By Bertha Nanyaro
In January 2023, the Government of Tanzania tabled before the Parliament the Bill named the Public Private Partnership (Amendment) Act, GN No.2 of 2023 which proposes to amend the Public Private Partnership Act, Cap 103 [RE 2018]. The following are the essential issues:
- Removal of obligation for a private party to deposit 3% of the project value
- PPP projects to benefit from tax incentives
- Contracting Authority is authorized to procure privately
- Parties are at liberty to choose the means of settling disputes including ICSID
- Establishment of Special Purpose Vehicle (SPV)
- PPP Act to supersede other written laws
The concept of PPP entails an arrangement between the public and private sectors whereby the private entity renovates, constructs, operates, maintains, and manages a facility in accordance with output specifications. The private entity assumes the associated risks for a significant period of time and in return, receives benefits and financial remuneration according to agreed terms. It constitutes a business venture built on the synergy of expertise of each partner that best meets clearly defined public needs through the most appropriate allocation of resources, risks, and rewards.
Overview of PPP in Tanzania
The Government of Tanzania recognizes the role of the private sector in bringing about socioeconomic development through investments. Public-Private Partnerships (PPPs) being among investment frameworks, provide important instruments for attracting investments and have been identified as viable means to effectively address constraints of financing, managing, and maintaining public goods and services. Additionally, PPPs enable the Government in ensuring effective, efficient, accountable, and quality public service delivery.
In Tanzania, most PPPs projects are undertaken in the form of concession arrangements for running existing projects with limited provisions for rehabilitation and new investments. These have been successfully implemented by Faith-Based Organizations (FBOs) in the education, health, and water sector while others have been implemented by for-profit business entities in transportation, infrastructure, energy, wildlife & tourism at large for many years. Need to say, the performance of PPPs in many economic sectors has been mixed or rather moderate largely due to the complexity of such projects and the lack of comprehensive Policy, Legal, and Institutional frameworks.
Furthermore, research indicates that the limited performance of PPP for many years was also caused by a lack of guidelines on the criteria for public and private sector partnerships.
Nevertheless, we believe participation in PPPs should take place in socio-economic service sectors including agriculture, infrastructure, education, health, natural resources, tourism, energy, water, land development, sports, and recreation, as well as ICT to mention but few.
At the outset, in a bid to create a more enabling environment for promoting the participation of the private sector in public service delivery and to achieve sustainable broad-based economic growth in more socio-economic areas through PPPs, the Government approved the PPP Policy in the year 2009. The policy equally complements the National Development Vision, 2025. This was followed by the enactment of the PPP Act, Cap 103 [RE 2018], and the PPP Regulations, 2020.
The enactment of the PPP Act, [RE of 2018]and its regulations in the year 2020 came about at a time when Tanzania was not only pushing for creating a conducive environment for investment but also geared towards achieving sustainable development through industrialization. Through these enactments, we have witnessed an increased number of PPP projects which have proven to be efficient in promoting public service delivery.
To cement more on its commitment to investment priority interventions, this year in January the Government submitted to the Parliament, a Bill named the PPP Amendment Act, 2023 which seeks to amend the PPP Act of 2018. This Bill proposes to amend the PPP Act of 2018 in order to address the challenges encountered in the implementation of the Act. This article identifies the main areas that are practically relevant in fostering increased economic participation of private sectors through PPPs.
The PPP (Amendment Act), 2023
- Removal of obligation for a private party to deposit not less than 3% of the estimated project value. It should be noted that initially the private party participating in PPP projects was obligated under section 15(3) of the PPP Act, [RE 2018] and Regulation 8(1) of the PPP Regulations of 2020 to make a commitment deposit of not less than 3% of the estimated project value upon approval of the pre-feasibility study. This requirement proved to be challenging to the private sector due to its associated risk and thus hindered their participation. At the outset, the removal of this obligation enhances project preparation in the procurement stage and attracts the participation of the private sector as well.
- Contracting Authority mandated to procure privately: As per Section 15(1) of the PPP Act, 2018, all PPP projects are to be procured through an open and competitive bidding process. The PPP Act of 2018 exempted the competitive bidding process for unsolicited projects which meet the criteria listed under Section 15(2) of the PPP Act, 2018. Initially, there was no exemption for solicited projects regardless of their nature. However, Section 9 of the PPP (Amendment) Act, 2023 seeks to introduce a new Section 15(3) which allows the Minister to exempt solicited projects from competitive bidding. This exemption is limited to projects whose deliverables are of urgent nature to which any procurement method would be impracticable. Furthermore, the application of exemption requires a private party to possess intellectual property rights to the key approaches or technologies required for the project and to have exclusive rights in respect of the project.
- PPP projects to benefit from tax incentives: The PPP Act of 2018 restricts tax incentives for PPP investment projects through section 21(2). Section 11 of the PPP (Amendment)Act of 2023 seeks to remove such restrictions by allowing PPP project which qualifies for tax incentives and other benefits granted under the Tanzania Investment Act. Under the Tanzania Investment Act, 2022, an investment project qualifies for fiscal and non-fiscal incentives under Tanzania’s tax regime provided that it is a major or strategic investment. It thus goes without saying that, provided that a PPP project qualifies as such under the Tanzania Investment Act, it is with no doubt that it shall equally benefit from both fiscal and non-fiscal incentives.
- Parties are at liberty to choose the means of settling disputes including ICSID: the PPP Act of 2018 limits parties to settling their disputes through ADR governed under Tanzania’s legal regime. The PPP (Amendment) Act of 2023 under Section 12 warrants the security of parties’ interests by allowing them to be at liberty to choose a regime that is suitable to them through agreement. That is to say, the current bill if approved to become law, parties will be able to choose to settle their dispute either through Arbitration under the laws of Tanzania or rules of Arbitration under the ICSID or any other relevant framework agreed upon by the parties provided that such framework has been agreed by parties’ countries (governments) for protection of investment.
- Establishment of Special Purpose Vehicle (SPV): Similarly, the Bill under section 10 seeks to impose a conditional requirement for the establishment of SPV by introducing new Section 18A immediately after Section 18 of the PPP Act. Thus, in this amendment Act, a private party is mandatorily required to establish a Special Purpose Vehicle (SPV) otherwise referred to as a project company for the purpose of implementing the intended project and ring-fencing the new project against other duties and obligations of the private party in other projects not related to PPP project to be undertaken. The constitution of the newly established SPV as well as the PPP Agreement shall set demarcation for each party’s responsibility which shall consequentially make it easy for delivery of the project.
- PPP Act to supersede other written laws: Additionally, section 16 of the Bill also adds new section 28A to the Act which enables the PPP Act to take precedence over any other written laws where there is inconsistency in matters relating to PPP. The aim of this additional provision is to cure legal conflict that may arise in course of addressing matters touching PPP between parties to the PPP Agreement.
Conclusively, it is our considered views that the proposed amendment largely aligns with the Government’s Strategic Plan 2022/2026 and National Development Vision, 2025 which both seek to address priority interventions and support private investments in order to boost economic growth. It is also our view that given the strategic objective of this amendment, both government and private sector stakeholders should continue to collaborate and coordinate in order to meet the set outcomes and goals.
This Article has been prepared for general investment insight on matters of interest only and under no circumstance do the insight constitute professional advice. You should not act upon the information contained herein without obtaining specific professional advice. At the outset and to the extent permitted by law, Victory Attorneys & Consultants shall not accept or assume any liability, responsibility or duty of care for any consequential damage occasioned in reliance on the information contained in this insight or for any decision based on it.