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 | Investment Project Financing | FY 2013 | Seq No: 10 | ARCHIVED on 02-Jan-2018 | ISR30535 | 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-Oct-2022 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? Yes Board Approved Revised Project Development Objective (If project is formally restructured)PHRPDODEL The overall objective of this project is to increase private investment in the Kenya infrastructure market across sectors and to sustain this participation over an extended period of time. 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) AF Component 1: Support to Institutional Strengthening:(Cost $10.00 M) AF Component 2: Support to Project Preparation and Procurement:(Cost $37.00 M) AF Component 3: Support to Project Management:(Cost $3.00 M) 1/2/2018 Page 1 of 11 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) 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 Implementation Status and Key Decisions The status of the specific components and sub-components under IFPPP is: 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 GOK has increased the number of internal staff with the addition of one Senior Deputy Director, one Deputy Director and other technical staff. However, since the current expertise will not be sufficient given the growth in the PPP pipeline, and increased demand for support from the county governments, the TORs for the recruitment of additional government staff and external consultants is under development by the PPP Unit. Public Awareness and Communications: In furtherance of their PPP awareness creation mandate, the PPP Unit has conducted a number of sensitization workshops with various stakeholders e.g. a capacity building workshop with the Ministry of Transport, Infrastructure, Urban Development and Housing on September 12, 2017; and an engagement with Road PPPs lenders on September 20, 2017. To reach a wider audience, the PPPU engaged a PR firm to update and maintain their official website. The updated site is currently being populated and tested before the planned launch in early 2018. In parallel, under a separate but related project, the World Bank and the PPPU are jointly conducting a series of engagement sessions with the Fund Managers Association (FMA) 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. The fifth session, which focused on the various forms of structuring an infrastructure debt fund in Kenya, was held on December 7, 2017. PPP Nodes Support and Capacity Building: Participation of staff of the national government ministries in training workshops and investment conferences continued over the current ISR period, with a number of officials provided the opportunity to attend prestigious training programs relevant to PPP and project finance. To create a sustainable solution towards meeting this goal, the PPP Unit is looking into: (i) the preparation of PPP training curriculum and study materials; and, (ii) possible collaboration with universities for dissemination of said material. 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 sub-national PPP regulations and procedures and their effective implementation, forms the basis of achievement of this component. Progress, Current Status & Issues Public Private Partnerships (Amendment) Bill, 2016: Based on the substantial time-cost delays being experienced in processing of projects under the PPP Act, 2013, the PPP Unit has proposed to introduce some amendments to the Act through the Finance Bill (2016). Adopted by the National Assembly in December 2016, the PPP (Amendment) Bill, 2016 is currently pending enactment by the Senate. The amendments aim to: (i) clarify PPP implementation by county governments by amending the definition of a contracting authority by splitting it between national and county government authorities; (ii) create sustainable frameworks for contracting of contingent liabilities by county governments. It is upon (i) and (ii) that the pending County Regulations can be issued; (iii) make changes to the PPP process for easier administration and faster turn-around times; and, (iv) separate the policy, procurement and administrative mandates of the regulatory institutions under the Act. The envisaged effect of these proposed amendments is to 1/2/2018 Page 2 of 11 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) improve the environment for undertaking PPPs in the country. Draft PPP (Petition) Regulations, 2017: Drafted with the intention of replacing the PPP Petition Guidelines of 2014, these regulations aim to govern the process by which a bidder may file a petition, in relation to the process of tendering for, or entering into a project agreement under the PPP Act, with the Petition Committee. Draft Public Finance Management (National Toll Fund) Regulations: Motivated by the adoption of the National Tolling Policy in November 2016, and the launch of tender processes for the proposed Nairobi-Nakuru-Mau Summit Toll Road Project, in April, 2017, a retreat was convened by the PPP Unit with the objective of developing the framework and principles for the drafting of a set of regulations to create a fund into which toll revenue can be paid, once the proposed PPP toll roads are developed and operational. A first draft of the regulations has been prepared and is now under revision before being shared out, in the coming weeks, with the wider stakeholders, including the four prequalified bidders for the Nairobi – Nakuru – Mau Summit PPP Toll Road project. Kenya Roads Bill Reform: The aforementioned proposed toll fund regulations are aimed at addressing a small part of the wider law reform and legal development requirements to support private capital mobilization into the road sector. Wider, more substantive sector law reform measures are being separately pursued by the PPPU and the road agencies via the draft Roads Bill. The proposed amendments aim to incorporate the implementation of the approved Toll Policy and are scheduled to be tabled in the parliament for approval early next year. 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 were gazetted on May 12, 2017. 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: Roads: Road projects have shown substantial progress since the last ISR. Evaluation of Request for Qualifications (RFQ) was completed for the Nairobi-Nakuru-Mau Summit Toll Road Project wherein four firms/consortia were shortlisted and issued with the RFP on 5th July 2017. As part of the bidding process, separate one-on-one Competitive Dialogue (CD) meetings were had with each of the bidders between November 21 – December 1, 2017 with the aim of discussing the technical, financial, key risk allocation and legal aspects of the project with prequalified bidders in advance of their finalizing bid documentation and inviting bids. On July 19, 2017, the Kenya Urban Roads Authority (KURA) released a Request for Qualification (RFQ) notice inviting competent local and international firms/consortia to pre-qualify and bid for the design, finance, construct, operate, maintain and hand over of the 2nd Nyali Bridge under a PPP arrangement. On September 26, 2017, KURA, with the support of its Transaction Advisor’s Deloitte, conducted a pre-qualification conference to clarify the bidding process and any parts of the RFQ that may have been unclear. Following the bid submission deadline of November 9, 2017, evaluations for the 2nd Nyali Bridge responses have been concluded and the communication of the results of the shortlisting exercise is set before end December 2017. Toll Operator procurement: Kenya’s five first mover road PPPs (Nairobi-Nakuru-Mau Summit, Nairobi-Thika, Southern Bypass, Nairobi-Mombasa and 2nd Nyali Bridge) have all been identified as candidates for tolling. The shortlisting exercise of hiring a transaction advisor to procure a tolling operator who will purchase, install, roll out, finance, operate and maintain an integrated and inter-operable tolling system across all of the five road PPPs, to a schedule consistent with the development and entry into commercial operation of these roads and sections thereof, is ongoing. Informally, we were informed that the toll operator could be selected within the next 15-18 months if all activities go as planned. However, no firm dates were provided. It was also acknowledged that the selection of the toll operator would be vital for the firming up of the construction plans of the main road project as there would be a need for integrating the design of toll collection modalities in the highway design. Roads Annuity Program: Under the Phase 1 - Roads 10,000 Annuity Programme, commercial close has been attained for Lot 3, Lot 15, Lot 18 and Lot 1/2/2018 Page 3 of 11 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) 33, while contract negotiation is ongoing for Lots 1, 8, 12, 20 and 32, while lot 6 was re-tendered and the RFQ evaluation is being finalized. Student Accommodation Hostels: On December 11, 2017, Request for qualification (RFQ) for three (3) of the planned five (5) public universities were released to the market, inviting applications from interested parties to bid for the design, finance, construct, operate, maintain and transfer of approximately 24,400 student accommodation hostels i.e.: (i) Moi University’s 11,000 bed-capacity student hostel at their main campus and additional 4,000 at the Law campus; (ii) 5,400 bed-capacity student hostel at South Eastern Kenya University (SEKU) main campus; and, (iii) 4,000 student hostel accommodation facility at University of Embu. As part of the project structure, each transaction will involve the provision of bulk infrastructure and associated facilities. The bid submission period is set to close on February 28, 2018. Energy: PPAs have been signed for the Lamu power plant. Transaction advisors have been appointed to undertake feasibility studies for the Geothermal Olkaria VI, Menengai Phase 2 and 3 and several other projects. Ports: In the port sector, transaction advisors have been appointed to undertake feasibility studies for the Shimoni port. Feasibility study reports have been finalized for the Kisumu seaport. Health: In the health sector, negotiations with the preferred consultancy firm is ongoing for the 300-Bed Private Hospital for possible commencement of the assignment in January 2018. Feasibility study is near completion for the National Cancer Management Centers. County projects: Feasibility studies are near completion for the proposed: (i) Nakuru Integrated Solid Waste Management project; (ii) Murang’a town/Mukuyu water supply PPP project; (iii) Nanyuki Bulk Water supply project; (iv) the Regional Cancer Care Centre PPP project; and, (v) the affordable housing project in Naivasha, Nakuru County. While there is substantial progress, it will be important for the PPPU to take steps to speed up progress on projects that have moved at a slower pace. For example, the Government has been reviewing options for implementing the Nairobi-Mombasa Highway for some time now following completion of feasibility study. The Kenyatta University students hostel projects has not closed financially for an extended period despite having achieved commercial close. 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 (FCCL) Risk Management Framework of the National Treasury vis-à-vis PPP projects. Progress, Current Status & Issues FCCL Guidelines: For the past two fiscal years, the National Treasury has been assessing its PPP projects for fiscal commitments and contingent liabilities and publishing its Fiscal Risk Statements as an annex in its Budget Policy Statement covering the various sources of fiscal risks in the country, in particular - macro risks and Contingent Liabilities (CL). On the PPP CLs, the Fiscal Risk Statement provides a qualitative assessment and proposed mitigation measures. However, the Public Debt Management Office (PDMO) has been facing challenges in using probabilistic analysis for assessing its FCCL given lack of data primarily and to a lesser extent lack of sufficient capacity. Given the above background, a new modified methodology for assessing FCCL is being facilitated by the World Bank and PPPU for adoption by the PDMO with the general agreement that the new methodology appeared better suited to the Kenyan situation given the paucity of information to use probabilistic analysis (using Monte Carlo) alone. The model for assessing projects has been firmed up. The FCCL assessment will be first undertaken at the feasibility stage but given the changes during structuring the assessment will be updated prior to RFP and following negotiations with the preferred bidder. The existing technical manual is being updated with the new methodology and a review of the FCCL Guidelines 2015 is being undertaken. On FCCL disclosure, appropriate formats for portfolio wise and project wise disclosures will be developed and checked for incorporation into the disclosure framework for PPPs currently being developed. A sensitization program on the FCCL methodology will be held in January 2018 and will include a high- level training workshop for policy makers, cabinet secretaries and principal secretaries; wider locally based training of PDMO and CAs; and special sensitization workshops for Kenya Power given the existing and growing pipeline of IPP projects. The timelines and progress on various milestones for the FCCL work are in table 3 below. Table 2: Milestones and Achievement on Assessment of FCCL Milestone Timeline FCCL Assessment: December 2017 • FCCL Excel Model with 17 projects • Manual of the Model • Summary file with methodologies to estimate FCCL • Presentation for Training with portfolio of projects 1/2/2018 Page 4 of 11 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) • IPSAS training material • Stochastic Analysis Excel Model • Termination Payment Excel Model FCCL assessment of IPP ongoing pipeline and the Roads Annuity Program December 2017 Updating of FCCL Guidelines 2015: January 15, 2018 • Fiscal Planning Tool /Guidelines • Fiscal Planning Tool Excel Model • Guideline for including FCCL in budget and policy making • Reporting and Disclosure Guidelines High-level training workshop for policy makers, cabinet secretaries and permanent secretaries January 15, 2018 Locally based training of PDMO and CAs March 2018 Special sensitization workshops for KPLC March 2018 Approval of revised FCCL Guidelines by the PPP Committee April 2018 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 Macroeconomic  --  Moderate  Moderate Sector Strategies and Policies  --  Low  Low Technical Design of Project or Program  --  Moderate  Moderate Institutional Capacity for Implementation and Sustainability  --  Moderate  Moderate Fiduciary  --  Moderate  Moderate Environment and Social  --  High  Substantial Stakeholders  --  Moderate  Moderate Other  --  Moderate  Moderate Overall  --  Moderate  Moderate Results Project Development Objective Indicators 1/2/2018 Page 5 of 11 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) 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 12.00 3.00 Date 31-Dec-2012 12-Dec-2016 29-Dec-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 29-Dec-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 29-Dec-2017 31-Dec-2017 PHINDPDOTBL  No. of PPP Projects that reached financial close (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 3.00 Date 18-Jan-2017 18-Jan-2017 29-Dec-2017 31-Oct-2022 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 1/2/2018 Page 6 of 11 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) Date 31-Dec-2012 12-Dec-2016 29-Dec-2017 31-Dec-2017 Overall Comments Some targets were not realized by the End target date of 31 December 2017. The task team had foreseen this and hence the extension of project closing date and Additional Financing 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 18.00 5.00 Date 31-Dec-2012 12-Dec-2016 29-Dec-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 59.00 2.00 Date 31-Dec-2012 12-Dec-2016 29-Dec-2017 31-Dec-2017 PHINDIRITBL  PPP Training Curruculum Developed and Implemented (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Curriculum developed and approved, Value No Curriculum -- No Curriculum implementation of curriculum commenced Date 18-Jan-2017 18-Jan-2017 29-Dec-2017 31-Oct-2022 1/2/2018 Page 7 of 11 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 29-Dec-2017 31-Dec-2017 PHINDIRITBL  No. of Government officials with PPP certification from recognized institutions* (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 10.00 10.00 10.00 50.00 Date 18-Jan-2017 18-Jan-2017 29-Dec-2017 31-Oct-2022 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 N Y Date 31-Dec-2012 12-Dec-2016 29-Dec-2017 31-Dec-2017 1/2/2018 Page 8 of 11 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) PHINDIRITBL  No. of Feasibility Studies approved by the PPP Committee (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 10.00 10.00 18.00 10.00 Date 18-Jan-2017 18-Jan-2017 29-Dec-2017 31-Oct-2022 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 N Y Date 31-Dec-2012 12-Dec-2016 29-Dec-2017 31-Dec-2017 PHINDIRITBL  No. of EOIs/RFQ/RFP issued to prospective PPP private partners (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 8.00 8.00 12.00 20.00 Date 18-Jan-2017 18-Jan-2017 29-Dec-2017 31-Oct-2022 PHINDIRITBL  Report drafted on project stakeholder engagement survey (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value N N N Y Date 18-Jan-2017 18-Jan-2017 29-Dec-2017 31-Oct-2022 Overall Comments 1/2/2018 Page 9 of 11 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) Data on Financial Performance Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed Disbursed P121019 IDA-51570 Effective USD 40.00 40.00 0.00 26.62 10.60 67% Not P121019 IDA-61210 USD 50.00 50.00 0.00 0.00 54.59 0% Effective Key Dates (by loan) 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-Oct-2022 Not P121019 IDA-61210 05-Jul-2017 07-Aug-2017 -- 31-Oct-2022 31-Oct-2022 Effective Cumulative Disbursements Restructuring History Level 2 Approved on 24-Jun-2015 1/2/2018 Page 10 of 11 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Kenya Infrastructure Finance/PPP project (P121019) Related Project(s) P162182-Kenya Infrastructure Finance Public Private Partnership Additional Financing Project 1/2/2018 Page 11 of 11 Public Disclosure Copy