Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) Kenya Infrastructure Finance/PPP project (P121019) AFRICA | Kenya | Finance & Markets Global Practice | IBRD/IDA | Adaptable Program Loan | FY 2013 | Seq No: 9 | ARCHIVED on 27-Jun-2017 | ISR27210 | Implementing Agencies: MINISTRY OF FINANCE, National Treasury PPP Unit Key Dates Key Project Dates Bank Approval Date:15-Nov-2012 Effectiveness Date:11-Feb-2013 Planned Mid Term Review Date:30-May-2015 Actual Mid-Term Review Date:18-May-2015 Original Closing Date:31-Dec-2016 Revised Closing Date:31-Dec-2017 Project Development Objectives Project Development Objective (from Project Appraisal Document) The overall objective of this two-phased Adaptable Lending Program (APL) Program is to increase private investment in the Kenya infrastructure market across sectors and to sustain this participation over an extended period of time. This involves three key areas of development: (i) enabling environment; (ii) pipeline; (iii) financing. The specific objective of the APL 1 project is to improve the enabling environment to generate a pipeline of bankable Public-Private Partnership (PPP) projects. Has the Project Development Objective been changed since Board Approval of the Project Objective? No PHRPDODEL Components Name Technical Support to PPP Institutions for PPP Legal, Regulatory and PPP Financing Environment:(Cost $11.50 M) Support for Preparation of Individual PPPs:(Cost $20.00 M) Improvements to Fiscal Risk Management Framework:(Cost $5.00 M) Support for Program Management:(Cost $3.50 M) Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO  Satisfactory  Satisfactory Overall Implementation Progress (IP)  Satisfactory  Satisfactory Overall Risk Rating  Moderate  Moderate 6/27/2017 Page 1 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) Implementation Status and Key Decisions Component 1 Institutional Support and Regulatory Reform Subcomponent 1A – Support to PPP Institutions The objectives of this sub-component are to support the establishment and functioning of a PPP Unit at the National Treasury as well as PPP Nodes in relevant line Ministries and other contracting authorities (CAs). Institutional and technical PPP capacity will be built among GoK stakeholders to implement the Kenya PPP program through capacity building, technical assistance and communications activities. Expected outcomes are a fully staffed and functional PPP Unit, PPP Nodes, and a deeper understanding and increased support for PPP programs amongst stakeholders from both the public and private sector. Progress, Current Status & Issues PPP Unit Staffing: The PPPU has consistently added staff and with the recent recruitment of a Senior Deputy Director and two Financial Analysts, the current strength of the Unit is at 30. The unit is planning to recruit additional staffs to have a total staffing number of close to the target of 50, including 29 technical officers. The additional staffing plan aims to enhance the technical capacity in core areas of PPP project development and implementation, such as finance, legal, technical, and procurement; and accelerate program implementation and disbursement. The unit is currently executing the staffing plan. Public Awareness and Communications: On staging a broad and intense public communication on PPPs in general, and road projects in particular, it has been found strategic to go slow, given the heightened political activity in the country at the moment, to avoid politicizing of the PPP agenda. The PPPU has, however, published a couple of newspaper articles discussing the benefits of PPPs in general. The unit also plans to hold a few general PPP awareness workshops with various Contracting Authorities with projects in the pipeline as well as with various professional associations involved in PPP projects between now and the end of the year. Finally, the PPP Unit and the Road Agencies (KeNHA & KURA) have planned a few closed meetings with the leadership of private sector associations (Kenya Private Sector Alliance, Kenya Association of Manufacturers and Kenya National Chamber of Commerce& Industry) as well as the road projects user groups (Kenya Motorists Association, Matatu Owners Association and Kenya Transporters Association) for earlier but in of the projects. These meetings are planned in the month of May. In parallel, under a separate but related project, the World Bank and the PPPU are jointly organizing a series of engagement sessions with the Fund Managers’ Association and financial institutions in Kenya to sensitize them about the features of PPP, long-term financing needs of PPP, government commitment to the PPP program in Kenya and other relevant topics – these sessions commenced in March 2017 and are expected to continue through the year. PPP Nodes Support and Capacity Building: The PPPU facilitated 2 treasury officials to attend a procurement workshop in February. There are 6 individual trainings planned between now and June, and 3 group trainings and a node workshop are also planned for this period. Currently 58 PPP nodes are constituted and functioning but with often non-uniform and low capacity. The WB concluded a 6- month capacity building program for counties in March 2017 - 45 participants from the pilot counties and the council of governors were trained during this program. The officials trained were mainly technical officers from the Counties from the following departments: health, solid waste/environment, water, procurement and finance. Based on the training material prepared and experience obtained from this capacity building program, the PPPU shall undertake a wider capacity building program for the 47 Counties in liaison with the county governments. Support to County PPPs: Two pilot county projects in the PPP pipeline are the Muranga Town Water Supply Project, and the Nakuru Solid Waste Management Project. Consultants are currently conducting detailed feasibility studies which are expected to be completed by June 2017. Based on the results of the FS, if the projects prove to be viable, the PPPU will recruit Transaction Advisors for project structuring and preparation of bid documents and handhold the PPPU in taking these projects to the market. The DFID funding secured for this agenda has been extended to July 31st, 2017. In addition, a capacity building event was held for the 10 selected counties, out of which 8 attended and PPP project proposals have been received from all 8..The proposals were mainly for the water, sold-waste and health sectors. The PPPU is performing a gap analysis to further look into these proposals. The PPIAF is, in parallel, funding the screening of the PPP pipeline which may include the screening of some of the new projects identified at county level. Subcomponent 1B – Legal and Regulatory Reform The objective of this sub-component is to support a robust legal and regulatory framework for implementing PPP transactions and projects at national and sub-national level. The adoption of the PPP Act, including preparation and adoption of national and subnational PPP regulations and procedures and their effective implementation, forms the basis of achievement of this component. Progress, Current Status & Issues National Toll Fund Regulation: The National Toll Fund Regulations provide for the establishment of a toll fund for collection of user charges levied on road users and specify how the service provider/private party will be compensated through Toll Fund revenues. In addition to establishing the process and procedures for the operation 6/27/2017 Page 2 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) of the toll fund, the regulations will also help to inform the bidders and financiers, and other interested stakeholders understand how the toll fund will work. Toll road projects in Kenya so far have been structured on an availability payments based model with the government paying the service provider/ private party based on availability of the road and associated services as specified in the contract. The availability payments to the service provider/private party will be paid out of the Toll Fund with the government making good any short fall in toll revenues through budgetary provisions. The PPPU has commenced the drafting of the National Toll Fund Regulations. A zero draft was created following a consultation with key transaction advisors, and the concerned contracting authorities, KenHA and KURA. A wider stakeholder consultation will be held to get further feedbacks on the draft regulations. Kenya Roads Bill Reform: The PPPU has initiated the process of amending the Roads Bill. The amendments will provide the mandate for collection of tolls by the private operator and application of the collected tolls towards project operations. Under the Section 206 of the Constitution 2010 provides for the establishment of a consolidated fund, and all monies raised and received on behalf of the Government shall be paid into this account, unless excluded by an Act of Parliament of payable into a specific fund established for a particular purpose. Therefore, currently, all toll charges in Kenya (as well as penalties for road offences) are payable into this consolidated fund as there is no other fund established for this purpose. The PPP Tolls Program seeks to establish a national Toll Roads Fund for the PPP Toll roads. In addition, the PPP Tolls Program seeks to shift the responsibility of monitoring and enforcement of vehicle overloading to the private party. The Traffic Act, under part V which relates to driving and other offences related to the use of Vehicles on Roads, criminalizes matters such as overloading (Essentially making overloading an offence against the state). Presently, as structured in the law, only public officers-the Police/road authorities – have the right to stop vehicles and weigh them or the right to enforce load limits by making overloaded vehicles off load their excess weight and pay penalties for overloading. Penalties collected by the state as state revenue are treated as appropriations in aid hence part of the consolidated fund. The amendments proposed are seeking to decriminalize overloading to allow for the fines payable to be collected as civil debts by the concessionaire. As part of the process, the PPPU has begun consultations with the Kenya Law Reform Commission, with participation of key stakeholders. Subcomponent 1C – Legal Institutional Development for Financial Products for PPPs The objective of this sub-component is on the one hand, to develop the framework for a Project Facilitation Fund (PFF) for specific financing instruments, such as Viability Gap Financing (VGF), guarantees, infrastructure funds, financial intermediary lending facilities, and on the other hand to support the development of local capital markets which create the enabling environment for long term finance in local currency. The key expected outcomes are (i) establishment of a Project Facilitation Fund (PFF), as required under the PPP Act, (ii) approved amendments to the Capital Markets Authority Bill and the Securities and Investment Bills, and (iii) regular issuance of Government benchmark bonds in medium and long term maturities up to 7/10 year tenures. Progress, Current Status & Issues Project Facilitation Fund: The PFF Regulations have been finalized and approved by the CS treasury. It is scheduled to be gazetted in April. Under next steps as provided in the regulations, the PPPU will establish the fund with seed funding provided through budgetary provisions.. Capital markets: Capital markets policy issues have been transferred to the Financial Sector Support Project (FSSP). Component 2: PPP Pipeline Preparation This sub-component aims to build on the foundation of Component 1 and prepare PPP transactions for market. This is achieved through a combination of sector specialist advice to the PPP Unit and the sectors, the development of sector strategies and the funding of feasibility studies and transaction advice for viable projects. Progress, Current Status & Issues Transaction Advisory Services: In the roads sector, RFQ has been issued for the Nairobi-Nakuru Highway Project. The RFP is currently under preparation and is expected to be completed within a month. The Feasibility Study for the 2nd Nyali Bridge was approved by the technical committee. The report of the technical committee will be presented to the full committee in May, after which the RFQ documentation will be released to the market. On the education sector, Feasibility Studies for 5 university hostels were also approved by the technical committee and subject to a full committee presentation and approval in May, the RFP will be released to the market. On the health sector, recruitment of the feasibility study consultant for a300 bed hospital is on-going. For the Kenya Cancer Center, IFC is currently conducting the feasibility study which is expected to be completed by June 2017. Component 3: Development of Institutional and regulatory framework for assessment, monitoring, managing, reporting and disclosure of Fiscal Commitment and Contingent Liability (FCCL) associated with PPPs This component consists of improvement to the Fiscal Commitments and Contingent Liability Risk Management Framework of the National Treasury vis-à-vis Public-Private Partnership projects. Progress, Current Status & Issues FCCL Guidelines: Currently draft FCCL guidelines exist and are being used for FCCL analysis conducted by the PDMO with support from the PPP 6/27/2017 Page 3 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) Unit. It has been noted however that there are challenges when it comes to the actual financial analyses using the prescribed methodology in the draft FCCL guidelines coupled with capacity constraints in the PDMO and the PPPU in conducting the analyses. There is a clear need for the assessment methodology provided by an earlier consultant to be modified to a simpler set of assessments based on scenario and sensitivity analyses, and the new reformed PFRAM tool currently under preparation by the World Bank and IMF. Nonetheless, the PDMO assessed the Fiscal Risks associated with the implementation of 4 of the 5 First Mover Toll Roads Projects (Nairobi - Nakuru, Nairobi- Mombasa, Nairobi - Thika and the Nairobi Southern bypass) using the earlier methodology and developed an FCCL assessment report for the same. This report was found to have several shortcomings which have been pointed out in the last mission aide memoire dating to January 2017. In addition to the above, the FCCL assessment report for the 2nd Nyali bridge project has recently been concluded with work currently being undertaken for the FCCL analysis for 5 University hostel PPP Projects. As a way forward, a short term FCCL expert has been appointed by the WB with the intention of filling in the gaps that exist in the methodology as well as the FCCL Assessment reports prepared by the PDMO. This analysis has been completed by the FCCL expert (based in US) and is currently being reviewed by two senior financial consultants of the World Bank for soundness, This consultant is expected to be in Nairobi during May-June 2017 to further discuss the FCCL report for the projects as well as conduct training to build the capacity of both the PDMO and the PPP Unit in the new methodology for FCCL assessment. In addition, the PFRAM tool of the World Bank and the IMF currently being developed, and if successful, can also be implemented during the coming months in Kenya. While the institutional structure of FCCL assessment as provided in the Draft FCCL Guidelines has been quite successful, the methodology being less successful would need to be revised. Since the guidelines provide for the assessment methodology to be put into implementation within three years from the date of the guidelines, based on the results of the above recent steps, the methodology may need to be modified substantially during the coming weeks and months. Capacity Building Activities for the FCCL Framework: A study tour to South Africa is currently being organized by the National Treasury through the PPP Unit with the intention of gaining insights on the FCCL Management Framework in SA with a view of adopting similar principles in order to make the Kenyan FCCL Framework more user friendly and workable. The study tour is scheduled for June - July 2017 and the contracted FCCL Expert is scheduled to be in Kenya in May. Following these capacity interventions, the unit will be in position to issue and operationalize the FCCL guidelines sometime in September - October 2017 provided that everything goes as planned. Component 4: Support for Program Management A Project Implementation Unit (PIU) was established within the PPPU in the National Treasury. The PIU provides the procurement, fiduciary, safeguards and monitoring and evaluation expertise required for the implementation of the IFPPP project. Risks Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance  --  Moderate  Moderate 6/27/2017 Page 4 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) Macroeconomic  --  Moderate  Moderate Sector Strategies and Policies  --  Moderate  Moderate Technical Design of Project or Program  --  Low  Low Institutional Capacity for Implementation and Sustainability  --  Moderate  Moderate Fiduciary  --  Moderate  Moderate Environment and Social  --  High  High Stakeholders  --  Moderate  Moderate Other  --  Moderate  Moderate Overall  --  Moderate  Moderate Results Project Development Objective Indicators PHINDPDOTBL  Expression of Interests (EOIs) issued to prospective sponsors for three targeted PPP transactions (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 1.00 2.00 3.00 Date 31-Dec-2012 12-Dec-2016 16-Jun-2017 31-Dec-2017 PHINDPDOTBL  PPP Regulations associated with the new Law agreed to with MoF (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value N Y Y Y Date 31-Dec-2012 12-Dec-2016 16-Jun-2017 31-Dec-2017 PHINDPDOTBL  PPP Fiscal Commitment and Contingent Liability Framework operationalized as measured by: upstream DMO due diligence on prospective (feasibility stage) transactions completed in line with Law (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value N N N Y Date 31-Dec-2012 12-Dec-2016 16-Jun-2017 31-Dec-2017 6/27/2017 Page 5 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) PHINDPDOTBL  Regular issuance of Government benchmark bonds in medium and long term maturities up to 7/10 year tenures (Number, custom) (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value N Y Y Y Date 31-Dec-2012 12-Dec-2016 16-Jun-2017 31-Dec-2017 Overall Comments Intermediate Results Indicators PHINDIRITBL  Five feasibility studies completed and submission by contracting authorities to the PPP Committee acceptable to the Association, including Safeguards; ready for market entry (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 10.00 10.00 5.00 Date 31-Dec-2012 12-Dec-2016 16-Jun-2017 31-Dec-2017 PHINDIRITBL  Line Ministries and Agencies “Nodes” for First Mover Transactions established and operational (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 57.00 58.00 2.00 Date 31-Dec-2012 12-Dec-2016 16-Jun-2017 31-Dec-2017 6/27/2017 Page 6 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) PHINDIRITBL  PPP FCCL approved by National Treasury Cabinet Secretary (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Value No In progress In progress Yes Date 31-Dec-2012 12-Dec-2016 16-Jun-2017 31-Dec-2017 PHINDIRITBL  Capital Markets Authority Bill 2011 approved by Cabinet for submission to Parliament (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value N Y -- Y Date 31-Dec-2012 12-Dec-2016 16-Jun-2017 31-Dec-2017 PHINDIRITBL  Securities and Investments Bill 2011 approved by Cabinet for submission to Parliament (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value N Y Y Y Date 31-Dec-2012 12-Dec-2016 16-Jun-2017 31-Dec-2017 Overall Comments Data on Financial Performance Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed Disbursed P121019 IDA-51570 Effective XDR 26.40 26.40 0.00 15.44 10.96 58% Key Dates (by loan) 6/27/2017 Page 7 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P121019 IDA-51570 Effective 15-Nov-2012 05-Dec-2012 11-Feb-2013 31-Dec-2016 31-Dec-2017 Cumulative Disbursements Restructuring History Level 2 Approved on 24-Jun-2015 Related Project(s) P162182-Kenya Infrastructure Finance Public Private Partnership Additional Financing Project 6/27/2017 Page 8 of 8 Public Disclosure Copy