Ethiopian Public Private Partnership Framework

The partnership between governments and the private sector for public infrastructure development is typically designated as Public Private Partnership. Globally, Public Private Partnerships are used as long-term contractual arrangements between public authorities and private entities for the development and delivery of public services, and they are implemented within an appropriate framework designed for that purpose.

Though the Ethiopian government already introduced Public Private Partnerships through the enactment of the Ethiopian Federal Government Procurement and Property Administration Proclamation No. 649/2009 in September 2009, the legislation did not provide for the legal framework for the implementation of Public Private Partnerships ‒ except that it defined the meaning of such a partnership. It is almost a decade later that the Ethiopian government formulated its policy toward Public Private Partnerships in August 2017 and further enacted Public Private Partnership Proclamation No. 1076/2018 in February 2018.

Since then, Ethiopia is trying to develop Public Private Partnership projects and cope with the growing demand for public infrastructure in the country.

This work is prepared to introduce the Ethiopian Public Private Partnership policy and legal framework. Particularly, it shows how private parties that will develop public infrastructure in partnership with the government are selected and how Public Private Partnership projects are expected to be implemented.     

(1) General Remarks

(1.1) Essence of Public-Private Partnership

Public Private Partnership, hereinafter also referred to as PPP, is essentially about the use of the skill and finance of the private sector in the production and delivery of public infrastructure. It is a procurement approach where the public and private actors agree and cooperate to develop infrastructure and deliver public services, but sharing the risks, costs and benefits.

This reveals that PPP is a sort of collaboration between public and private sectors for the sake of meeting clearly identified public needs via the appropriate allocation of resources, risks, responsibilities and benefits. However, it is important to note that PPP is not a solution option to a certain infrastructure related problem, but it is a viable project execution alternative for the preferred solution option.

(1.2) Defining Public Private Partnership

It is knotty to come up with a generally accepted definition of PPP so that there is no single and internationally recognized definition. However, PPP can be described as “a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility and remuneration is linked to performance.”

Another similar definition describes PPP in terms of a long-term, usually 25-30 years, contractual arrangement between a private entity and a government agency for the provision of a public asset or service through private sub-contracting and risk sharing while the control of projects is still in the hands of the public.

Now, it is possible to sort out some common PPP features implied in the definitions and under the discussion on essence of PPP, and the following points may be contemplated:

• PPP is a partnership that emanates from a contract between public and private sectors;
• the objective of PPP is to develop and provide public services for a long period of time; and
• under a PPP arrangement, the private party assumes significant financial risks and expects benefits contemporaneously.

(1.3) Why Public Private Partnerships are Preferred?

It is an established fact that public infrastructure is an enabler, serving as catalyst for economic and human development. Infrastructure is critical to attract foreign direct investment, and expansion of international trade which are so vital to a country’s economic development and growth.

The development of public infrastructure is ultimately the responsibility of governments. However, governments particularly in developing countries face financial challenge to cope with a growing demand for infrastructure. As a result, governments started to view working in partnership with the private sector as an attractive mechanism to develop new and better infrastructure projects.

In other words, PPPs are preferred as a solution to address infrastructural gaps resulting from a limited capacity of governments. They are believed to be important for generating investments from the private sector for the development of infrastructure projects.

PPPs are also preferred due to their effectiveness in delivering good value for money. Value for money can be achieved through the use of public resources in a way that creates and maximizes public value. Under a PPP scheme, both public and private resources including finance, skill and expertise are used together with a view to develop and deliver public services. PPP opens the opportunity to build big now and pay the bill in the future.

The fact that a private sector is assumed to act more efficiently than a public sector is also among the main reasons supporting the use of PPP. With its own money at risk, the private sector is believed to have a strong incentive to manage infrastructure projects properly.

(1.4) Arguments Against Public Private Partnerships

Despite the promise that PPPs bring about social, economic and political benefits, there are a number of tales of failed PPP projects in both developing and developed countries. Opponents of PPPs argue that risks are not often shared, and cost overruns occur all the time, among others. They even describe the terminology PPP sarcastically as ‘problem, problem, problem.

Having in mind the complexity of the debate on the merits and demerits, PPPs have perceived limitations and the major ones include:

• not all projects are feasible (for various reasons: political, legal, commercial viability, etc.).
• the private sector may not take interest in a project due to perceived high risks or may lack technical, financial or managerial capacity to implement the project.
• a PPP project may be more costly unless additional costs (due to higher transaction and financing costs) can be off-set through efficiency gains.
• change in operation and management control of an infrastructure asset through a PPP may not be sufficient to improve its economic performance unless other necessary conditions are met. These conditions may include appropriate sector and market reform and changes in operational and management practices of infrastructure operation.
• often, the success of PPPs depends on regulatory efficiency.

Despite all these arguments, PPP has become a significant preferred approach for building public infrastructure in developed and developing countries. The global experience also shows that PPP is a widely applied concept and is reflected in different economic sectors.

(2) Ethiopian Public-Private Partnership Framework

(2.1) Introduction

The constitution of the Federal Democratic Republic of Ethiopia obliges the government to provide all citizens of the country with public infrastructure services, thereby improving their economic conditions. To this end, the constitution empowers the government to formulate and implement the country’s policies, strategies and plans with regard to economic, social and development matters.

Acknowledging the well-established link between access to public infrastructure and economic development, the Ethiopian government introduced different development programs that stressed the need to enhance the expansion and quality of public infrastructure.

In practical terms, Ethiopia has fast population growth and also high demand for public infrastructure. However, the gap between actual public service delivery and public service demand is still huge. Previous efforts also remained inadequate in addressing the demand for infrastructure.

Although it appreciated the need for public infrastructure in its development plans and attempted to realize so, the Ethiopian government could not satisfy the demand for public services yet. One of the main reasons is associated with the fact that infrastructure building activities cannot be successfully implemented by public finance alone. Hence, the government noticed the need for mobilizing resources from different sources in addition to the traditional government financing. In this regard, the private sector appears to be indispensable source of finance.

As already indicated, the use of resources from the private sector in the form of partnership, otherwise referred to as PPP, is being practiced globally primarily to fill the gap in infrastructure financing and this gives credence to the need for adopting appropriate framework to govern the partnership between public and private sectors. Thus, the Ethiopian government devised the country’s PPP framework.

(2.2) The Public Private Partnership Framework

Even if it might be said that PPP projects can be designed and implemented on a one-off basis in the absence of PPP specific framework, clear policies and political commitment demonstrated through appropriate legal and regulatory framework are so important that they provide a stable environment for, and create trust between the public and private sectors. As a result, most countries with successful PPP experience are those with special PPP framework.

A PPP framework is a comprehensive approach that contains policy, laws and regulations, and procedures setting what works need to be done by the public and private sectors, and how these works knit together throughout a PPP project life cycle. In other words, a PPP framework consists of policies, laws, rules and procedures, and institutions that together define how PPP projects are identified, evaluated, selected, prioritized, budgeted for, procured, monitored and accounted for; and who will perform each of these tasks, generally on a programmatic basis instead of  an ad hoc nature.

The Ethiopian PPP framework is also comprised of policy and legal documents, and institutions that determine and explain the scope, identification, preparation and implementation of PPP projects in the country. Moreover, implementation manuals and guidelines that govern detailed issues, and regular bid documents relating to PPP projects are all part of the country’s PPP framework.

In this respect, the Ethiopian government issued the country’s PPP Policy in August 2017 (hereinafter also referred to as PPP Policy), PPP Proclamation No. 1076/2018 in February 2018 (hereinafter also referred to as PPP Proclamation), and PPP Directive No. 55/2018 in July 2018 (hereinafter also referred to as PPP Directive).

(2.2.1) Ethiopian Public Private Partnership Policy

In establishing a PPP framework, the first step for governments is to articulate PPP policy. PPP policy refers to a government’s statement of intent to use PPP as a course of action and mainly provides for governing principles to develop infrastructure and deliver public services. PPP policy statements are used to communicate a government’s intention to the public in general and potential investors in particular.

Generally, a PPP policy is expected to include its rationale, program objectives, scope and governance arrangements. The Ethiopian PPP Policy also makes relevant mention of each of these subjects.

(2.2.1.1) Objective

The Ethiopian PPP Policy reveals that the use of PPP in the country has two-fold objectives and they are:

• to increase the financial resources available for the development and delivery of infrastructure services in the country through leveraging private sector investment; and
• to capture the benefits of private sector involvement in infrastructure development through aligning public and private sector incentives and using appropriate risk sharing.

(2.2.1.2) Scope of Application

The Ethiopian PPP Policy determines scope of the PPP framework in two ways. The first is that it defines the government institutions that are bound by the PPP framework. The second is that it puts the criteria for selecting projects eligible to be procured and developed under the PPP framework.

Under the PPP Policy, the government institutions that are bound by the PPP framework are public bodies and public enterprises (hereinafter also referred to as contracting authorities). Public bodies refer to those organs of the federal government partly or wholly financed by government budget, and public enterprises denote organizations in which the federal government has significant ownership and a project that meets PPP definition is undertaken.

The PPP Policy states that projects that fall within the general definition of PPP may not necessarily be procured and implemented within the PPP framework. Projects will be further evaluated in order to ensure that the use of PPP delivery approach is the most economically advantageous to the country. Hence, projects will be assessed in terms of certain criteria.

The PPP Policy provides five key criteria and they are value for money, affordability, public interest, sustainability and institutional capacity.

Notwithstanding these criteria, the PPP Proclamation expressly excludes some projects from the PPP framework. These projects are those relating to oil, mines, minerals, rights of air space activities and privatization or divestiture of public infrastructure or public enterprises. However, the Proclamation, at the same time, contemplates that a project relating to mining may be procured as PPP if the project is ancillary to other mining investment.

At this juncture, as Ethiopia has a federal state structure, the power of Regional States in relation to the country’s PPP framework should be looked into. The PPP Policy states that Regional States are empowered to issue their own laws to implement the Policy, i.e., the PPP Proclamation is not applicable in Regional States, i.e., the PPP Proclamation is not applicable to Regional States.

(2.2.1.3) Governance

As far as governance of the PPP framework is concerned, the Ethiopian PPP Policy states a PPP Board, and a PPP Unit within the Ministry of Finance and Economic Cooperation (hereinafter also referred to as Ministry) will be established as responsible governance institutions.

The PPP Board will assume the responsibility to approve PPP projects prior to tender and award. The Board will also have the power to instruct a contracting authority to make use of PPP delivery approach for projects. The Board will be chaired by the Ministry and composed of other relevant Ministers, public officials and representatives from the private sector.

The PPP Unit within the Ministry, which is designated as PPP Directorate General under the PPP Proclamation, will have responsibilities such as:

• supporting the Ministry in the management and development of the PPP framework;
• supporting the development of the PPP framework and individual PPP projects through provision of assistance to the PPP Board and contracting authorities in the identification, analysis, evaluation, approval, development, implementation, monitoring of PPP projects, and promoting the participation of the private sector in the delivery of infrastructure services.

The PPP Policy further states that the Ministry and a contracting authority will also have key roles in the governance of the PPP framework. The Ministry will be the owner of the framework and chairman of the PPP Board. The Ministry will also have other responsibilities including:

• the designation of a project as PPP and this will be done in consultation with the National Planning Commission of the country; and
• the approval of any proposed government support to a private party, particularly any request for the provision of a guarantee for payment of obligation of a contracting authority.

A contracting authority, on its part, will be the owner of an individual PPP project. Hence, it will be responsible for the development and implementation of the project by forming a Project Management Team. A contracting authority will also have the responsibility to implement a procurement process in accordance with law, i.e., it has the power to enter into and sign PPP contracts. 

(2.2.2) Ethiopian Public Private Partnership Legal Regime

(2.2.2.1) General

While some countries create special laws and regulations that are designed to regulate PPP projects, others may not require separate legal acts. Many countries have special laws, indeed. In countries where no special PPP laws exist, governments normally follow regulations that concern the general public procurement process.

On the other hand, the legal regime for PPP includes not only special PPP laws, but also all other legal instruments that affect PPP contracts, decision making processes, and implementation and monitoring procedures. All laws and regulations that govern PPP project life cycle constitute the PPP legal framework. This implies successful PPP implementation requires consistency and synergy between PPP specific laws and other laws, procedures and practices impacting on PPP projects.

The Ethiopian PPP legal regime bases itself, as indicated above, on the PPP Policy which is a new introduction to the country. The legal regime consists of legal instruments of both already in force, and yet to be issued. The legal regime includes the PPP Proclamation and PPP Directive already in force, and Regulation, Directives, Guidelines, Guidance and Manuals to come.

However, these legal acts are not the only ones to constitute the country’s PPP legal regime.

Generally, a PPP legal regime needs to have provisions that carefully consider the following four aspects:

• interests or concerns of both the public and private parties;
• structure of PPP contracts in view of other applicable laws;
• enforceability of the rights of the parties; and
• governmental organs with the power to enter into PPP contracts and approve PPP projects.

Private sector contractors or investors that participate in PPP projects may have different concerns including, among others: cost, time, and quality of the bidding process; clarity and stability of the PPP framework; criteria for assessing bids; effectiveness and enforceability of the PPP arrangements; allotment of risks between the public and private parties; benefits commensurate with the risks assumed under the PPP contract; and effectiveness with which the public sector will manage the PPP arrangement and make decisions. The following discussions on the Ethiopian PPP legal regime can be used to assess whether interests or concerns of the private sector are properly addressed in the laws of the country.

In relation to the rights and interests of the private sector, the Ethiopian PPP legal regime provides, among others:

• a private party has the right to charge, receive or collect tariffs or service fees for the use of a facility;
• a proponent of an unsolicited proposal may be given bonus point during evaluation of technical and financial proposals, or it may be given a financial compensation for studies undertaken provided that it is not awarded the project;
• a private party that submits unsolicited project proposal to the government will retain its respective intellectual property rights, trade secrets and such other exclusive rights;
• in order to ensure the implementation, sustainability and viability of a PPP project, a private party may be granted different forms of economic support from the government, including: (a) direct payments as a substitute for or in addition to tariffs or fees; (b) contributions in kind such as asset transfers and land usage rights; (c) payment guarantees or other securities; and (d) guarantees for the performance of obligations of a contracting authority;
• to the extent necessary for the implementation of a PPP project, a private party will have such rights over land to possess, use and mortgage any immovable property thereon, and the government has the responsibility to make available such rights over land;
• when there are changes in legislations or regulations that are applicable to a project in a PPP contract and that increase its costs or decrease its revenue, a private party will be entitled to compensation;
• a private party has the right to issue and enforce its own rules to govern the use of a public service, subject to approval by a contracting authority or other public organ so authorized; and
• when it is required to provide security to guarantee the performance of financial obligation under a PPP contract, a private party has the right to establish security interests over any of its assets and rights such as interests over the project and its shares therein.

 

When it comes to the public sector, the Ethiopian PPP legal regime provides, among others:

• a contracting authority may require a private party to provide security to guarantee the performance of its obligations under a PPP contract;
• a private party cannot assign its rights and obligations under a PPP contract to a third party unless a contracting authority consents;
• when a private party fails to perform its obligations under a PPP contract and remains unable to rectify the failure, a contracting authority has the right to temporarily take over a facility in order to ensure effective and uninterrupted service delivery; and
• when a private party commits a serious breach of its obligations under a PPP contract or in case of events that could justify termination of a contract, a contracting authority can substitute the private party with a new one.

With regard to structure of PPP contracts, the Ethiopian PPP legal regime has important provisions that show the regime is considerate to other applicable laws of the country. The PPP Proclamation expressly provides that relevant laws of the country govern PPP contracts.

On the other hand, the PPP Proclamation unequivocally states that the PPP Board has the power to approve PPP projects, and the power to enter into and sign PPP contracts resides with a contracting authority inherently responsible for providing the infrastructure being contracted.

(2.2.2.2) Public Private Partnership Project Life cycle

The process of developing a PPP project is complex and dynamic throughout the different phases in a project life cycle. A PPP project life cycle starts with identification of a project suitable for PPP and extends to include preparation, procurement, implementation, transfer and post transfer phases.

The Ethiopian PPP legal regime has important provisions concerning the phases of a PPP project life cycle. The PPP Proclamation governs the process by which a project will be designated as and approved to be procured through PPP. The Proclamation also governs how a private party will be selected. The Proclamation further regulates the content and implementation of PPP contractual arrangements.

For the reasons that this work is aimed at introducing the private sector with the Ethiopian PPP framework, and that the private sector is believed to have a real concern over the procurement process, the selection of a private party is discussed particularly in a detailed manner as follows.

(2.2.2.3) Selection of a Private Party

The Ethiopian PPP legal regime establishes five methods to select a private partner which is competent to procure a PPP project. They are open bidding, two-stage bidding, competitive dialogue, direct negotiation and unsolicited proposals. The use of each of the methods is subject to fulfillment of respective conditions and criteria.

• Open Bidding

The Ethiopian PPP legal regime expects that all PPP projects are procured through an open bidding process.

Procurement through an open bidding process involves basically two stages: a stage for qualification and a stage for proposals.

The first stage in an open bidding process, that deals with qualification of bidders and aims at identifying qualified bidders to successfully implement a project, is initiated by the PPP Directorate General with issuance of a notice of request for qualification in order to invite potential bidders to participate in the process.

Interested bidders, on their part, are required to fulfill generally two kinds of qualification criteria. While some qualification criteria are already listed as minimum threshold in the PPP Directive, other qualification criteria are expected to be set by the PPP Directorate General. Hence, interested bidders should submit their applications showing that they fulfill the qualification criteria set in the notice of request.

Having received the applications of interested bidders, the PPP Directorate General evaluates on the basis of the qualification criteria set forth in the notice of request, and makes a decision as to which bidders are qualified. Then, the Directorate General invites those bidders that fulfilled the qualification criteria to submit their proposals, and this takes to the second stage of an open bidding process. However, the Directorate General has still the right to invite only a limited number of bidders that best meet the qualification criteria to submit their proposals if and only if it has already made such a reservation in the notice of request.

The second stage in an open bidding process begins with issuance of a notice of request for proposals by the PPP Directorate General. Accordingly, bidders that succeeded the first stage should complete and submit their proposals enclosed in sealed envelopes. Each bidder is expected to prepare two proposals separately; a technical proposal in respect of technical requirements of a project, and a financial proposal with regard to financial aspects of a project. Hence, the content of a proposal will include technical or financial descriptions of a project, details about a bid security and such other information as may be prescribed in the notice of request.

Having received the proposals of bidders, the PPP Directorate General evaluates and compares each proposal as per the criteria mentioned in the notice of request for proposals. In so doing, the Directorate General must first open and find a technical proposal of a bidder to be responsive in order to open and evaluate a financial proposal of the same bidder. Non-responsive proposals will be rejected from the process.

At this juncture, it should be noted that the PPP Directorate General has the power, while evaluating and comparing financial proposals, to provide domestic bidders with a preference margin to enhance their participation. In fact, the preference margin could be extended to foreign bidders participating in consortium with domestic bidders.

After all these stages, the PPP Directorate General identifies the successful bidder and notifies that its proposals are accepted. This takes the successful bidder and a contracting authority to sit for signing the PPP Contract. On the other hand, the Directorate General should also inform the unsuccessful bidders of who the successful bidder is, and why they have lost.

Even though an open bidding process basically involves these two stages, as already discussed so far, there are other procedures that fall under neither of the stages. The PPP Directorate General may hold additional procedures at the end of each stage. The Directorate General can convene meetings with bidders when the first stage completes, or require bidders to demonstrate again their qualification using the same criteria applied in the first stage. By the same token, the Directorate General may enter into negotiation with the successful bidder, or require the successful bidder to reverify its competence after the second stage is finalized.

• Two-stage Bidding

As already indicated in the discussion on the second stage of an open bidding process, a notice of request for proposals is required to provide detailed information about a project in order to enable bidders to prepare their proposals. However, it may not be always possible for the PPP Directorate General to issue such a detailed notice of request due to different reasons. And this is where a two-stage bidding process comes with a solution.

The PPP Directorate General embarks on a two-stage bidding process when it fails to formulate a notice of request for proposals with sufficient specifications of a project. In other words, if a notice of request cannot be formulated in such a detailed manner that enables bidders to prepare their proposals, the Directorate General will be forced to collect the specifications of a project from bidders themselves.

Accordingly, the PPP Directorate General issues its first notice of request for proposals to call upon bidders to submit initial proposals that provide specifications of a project such as performance indicators, technical and financial requirements, other characteristics of a project, and the main terms and conditions of a project agreement. Then, the Directorate General collects the detailed information about the specifications of a project from the initial proposals, and draws up its second notice of request appropriate to its requirements. This implies the second notice of request should be formulated in such a detailed manner that bidders are able to prepare their final proposals.

• Competitive Dialogue

Being a formal discussion between the PPP Directorate General and qualified bidders, a competitive dialogue is used only when the Directorate General wants to procure a particularly complex project and finds neither of the bidding process to be appropriate. In fact, the Directorate General needs to secure approval of the PPP Board in order to use a competitive dialogue.

The PPP Directorate General initiates the dialogue with issuance of a contract notice or descriptive document in which it describes its needs and requirements and invites bidders to participate in the dialogue.

When the dialogue starts, each bidder proposes its own solution which it deems to meet the needs and requirements of the Directorate General. The dialogue will continue until the Directorate General identifies those solutions which address its needs and requirements.

During the dialogue, the PPP Directorate General and bidders are at liberty to discuss each and every aspect of a project arrangement. However, prices and payments payable to qualified bidders may be specified by the Directorate General.

Once it has identified the solutions which can satisfy its needs and requirements, the PPP Directorate General concludes the dialogue and informs bidders to submit their proposals. Proposals that contain all necessary elements for project performance will be prepared on the basis of the solutions identified during the dialogue. The Directorate General evaluates proposals in terms of the criteria laid down in the contract notice and selects the most economically advantageous one.

• Direct Negotiation

While the preceding three methods are competition based, direct negotiation applies to projects which are not suitable for competition.

Some projects may be required to be executed urgently so that it will become impractical to engage in any of the competitive method. Some projects may be related to national security or national defense which should not be open to public knowledge. Some projects may be ancillary to other investment so that they must be implemented by that particular private sponsor of the investment. Other projects may have only one source capable of implementing them.

Perhaps, the PPP Directorate General can also use a direct negotiation when a competitive method fails to work. If no applications in response to a notice of request for qualification or if no proposals in response to a notice of request for proposals are submitted, or if no bidder satisfies evaluation criteria, the Directorate General may get convinced of not issuing a new notice of request. In such cases, the Directorate General can instead negotiate directly with a private party whom it considers to be capable.  

Irrespective of the fact that they are suitable for competition, less significant projects can be procured through direct negotiation.

When it comes to the procedure, a direct negotiation is initiated with issuance of a notice of intention to commence negotiations by the PPP Directorate General. Once it has communicated its intention, the Directorate General should prepare a description of its needs and requirements and a draft of project agreements, and further set criteria to evaluate and rank bidders. Bidders will be provided with these documents.

The PPP Directorate General may also go, if it considers appropriate, through the first stage of an open bidding process for the sake of negotiating with qualified bidders only.

During the negotiation, the PPP Directorate General is free to negotiate all aspects of a project with as many bidders as circumstances allow. Then, the Directorate General identifies the bidder that best meets its needs and requirements on the basis of the criteria already established.

• Unsolicited Proposals

Unlike the preceding ones, this selection method is particularly designed for private entities that have their own project proposals which they want to implement under PPP framework.

Accordingly, a private person with its own project proposal can approach the PPP Directorate General, and the latter will receive the proposal and review to ascertain that the proposal is not related to any other project already approved as PPP. If the proposal is ascertained to be unrelated, the Directorate General will conduct a preliminary examination to make sure the proposal is potentially in the public interest. When the proposal is considered to serve public interest, the proponent should provide as much information on the project as possible in order to enable the Directorate General to evaluate the technical and financial feasibility of the project, and determine whether the project can be successfully implemented as proposed.

If the PPP Directorate General decides to accept the unsolicited proposal, a relevant contracting authority will prepare a feasibility study to be submitted to the PPP Board for approval. Before it submits the feasibility study to the Board, the contracting authority should enter into agreement with the proponent. Their agreement needs to include, at least:

• obligations relating to confidentiality of the content of studies conducted by the proponent;
• terms and conditions for transfer of studies and right over the project to the contracting authority provided however that the proponent is not awarded;
• the allocation of bonus points during evaluation of the proponent’s proposals, or the allocation of a financial compensation should the proponent not be awarded; and
• the next steps for development of the project, together with allocation of responsibilities to carry out these steps.

If the PPP Board approves the feasibility study, the project will be awarded only through competitive selection process to which the proponent should be invited.

Whichever competitive selection process is applied, the proponent of unsolicited proposal may be granted a bonus point during evaluation of its technical and financial proposals. But if the proponent is not awarded the project, it may be granted a financial compensation for studies undertaken. In this regard, the PPP Directorate General has the power to determine the amount of financial compensation that will be paid by a successful bidder ultimately.

At this juncture, it is worth mentioning that a bidder who complains about any of the selection processes has the right to lodge his complaint with the PPP Directorate General and the PPP Board. By the same token, the Directorate General and a contracting authority have the right to lodge a complaint, when they believe a bidder has committed fault, with the Board.

(2.2.2.4) Public Private Partnership Contracts

From the simplest to the most complicated ones, PPP relationships are defined and bound by contracts, and they are no more and no less than the contracts negotiated, approved and executed.

Under the Ethiopian legal regime, PPP contracts are supposed to govern different aspects of the relationship between contracting parties ‒ a contracting authority and a private party. Basically, matters that need to be addressed under PPP contracts can be viewed from two angles; those relating to project execution, and others concerning rights and duties of a private party.

In relation to project execution, PPP contracts are expected to address the following matters, among others:

• the capital of a Project Company, the approval of changes to agreements regarding a Project Company, and the restriction on transfer of ownership interests in a Project Company;
• the duration of a project;
• the classification of project assets between contracting parties;
• the circumstances in which a contracting authority temporarily takes over the operation of a project in order to ensure uninterrupted service delivery where a private party is in default;
• the conditions which terminate a project;
• the calculation of compensation during termination of a project; and
• the mechanisms to settle any dispute between contracting parties.

Concerning rights and duties of a private party, PPP contracts are expected to address the following matters, among others:

• the form of economic support to a private party in order to ensure financial viability of a project;
• the conditions in which a private party will be entitled to compensation for legal changes that exacerbate its duties or diminish its revenue;
• a private party’s obligations that enable to ensure continuity of service delivery under essentially same conditions to all users, and enhancement of service delivery to cope with the growing demand for it;
• the guarantee to be submitted by a private party in order to secure performance of its obligations; and
• the preconditions for a contracting authority in order to give its consent to an assignment of rights and duties of a private party to third parties.

(2.2.2.5) Project Company

Under the Ethiopian PPP legal regime, every PPP project is implemented by a Project Company which a private party establishes for such purpose.

A Project Company is a company which will be incorporated as per the laws of Ethiopia. In other words, relevant company laws of the country are applied to establish a Project Company.

The Ethiopian Company law provides for two types of companies – Share Companies and Private Limited Companies. This seems to imply a Project Company will be constituted in the form of either a Share Company or a Private Limited Company, as the case may be.

In whichever form a Project Company is incorporated, a contracting authority can have a minority share therein.

A Project Company is required to keep books of accounts and other records with respect to implementation of the PPP project, and submit the same to a contracting authority, together with financial audit reports.

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