at 0.5percent of the contract value of the project or 100 per cent of the transaction advisory service provided for the project, whichever is higher.
The law, which is now set for repeal, also dictates how the success fee shall be imposed and the amount to be imposed shall be stated explicitly in the tender documents.
Where a successful bidder is required to pay a success fee, that bidder shall pay the fee, through the project company, on achieving financial closure of the project.
Where a success fee is charged, that fee shall be paid into the Project Facilitation Fund under section 68 of the PPP Act 2014.
The PPP arrangement allows private investors to own infrastructural projects for a given period to recoup their funds before ceding the ownership to the State.
A review of the new PPP law shows that Kenya made a raft of investor-friendly provisions terms including increasing the period of concession for projects to up to 30 years from 25 years—aligning the concession timeframe to the global standard.
