Concession Agreements vs. Public Contracts: Key Differences Explained.
A concession agreement is a partnership between a government and a private entity, granting the latter specific rights to operate or manage public assets for a defined period. These agreements detail the roles of each party, including the asset’s location, purpose, and terms for modification or termination.
They are grounded in principles of equality, transparency, and mutual recognition, ensuring fair operations and accountability.
Concessions enable private entities to generate revenue through operations, whereas public contracts involve government payments for delivering short-term services or infrastructure projects.
Notable Concessions in Kenya
Several prominent public-private partnership (PPP) concession agreements have shaped Kenya’s infrastructure landscape. Below are key examples:
The JKIA-Adani Deal
The Adani Group’s proposal to upgrade Jomo Kenyatta International Airport (JKIA) stirred public controversy. The $1.84 billion investment aimed to develop a new terminal and taxiway system, promising an 18% return on investment.
However, Kenyans criticized the deal over alleged corruption, lack of public participation, and plans to hire foreign workers. Amid public protests, President William Ruto canceled the deal during his State of the Nation Address on November 21. This came shortly after Adani Group’s chairman faced fraud allegations in the United States.
The government also annulled a related KSh 95.6 billion agreement with Adani Energy Solutions to manage Kenya’s electricity transmission lines.
The Standard Gauge Railway (SGR)
Constructed at a cost of KSh 360 billion, later rising to KSh 420 billion, the Standard Gauge Railway (SGR) is one of Kenya’s largest infrastructure projects.
Built by the China Road and Bridge Corporation (CRBC) with funding from the Export-Import Bank of China, its operations were initially managed by Afristar, a CRBC subsidiary, under a concession.
Nairobi Expressway
The Nairobi Expressway, another project executed under a concession, was developed by CRBC using a build-operate-transfer model. While praised for easing traffic congestion, it has faced criticism for high toll charges.
| Project | Developer | Cost (KSh) | Issues |
|---|---|---|---|
| JKIA-Adani Deal | Adani Group | 242 billion | Corruption, lack of transparency |
| Standard Gauge Railway | CRBC | 420 billion | High debt |
| Nairobi Expressway | CRBC | N/A | High toll fees |
Comparing Concessions and Public Contracts
Concessions
- Definition: Long-term agreements allowing private entities to operate and manage public assets while generating revenue from users.
- Examples: Toll roads, airports, and railways.
- Key Feature: The private entity invests in and operates the asset, recouping costs through user fees.
Public Contracts
- Definition: Short-term agreements where the government pays private contractors for specific goods or services.
- Examples: Road construction, supply of medical equipment.
- Key Feature: Government retains ownership and management of the asset post-completion.
| Aspect | Concession | Public Contract |
|---|---|---|
| Duration | Long-term | Short-term |
| Funding | Private investment | Government expenditure |
| Revenue | User fees | Taxpayer money |
| Ownership | Returns to government after period | Always government-owned |
Types of Concessions
Concessions are broadly categorized into two types:
Service Concessions
- Involve private entities operating and maintaining public services or facilities.
- Compensation comes through user fees, government payments, or both.
- Example: Nairobi Expressway, where toll fees finance construction and maintenance.
Resource Concessions
- Grant rights to explore, extract, or exploit natural resources like minerals, oil, or forests.
- Agreements often include profit-sharing or royalty payments to the government.
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Concession Fees
A concession fee is a charge levied on businesses operating within public spaces or using public assets. Typically calculated as a percentage of gross revenues, it applies in two scenarios:
- Businesses operating in high-traffic areas, such as airports or shopping malls.
- Entities licensed to provide services under another company’s brand.
Conclusion
Concessions are pivotal for leveraging private sector efficiency in managing public assets, fostering long-term development. Conversely, public contracts address short-term needs while ensuring government control. Both play essential roles in public service delivery, each suited to specific objectives and contexts.
