TANZANIA: AMENDMENTS TO THE PPP ACT HERALD A NEW ERA IN PPP DEVELOPMENT
On 14 July 2023, the Public Private Partnership (Amendment) Act No. 4 of 2023 (PPP Amendment Act) which amends the Public Private Partnership Act, Cap. 103 R.E. 2019 (PPP Act) became operational. The changes introduced by the PPP Amendment Act demonstrate the Government’s continued proactive approach towards making Tanzania a preferred investment destination.
The PPP Act was enacted in 2010 and is the primary legislation governing public private partnerships (PPP) and related matters in Tanzania. It focuses on projects in sectors such as agriculture, exploration and mining, information and communication technology, natural resources, tourism, and energy.
The key amendments introduced by the PPP Amendment Act include:
- changes to the application of the PPP Act;
- the introduction of the requirement to implement PPP projects through a special purpose vehicle (SPV);
- the Minister responsible for PPP (Minister) now has the power to exempt solicited projects from a competitive bidding process;
- the introduction of alternative dispute resolution mechanisms; and
- the introduction of tax incentives.
Application of the PPP Act
Initially, the PPP Act provided that it did not apply to agreements for special arrangements on the transportation of natural resources not exploited in Tanzania that have been approved by the Cabinet. This provision was relevant to projects such as the East African Crude Oil Pipeline (EACOP).
The PPP Amendment Act has removed this provision. It has been replaced by a new provision that reads that the PPP Act shall not prejudice the implementation of agreements for special arrangements on the development of strategic projects in Tanzania where the Cabinet has approved such agreements. The agreements must be vetted by the Attorney General before being submitted to the Cabinet for approval.
The amendment applies to the EACOP project and extends the interpretation to include other strategic projects as well if they have been vetted and approved accordingly.
PPPs to be implemented through an SPV
The PPP Amendment Act now requires the private party to incorporate an SPV to undertake a project before signing a PPP agreement. The SPV may include a public entity as a minority shareholder. Where a public entity is a shareholder, its shareholding is capped at a maximum of 25%. The public entity must also demonstrate financial capacity on the contribution of equity and the capacity to bear and mitigate risk associated with the implementation of the project.
Exemption of the procurement of a solicited project from a competitive bidding process
While the general principle of the PPP Act is to procure projects through open and competitive bidding, the Minister now has the power to exempt solicited projects from this process upon recommendation from the PPP Steering Committee, subject to certain criteria. These criteria include the project's alignment with Government objectives; no need for Government guarantees or financial support; unique attributes justifying departure from competitive bidding; significant size and financing requirements; value for money; social economic benefits; and the proponent's commitment to bear the feasibility study cost.
Exemption of the procurement of a solicited project from the competitive bidding process is also subject to any of the following conditions:
- the project deliverable is of an urgent need, and any other procurement method is impracticable, provided that, the circumstances giving rise to the urgency were not foreseeable by the contracting authority;
- the private party possesses the intellectual property rights to the key approaches or technologies required for the project; or
- a particular private party has exclusive rights in respect of the project, and no reasonable alternative or substitute is available.
By this amendment, the Government is mandated to engage directly with individual private parties without carrying on the competitive bidding process. This is anticipated to expedite the execution and delivery of PPP projects.
The PPP Act provided that all PPP agreement disputes must be resolved through negotiations or, in the case of mediation or arbitration, be adjudicated by judicial bodies or other organs established in, and under the laws of, Tanzania.
The PPP Amendment Act repeals the dispute resolution section in the PPP Act and replaces it with a new provision. While the PPP Amendment Act retains dispute resolution through negotiations, disputes that are not settled through negotiations may, by mutual agreement between the parties, be submitted to arbitration. Arbitration can take place under Tanzanian arbitration laws, the International Centre for Settlement of Investment Disputes (ICSID) arbitration procedure rules, or any investment protection agreements between Tanzania and the investor's country.
The amendment aligns with the Arbitration Act which creates an enabling environment for domestic and international arbitration, removing the restrictive requirement of arbitral bodies being established in Tanzania. Please see our article on the Arbitration Act here.
The PPP Act provided that projects undertaken under it that ought to qualify for benefits granted to similar investments under the Tanzania Investment Act – 2023 official translated version are entitled to such benefits. However, such benefits shall not apply to tax incentives.
The PPP Amendment Act has removed the restriction for applying tax incentives to the benefits enjoyed under the Tanzania Investment Act. Qualified PPP projects will now enjoy all the benefits under the Tanzania Investment Act, including tax incentives.
The recent amendments to the PPP Act represent a major step forward for Tanzania's PPP development. By facilitating investment opportunities, promoting dispute resolution, and offering tax incentives, the Government aims to attract more private sector participation in key sectors and drive economic growth in the country.