The decision in brief
In a decision that is likely to reshape the approval and structuring of public private partnership (PPP) projects in Kenya, the High Court has held that Parliament cannot be excluded where PPP arrangements create public expenditure, guarantees, public debt or other forms of financial liability for the national government. In Katiba Institute v National Assembly & 9 others (Petition E626 of 2024), the High Court declared sections 59, 60 and 72(1) of the Public Private Partnerships Act, 2021 (PPP Act) unconstitutional to the extent that they fail to provide for parliamentary involvement where PPP arrangements create such fiscal obligations for the State.
Recognising the potential disruption that immediate invalidity could cause to ongoing and pipeline projects, the High Court suspended the declaration for six months to allow Parliament to amend the PPP Act and introduce an appropriate constitutional oversight framework.
The significance of the decision extends well beyond the PPP sector. At its core, the judgment addresses a fundamental constitutional question on whether the Executive commit the State to significant fiscal obligations through PPP arrangements without prior parliamentary involvement. The Court's answer was clear. Where a PPP creates public expenditure, guarantees, public debt or other forms of public liability, parliamentary oversight is not optional but a constitutional requirement.
When does Parliament need to be involved?
The High Court held that Parliament's oversight mandate under Articles 95 and 201 of the Constitution cannot be bypassed simply because a project is structured as a PPP. The question is not whether a transaction is labelled a PPP or even whether private capital is used to finance it. The real question is whether the arrangement creates expenditure, guarantees, borrowing obligations, public debt or other liabilities for the State. Where it does, Parliament cannot be excluded from the approval process.
In reaching that conclusion, the Court adopted a substance over form approach. The Executive cannot avoid constitutional scrutiny by packaging public financial commitments as private sector-led projects. What matters is the fiscal exposure ultimately assumed by the State and, by extension, taxpayers.
The Court was also alive to the reality that many PPP projects involve financial commitments that may not appear as conventional public expenditure. Availability payments, viability gap funding, termination payments, guarantees and other forms of government support can expose the State to significant long-term obligations. In the Court's view, those obligations remain subject to constitutional safeguards regardless of the contractual structure through which they arise.
The respondents argued that Parliament's oversight role was adequately protected through the reporting mechanisms contained in the PPP Act. The Court disagreed. Reporting to Parliament after a commitment has been made is not the same as involving Parliament before the State assumes a financial obligation. As the Court noted, Parliament need not approve every PPP project, but it cannot be excluded where the project creates public expenditure, guarantees, public debt or other forms of public liability.
The broader message emerging from the decision is clear: PPPs remain a legitimate mechanism for infrastructure delivery, but they cannot be used to shield long-term fiscal commitments from constitutional oversight.
Not a Rejection of PPPs
One of the most significant aspects of the judgment is what the Court chose not to invalidate. Despite finding constitutional deficiencies in the approval framework for fiscally significant PPPs, the Court rejected the invitation by the petitioners to dismantle key features of the PPP regime. It declined to strike down provisions which govern the treatment of Privately Initiated Proposals (PIPs) and rejected the argument that departures from open competitive tendering are inherently unconstitutional.
In the Court's view, Article 227 of the Constitution does not constitutionalise a single procurement methodology. Rather, it constitutionalises procurement standards. The constitutional requirement is not that every public project must pass through an identical open tender process, but that whatever procurement method is adopted must ultimately be fair, equitable, transparent, competitive and cost-effective. Parliament therefore retains the power to establish procurement procedures that differ from conventional competitive tendering, provided that those procedures remain consistent with constitutional requirements.
The Court acknowledged that PIPs may serve legitimate public interests, particularly where a private party brings unique information or innovation that may not emerge through conventional procurement processes. However, it cautioned that the PIP framework cannot become a means of circumventing competition. A contracting authority cannot identify a preferred investor and then retrospectively justify a non-competitive procurement route. Any decision to depart from open competition must be objectively justified, supported by reasons and consistent with Article 227 of the Constitution.
This aspect of the judgment is particularly important because it preserves the operational flexibility that has made PPPs an attractive project delivery model while simultaneously reaffirming that all procurement decisions, irrespective of the statutory framework under which they arise, remain subject to constitutional scrutiny. The Court's message is therefore not that alternative procurement methods are prohibited, but that innovation and flexibility cannot come at the expense of transparency, accountability and value for money.
What this means for PPP transactions
The practical significance of the judgment is likely to emerge during the structuring and negotiation of future PPP transactions.
Although the Court did not prescribe a detailed approval test, the reasoning suggests that parties will increasingly need to assess whether a project creates a fiscal obligation capable of triggering parliamentary involvement. Particular attention is likely to focus on transactions involving:
- sovereign guarantees;
- viability gap funding;
- termination payment obligations;
- availability payment structures;
- annuity payment structures;
- minimum revenue commitments;
- letters of support; and
- other forms of government support or contingent liability.
These instruments have traditionally been used to secure project bankability and allocate risk between the public and private sectors. Following this decision, they may now also become the indicators that determine whether parliamentary approval is required.
Sponsors, lenders, investors, contracting authorities and advisers will therefore need to evaluate projects through a new lens. Beyond assessing technical compliance with the PPP Act, stakeholders will need to consider whether a proposed transaction exposes the national government to expenditure, borrowing, guarantees or contingent liabilities that attract Parliamentary oversight requirements.
As Parliament develops amendments to the PPP Act, market participants may also need to factor in potential impacts on transaction timing, approval processes and financing structures. The extent of those impacts will ultimately depend on how Parliament chooses to implement the Court's decision within the six-month suspension period.
--
Read the original publication at Dentons Hamilton Harrison & Mathews
