Liilnna is an associate in the Energy and Mining practice at MLA. Liilnna joined MLA in 2014 and has experience working in Energy law, Mining law, Investment law, Corporate law, Employment law, and Intellectual Property law matters. Liilnna earned her LLB (with great distinction) from Addis Ababa University in 2014. In 2017, she earned her LLM in Energy Law with Professional Skills from the University of Aberdeen, United Kingdom.
The 2nd Annual Ethiopia Infrastructure, Power & New Energy Investment Summit which took place in Addis Ababa 19-20 May, 2015) focused on showcasing power projects, new energy infrastructure developments and partnership opportunities. The Summit was attended by several representatives of the Ministry of Water, Energy & Irrigation, Ethiopian Electric power, Ethiopian Electric Corporation and numerous prospective investors from the private sector.
MLA’s Energy practice group, represented by Dr. Tadesse Lencho & Mr. Zelalem Yibrah, attended showcasing the energy expertise of the office as well as DLA Piper Africa group. MLA’s Delegates utilized this unique chance of converging under one roof with government officials, private equity and debt investors, venture capitalists, institutional investors and fund managers, key players in the sectors, energy operators, power developers and other services providers along with development and other multilateral/bilateral agencies to their level best.
The Policy for the Use and Implementation of PPPs (hereinafter the “PPP Policy Document”) prepared by the Ministry of Finance and Economic Cooperation identifies shortage of government financing to achieve the goals set in the Second Growth and Transformation Plan (hereinafter “GTP II”) as the main reason for the need for Public-Private Partnership (hereinafter “PPP”) framework in Ethiopia. The need to mobilize resources from different sources to meet the investment, technology and skills requirements in infrastructure projects is also another reason for adopting the PPP framework. According to the PPP Policy Document, preparation of PPP legal framework is given priority in the implementation of the government’s PPP program. Accordingly, the Ministry of Finance and Economic Cooperation (hereinafter “MoFEC”) has taken the lead in the drafting of the PPP Proclamation, which was later promulgated in the Federal Negarit Gazette on February 22, 2018.
Both the PPP Policy Document and the Public Private Partnership Proclamation No. 1076/2018 (hereinafter the “PPP Proclamation”), set the objectives for the government’s decision to adopt the PPP scheme. Though the objectives set in these two documents are not a replica of one another, they are complementary to one another. The objectives of creating a favorable framework, improving quality of public service, reducing the public debt and enhancing transparency, fairness, value for money, efficiency and long-term sustainability as identified in the PPP Proclamation, are further expounded in the PPP Policy Document.
- What is PPP
Both the PPP Policy Document and the PPP Proclamation provide a definition of PPP. According to the definition, all contracts entered with the public body will not automatically become a PPP. A contract which is entered with the public body or public enterprise should meet the following definitional elements to be classified as a PPP Agreement and thus subject to the PPP Proclamation. According to Art. 2 of the PPP Proclamation and Section 5 of the PPP Policy, the following defining elements need to be fulfilled:
- Agreement with the Contracting Authority;
- A long-term agreement;
- Public Service Activity;
- Compensation; and
- Transfer of risk to the private party.
- Scope of Application of the PPP Legal Framework
Both the PPP Proclamation and Policy Document provides for the scope of application of the documents. The first demarcation is in relation to the Federal Government Structure adopted under the Federal Democratic Republic of Ethiopia Constitution (hereinafter the “FDRE Constitution”). Accordingly, the scope of application of the PPP Proclamation and Policy is limited to Federal public bodies wholly financed by the Federal Government and public enterprises fully owned by the Federal Government.
The PPP Proclamation also provides for transactions and projects excluded from the scope of application of the PPP Proclamation. Accordingly, the following transactions and sectors are excluded:
- Oil, mines, minerals, rights of airspace;
- Privatization or divestiture of public infrastructure of public enterprises; and
- iii.PPP projects where the contracts were under negotiation or were already concluded at the time of the enactment of the PPP Proclamation.
One important note that needs to be mentioned here is, according to the above exclusion, the current shift in the policy of the Government of Ethiopia (hereinafter “GoE”) and the decision to privatize different public enterprises (such as the Ethio-Telecom and the Ethiopian Airlines) will not be regulated by the PPP Proclamation.
- PPP Forms
The PPP Proclamation identifies different forms in which the PPP scheme can be applied through. These forms are:
- The design, construction, financing, maintenance or operation of new infrastructure facilities;
- The rehabilitation, modernization, financing, expansion, maintenances or operation of existing infrastructure facilities; and/or
- The administration, management, operation or maintenance pertaining to new or existing infrastructure facilities.
One important point that needs a careful consideration in relation to the above PPP forms is PPP agreements that involve existing infrastructure facilities. As explained in the above, the PPP Proclamation excludes privatization or divestiture of public infrastructures. Therefore, in light of such exclusion, care should be taken when a PPP agreement is entered in relation to existing infrastructure facilities so not to contradict with the provision of the PPP Proclamation. One good example where there will be a potential conflict is in relation to the privatization of the management of an enterprise. According to Privatization of Public Enterprises Proclamation No. 146/1998, the privatization of the management of an enterprise is considered as Privatization of Public Enterprises. Accordingly, if an agreement for the management of an existing infrastructure facility is to be classified as a privatization, then such arrangement will be excluded from the application of the PPP Proclamation.
- PPP Administration
Both the PPP Proclamation and the Policy Document provides for the roles and responsibilities of different public parties that will be responsible for the administration of PPP projects on different levels.
- PPP Board
- Ministry of Finance and Economic Cooperation
- PPP Unit
- Contracting Authority
- Contracts Management Team
- PPP Director General
- Selection of PPP Projects
According to the PPP Policy Document, initially PPPs will be implemented as a mechanism of developing infrastructure. Thus the selection of projects for PPP arrangement will be in line with the GoE specific infrastructure targets as set out in the GTP II. However, the GoE also recognizes that a range of projects could also be considered for implementation through the PPP scheme as its implementation capacity grows. One important point readers should also take from this is, despite the identification of such priority sectors, the final decision on the selection of a project will lie in the assessment of cost and benefits of the individual projects.
- Methods for Selecting Private Partners
The PPP Policy Documents expresses the GoE’s wish to implement a clear, consistent and transparent system which will encourage competition in the selection of private partners for PPP projects. In line with this policy of the government, the PPP Proclamation provides for the below selection mechanisms for the selection of a private partner as well as set mandatory conditions in the selection of the procurement method to be used.
- Open Bidding
- Two-state bidding
- Competitive dialogue
- Direct negotiation
- Unsolicited proposal
The PPP Proclamation provides for procurement through an open bidding with prequalification as the default method for selection of private parties. The PPP Director-General is only permitted to use procurement methods other than Open Bidding when the conditions provided by the PPP Proclamation for the respective procurement methods are fulfilled.
We would like to share with you the Second Edition of Mehrteab Leul andAssociates (MLA)'s Quarterly Newsletter attached to this email.
Download the newsletter here
As we are witnessing more and more tender announcements for Power Purchase Agreements (PPAs), news about the qualification rounds following the tender or negotiations by the Ethiopia Electric Power (EEP, a state enterprise that offtakes the energy generated by IPPs) to purchase electric power from private investors, one may ask what is the legal basis for all of these? So far the private sector’s involvement in the energy sector was limited to Engineering, Procurement and Construction (EPC) contracts. And it was just recently (on December 19, 2017), that the legal provisions regarding PPAs and IPPs come into practical applicability when the first PPA was signed between Corbetti Geothermal PLC and EEP for the Corbetti geothermal power project.
It is was through the Investment (Amendment) Proclamation No. 373/2003 that the possibility for private investors to engage in the generation of electricity was clearly provided for the first time in Ethiopia. In 2003, the Amendment Proclamation names the Ethiopian Energy Authority (the former Ethiopian Electric Agency) as the responsible government organ for issuing, renewing and cancelling investment permits for generation, transmission and supply of electrical energy. Accordingly, private actors were not only permitted to engage in generation of electricity but also off-grid transmission and supply of electricity. However, the state-owned enterprise (SOE) still holds exclusive right with regards to the transmission, distribution and supply of electricity through the integrated national grid system (Investment Proclamation No. 280/2002).
The partial liberalization of the energy sector by the investment laws was further supplemented by unbundling efforts of the government taken in 2013. Until 2013, all components of the electricity supply (generation, transmission, distribution and supply) were integrated into a single SOE (Ethiopia Electric Power Corporation, EEPC). However, in 2013 EEPC’s mandate was transferred into two SOEs. EEP was established to undertake generation and transmission of electricity, and Ethiopia Electric Utility (EEU) was established to undertake distribution and supply of electricity. On the same year, the Energy Proclamation No. 810/2013 (the Energy Proclamation), introduced a legal framework for generation of electricity by Independent Power Producers (IPPs) and PPAs which will be entered between the IPPs and offtake.
However, it was in 2016 that practical efforts to introduce utility PPA for the supply of high voltage electric power to the national grid by IPPs were taken. Until 2016, only EEU (and not EEP) was mandated to buy electric power. However, as the result of the mandate of EEU (owning and operating the distribution network and supply of electricity to consumers), there was no legal framework to supply high voltage electricity to the national grid through the transmission networks. But with the enactment of EEP establishment Council of Ministers (Amendment) Regulation No. 381/2016, EEP was authorized to purchase electric power on transmission lines above 66kilo volt level.
The Energy Proclamation obliges the transmission and distribution network owners (EEP and EEU) to give access to other license holders with payment of a prescribed fee. This protection to IPPs is very important in the country’s current situation, where the electricity market is not fully unbundled and the sole transmission network owner/operator (EEP) is also engaged in generation of electricity. The enactment of such third party access rule can be a guarantee to IPPs that the transmission network owner will provide connection to all generation facilities without unduly favoring generation facilities which are owned and operated by it.
When one thinks of PPAs, the second but equally if not more important, contract which comes into picture is Implementation Agreement (IA). Under Ethiopia’s current legal framework, an approval to build and operate electric generation plant is not granted by the signing of IAs. This is because the government organ which enters into IA is not the same as the organ which is empowered to approve PPAs. Once the IPP made the decision to invest in Ethiopia and reaches into an agreement with the EEP on the terms of the PPA, the approval of the Ethiopian Energy Authority should be obtained. Whereas, in the current practice IAs are signed between the IPPs, EEP and the Government of Ethiopia (acting through The Ministry of Water, Irrigation and Electricity and The Ministry of Finance and Economic Cooperation). Though there is no clear legal requirement for IAs, currently IAs provides important guarantees to IPPs such as tax holiday, exemption from import duty and generation payment guarantees by the government in case of default by the offtaker (EEP).
And finally, after the signing of the PPA and IA, the IPP is required to obtain different permits before going to operation or even construction of the facility. Principal registration certificate, land permits Investment Permit, and Electricity generation license are among the main permits which should be obtained by the IPP.