Tanzania: Key highlights of the Finance Act of 2023
Tanzania Public Private Partnership Act amendments
Legal Development 25 July 2023 25 July 2023
Public-Private Partnerships (PPPs) have become an important mechanism in driving infrastructure development and delivering public services. The Public Private Partnership Act Cap. 103 (PPP Act) underwent significant amendments to streamline processes and encourage strategic projects through the Public Private Partnership (Amendment) Act No. 4 of 2023 (PPP Amendment Act). These amendments aim to strike a balance between promoting private sector participation while safeguarding public interests. In this month’s legal update, we explore the key amendments to the PPP Act and their implications for Tanzania's economic development.
Comparison of the PPP Act and the PPP Amendment Act
|Section||PPP Act||PPP Amendment Act|
|Section 2: Application||Did not apply to agreements involving special arrangements for transporting untapped natural resources, with Cabinet approval.||Allows for special arrangements (strategic projects) in Tanzania, subject to Cabinet approval. However, the agreement must first be vetted by the Attorney General before Cabinet approval.|
|Section 3: Definitions||Contained various definitions but lacked some essential ones.||
Introduces vital definitions to clarify terms used in the PPP process:
|Section 4: Prefeasibility study of potential PPP projects||Required contracting authorities to submit concept notes and prefeasibility studies for potential PPP projects.||Mandates contracting authorities to submit prefeasibility studies of potential PPP projects at the beginning of each budget cycle. These studies must align with national development priorities and be approved by the respective Minister. The Minister then forwards the study to the PPP Centre for analysis, which is then shared with the Public Private Partnership Steering Committee.|
|Section 5: Functions of PPP Centre||The PPP Centre analysed projects submitted by contracting authorities within thirty working days.||Amends Section 5(2) to set a strict timeline for the PPP Centre to analyse prefeasibility studies, proposal documents, evaluation reports for bidder selection, and PPP agreements. The analysis must be completed within thirty working days from receiving the documents.|
|Section 7B: Public funding||Did not provide a definition for "public funding”.||Defines "public funding" as Government financial support that constitutes fiscal commitment or contingent liabilities in relation to a PPP project.|
|Section 9: Responsibilities of contracting authority||Did not require contracting authorities to submit implementation reports to the PPP Centre.||Introduces section 9(1)(d), which mandates contracting authorities to submit implementation reports of the PPP Centre’s recommendations every three months.|
|Section 15: Procurement process||Allowed private proponents of unsolicited proposals to commit to projects by depositing a refundable amount.||Amends subsection (3) to grant the Minister the power to exempt solicited projects from the competitive bidding process under specific conditions. The conditions include cases of urgency, private party's exclusive rights or intellectual property, and lack of reasonable alternatives. Additionally, subsection (6) now states that regulations will prescribe the timeframe for negotiating agreement terms.|
|Section 18A: Establishment of SPV||Did not mention special purpose vehicles.||Introduces a new section 18A, which requires the private party to establish a SPV in accordance with the Companies Act before signing a PPP agreement. The SPV may include a public entity as a minority shareholder, subject to specific conditions on equity contribution and risk-bearing capacity.|
|Section 22: Dispute resolution mechanism||Allowed disputes to be resolved through negotiation, mediation, or arbitration in accordance with Tanzanian law and in Tanzania only.||Repeals and replaces section 22, emphasising amicable dispute resolution through negotiations during PPP project implementation. If disputes remain unresolved, parties may submit the matter to arbitration, following Tanzanian arbitration laws, the International Centre for Settlement of Investment Disputes' procedures (ICSID), or under bilateral/multilateral investment protection agreements.|
|Section 23A: Periodic performance reports||Required mid-year performance reports on PPP project implementation, submitted to the PPP Centre and the Minister.||Amends this requirement to include annual performance reports as well. The PPP Centre must consolidate these reports and submit them to the PPP Steering Committee before submission to the Minister.|
|Section 28A: Primacy of law in case of inconsistency||Did not address inconsistencies with other laws.||Introduces a new section, clarifying that, in cases of inconsistency with other laws related to PPP development, procurement, and implementation, the provisions of the PPP Act will take precedence.|
Incentives for investment
One of the significant implications of the amendments to the PPP Act is the introduction of incentives for private sector investors. The amended PPP Act now offers tax benefits in accordance with the Tanzania Investment Act Cap. 38 (TIA), Government guarantees, and assistance in securing capital. These incentives aim to foster a supportive investment environment, encouraging more private sector participation in strategic projects.
NOTE: The Government guarantees referred to above only apply to mining and petroleum projects. These guarantees include unconditional transferability of profits, dividends, and loan payments in freely convertible currency, protection against nationalisation or expropriation, and fair and prompt compensation with access to court or arbitration for dispute resolution (Section 28 and 29 of TIA).
The amendments to the PPP Act have introduced significant improvements in various aspects of project implementation and procurement, resulting in streamlined processes that enhance efficiency and timeliness in Tanzania's development landscape.
The amendments aim to reduce project preparation time and optimise resource utilisation, resulting in quicker and smoother project implementation. By eliminating delays through the direct procurement method by contracting authorities, PPP projects can be executed in a timely manner, delivering their benefits to the public more efficiently.
In Section 4, the PPP Amendment Act has expedited project evaluation and selection through the mandatory submission of prefeasibility studies. Requiring contracting authorities to submit studies aligned with national development priorities and approved by the respective Minister ensures that projects are in line with the nation's development goals. The subsequent analysis by the PPP Centre and sharing with the Public Private Partnership Steering Committee enhances project scrutiny, enabling well-informed decisions.
Moreover, the amendments to Section 5 have set strict timelines for the PPP Centre to analyse prefeasibility studies, proposals, evaluation reports, and agreements. This timely completion of project evaluations allows for quicker project execution, delivering benefits to the public sooner.
Furthermore, the amendments to Section 15 have empowered the Minister to exempt certain projects from competitive bidding under specific conditions, leading to more efficient procurement processes for essential projects.
Enhanced clarity and transparency
The introduction of new definitions in Section 3 provides essential clarity in the PPP process. The definition of "Special Purpose Vehicle" ensures smooth implementation of projects by private parties, while "Standard Document" promotes uniformity and transparency in the procurement process. Additionally, the term "Strategic Project" clarifies the significance of projects in national planning, facilitating effective decision-making and resource allocation.
The definition of "Public Funding" in Section 7B clarifies the financial support the Government can provide for PPP projects. This clarity encourages private sector investors to participate in projects with the assurance of Government support. The PPP Act's new provisions empower private entities to negotiate effectively, leading to a more collaborative and mutually beneficial partnership between the public and private sectors.
Strengthening governance and oversight
The introduction of Section 9(1)(d) now requires contracting authorities to submit implementation reports of the PPP Centre's recommendations every three months. This enhanced reporting mechanism strengthens governance and oversight, ensuring that projects are on track and aligned with the approved plans. This accountability measure safeguards the efficient utilisation of resources and maintains project integrity.
Collaborative dispute resolution
The amendments to Section 22 of the PPP Act have developed the dispute resolution process, breaking away from the previous limitation of using Tanzanian law only and confining the resolution to Tanzania alone. Under the old PPP Act, disputes were to be resolved solely through negotiation, mediation, or arbitration in accordance with Tanzanian law, within the country's boundaries. However, the new amendments have opened up new options for resolving disputes in a more internationally collaborative and investor-friendly manner through ICSID or bilateral/multilateral investment treaties.
When disputes arise during the implementation of the PPP agreement, efforts are still made to amicably settle them through negotiations. However, if negotiations do not lead to a resolution, the parties involved have the freedom to mutually agree upon an alternative path for arbitration.
Legal framework and consistency
The introduction of Section 28A clarifies the primacy of the PPP Act in cases of inconsistency with other laws related to PPP development and implementation. This provision strengthens the legal framework and ensures consistency in the application of PPP regulations, providing a solid foundation for PPP projects in Tanzania.
The amendments to the PPP Act signify an encouraging way forward in Tanzania's development landscape, presenting an attractive investment opportunity for foreign investors. The revised provisions have strategically promoted transparency, accountability, and collaboration, creating an environment conducive to private sector investment. With tax incentives, streamlined processes, enhanced transparency, and flexible dispute resolution, Tanzania provides foreign investors with a stable and attractive platform for their projects.