Fresh concerns by US stall Sh300b Mombasa-Nairobi expressway

In August last year, President Uhuru Kenyatta while on a state visit to the US was at the generous end of President Donald Trump’s superlatives.

The US president who likes to flaunt himself as a shrewd businessman who brokers mega deals extolled President Kenyatta for committing to build an expressway at a time when his government had frozen development projects and was preaching austerity.

Kenya and US firm Bechtel had only signed up for the deal, but no final commitment had been made.

“Your representatives have been dealing with our representatives and making a lot of progress. We’re talking about a very major highway. And that seems to be going along well. That’s a very important project, I think, for your country,” President Trump said.

But now close to two years after the contract was awarded and more than a year after construction works were scheduled to start, the Mombasa-Nairobi Expressway is struggling to get off the ground.

If the project had kicked off as per the plans, some segments of the road, which had been earmarked for fast-tracking and early completion, would be ready for commissioning.

The delay in starting the project, the Financial Standard has learned, are due to differences between the Kenyan and US Government, as well as the contractor Bechtel International, which are divided on the modalities of financing the road.

On the one hand, there are doubts as to whether Kenya can get a buy-in from motorists and form a critical mass to use the road, with the highway and the Standard Gauge Railway offering ‘free’ alternatives.

The other controversy is the question of Kenya’s public debt that has been spiralling out of hand, with particularly the US Government wary that financing the road through loans might put more pressure on the country.

The 473-kilometre road is designed to achieve consistent high speeds of up to 120 kilometres per hour, reducing the journey between the port city and Nairobi to about four hours, but it will be one of the costliest infrastructure projects at a cost of a whopping Sh300 billion.

Bechtel was given the job in August 2017 and since then, negotiations on how to go about building the road have not borne much fruit. It is a critical project for the US as it will check China’s influence in Kenya and to an extent, the region.

According to a top-level official at the Kenya National Highways Authority (KeNHA), the Government has been hard-pressed to present the firm with a viable build-operate-transfer model for the project.

“Initially Bechtel had proposed that Kenya finances the Nairobi-Mombasa expressway through a line of credit provided by the US Exim Bank,” explained the official who asked not to be named owing to his active involvement in the negotiations.

“However, the Kenyan Government declined this proposal because of the country’s high public debt levels,” he says. Currently, KeNHA is negotiating a concession agreement with the company where Bechtel will build and run the highway for a period of time while recouping its investments through tolling.

Already, KeNHA has identified locations for the toll station along the expressway and internal surveys by the authority anticipate traffic on the expressway to exceed 15,000 vehicles per day.

But Bechtel is wary that introducing toll stations will dissuade motorists away from the new road, with traffic reverting to the Mombasa-Nairobi highway that has also been widened on several spots that experienced bad congestion.

The US Government has also expressed concerns about how to finance the road, noting that debt would make the situation worse for Kenya that is already grappling with high public debt. “We are still working on finance. Kenya has a challenge on debt, and we are wary of burdening Kenyans,” said US Ambassador to Kenya Kyle McCarter.

“We did not want to sign a project whose cost would turn out to be three or four times more than the actual. We want to ensure that there is an honest return on investment for Kenya before we break ground.”

Mike Wilkinson, Bechtel’s regional infrastructure general manager told Financial Standard that the firm is committed to building the road.

He, however, did not speak to the challenges that have stalled the project. “Bechtel remains committed to building the Nairobi-Mombasa Expressway and we are ready to start immediately. We are confident our approach will minimise building costs and is the most fiscally responsible option. Crucially, it will provide the best possible value for money for the Kenyan people,” he said.

“We know the expressway will deliver many long-term benefits for Kenya, in terms of jobs, economic stimulus, environmental improvements, and connectivity.

This is why, right from the start of our engagement with the Kenyan Government and local stakeholders, we pulled in our senior experienced team and invested significant resources to ensure we got this right - including how to invest in and involve Kenyan businesses and people.”

“We have worked closely with the Kenyan Government, who have been very supportive to date, and we applaud them for standing firmly behind the Expressway. We will continue to work with the Government to help deliver this transformative project.”

The project sparked controversies when it was announced that the American firm had bagged the deal.

The announcement was made on August 5, 2017, two days before the General Elections. It criticised with many noting that the deal would go unscrutinised considering the entire country had its focus on the elections.

There were however concerns that the selection was of the company was not competitive, which may have denied the country other cheaper options of undertaking the same quality of work.

It also signalled the return of America big ticket deals in Africa, to challenge Chinese might.

It was also a resurgence of the United States’ Overseas Private Investment Corporation (OPIC) whose power had waned and was about to be abolished. OPIC was reformed and renamed Us International Development Finance Corporation.

This may also have crippled the deal given the new entity was signed under the Build Act prohibiting the US from Chinese type predatory loans.