Amendment to the PPP Proclamation 

Introduction 

The Public Private Partnership Proclamation No. 1076/2018 (“PPP Proclamation”), the primary legislation that governs PPP projects in Ethiopia, was amended by the PPP Amendment Proclamation No. 1283/2023. (“Amendment Proclamation”). First enacted in 2018, the PPP Proclamation and subsidiary directives issued by the Ministry of Finance (“Ministry”) have guided the procurement and implementation of PPP projects in Ethiopia. This note highlights the changes brought about by the Amendment Proclamation.  

THE AMENDMENTS 

1. New Exemption from the PPP Proclamation 

As a rule, PPP projects procured by public bodies and public enterprises are subject to the provisions of the PPP Proclamation, with few exceptions provided under Article 4. The sectors and activities that are exempt from the PPP Proclamation are:  a) oil, mine, minerals, rights of air space: and b) privatization or divestiture of public infrastructure or public enterprises.  

The Amendment Proclamation added a new exemption under Article 4.  The newly added clause exempts public enterprises that conduct business activities with a private party, a foreign government or a public enterprise of a foreign government. This exemption will, arguably, allow public enterprises in charge of infrastructure projects to develop joint projects with private companies, foreign governments or foreign public enterprises, by incorporating a separate company or a public enterprise.  

2. New Rules on Procurement through Direct Negotiations

Under the PPP Proclamation, PPP projects are ordinarily procured through open bidding/competitive procedures. This involves a prequalification phase (RFQ) followed by a bid submission phase (RFP) where only prequalified bidders may participate. In exceptional circumstances, the Proclamation allows other forms of procurement which may include (i.)two-stage bidding (ii.) competitive dialogue and (iii.) direct negotiations. (For detailed insight on these procedures, visit the link here.)  

According to the explanatory note prepared by the Public-Private Partnership Directorate General (PPP-DG), the key rationale behind the Amendment Proclamation is to relax the rules on Direct Negotiations. Considering the long processing time that competitive bidding requires and the high public demand for infrastructure services, the Ministry proposed to amend Articles 39 and 40 of the PPP Proclamation that govern the procurement of projects through Direct Negotiations.  Under these articles, the Ministry may engage in direct negotiation with a private party only on conditions provided by law. 

The Amendment Proclamation introduced more flexible clauses to permit quicker approval for direct sourcing of projects.  First, the Amendment Proclamation provided a new, albeit circular, definition of Direct Negotiation as “the selection of a private Party or private parties for direct negotiations to engage in development and implementation of infrastructure or public service projects initiated by the private party, contracting authority or Public Private Partnership Directorate General.” The definition provides an illustration of who is eligible to directly initiate PPP projects, i.e, either a) a private party b) the contracting authority or c) the PPP-DG. 

Second, it expanded Article 39 of the Proclamation and authorizes the PPP-DG to engage in Direct Negotiations if there is an endorsement by the PPP Board. Here, the PPP Board is not obliged to consider the conditions set out by the PPP Proclamation for Direct Negotiations. Instead, the Board is required to make a broad assessment of whether the project proposal benefits the public interest and ensures quick project financing. Such consideration may be made following an understanding reached through bilateral government diplomacy, or through direct initiation by a private party. 

Additionally, the Amendment Proclamation introduces a new provision which sets minimum requirements for the Private Party (or consortium of private parties) to be eligible for Direct Negotiations. These include: 

• A certificate of incorporation of the private party from its country of residence and evidence the project is supported by the government of the country where the company is incorporated.
• Evidence of financial capacity and technical capacity to implement the project and prior experience of developing and implementing two or more projects,
• Evidence that the project promotes the participation of domestic investors, and the use of domestic products and employs Ethiopian nationals. (The PPP Directive provides similar requirements to all PPP projects and encourages and rewards projects incorporating local content. However, the Amendment Proclamation makes it mandatory for those projects procured through direct negotiations to have local content considerations. )
• Evidence of a clean criminal record of the private party, its chief executive officers or its directors or shareholders (representing more than 5% of shareholding) in the last five years.
• Evidence of external financing secured for the portion of the total cost of the project to be financed by the external loan.

The above requirements assume foreign companies as prospective private parties. Where the private party is a domestic entity, the Amendment Proclamation requires the domestic entity to provide a support letter from the relevant government institution demonstrating the financial, and technical capabilities of the domestic private party. 

Furthermore, expanding article 40 of the PPP Proclamation, the Amendment Proclamation provides detailed guidance on the procedures that will be followed for the procurement of projects through direct negotiations, including pre-feasibility and feasibility studies, Board approval, award and project agreement execution steps.

Lastly, the Amendment Proclamation changed the composition of the PPP Board. The Ministry of Peace and the Ministry of Urban and Infrastructure are newly added, while the (former) Ministry of Public Enterprises and Ministry of Federal and Pastoralist Affairs were removed. 

Conclusion 

Five years since the introduction of the PPP legal framework in Ethiopia, only one project has so far completed the full cycle of a PPP procurement process, while many more remain in the pipeline. PPPs involve multiple players and complex and lengthy procedures. The easing of the rules on procurement through direct negotiation is intended to cut down the long processing time and allow quicker deployment of much-needed public infrastructure. However, the Ministry would have the tough act of balancing speed with upholding fundamental objectives of the PPP proclamation, i.e, transparency, predictability, fairness, efficiency, value for money and long-term sustainability.