Billion shilling u-turn that will cruise you to Coast in three hours

(Photo: Courtesy)

Kenya has chosen to build a brand new road between Mombasa and Nairobi instead of expanding the existing highway in what will leave consumers spoilt for choice.

The Sunday Standard has established that instead of turning the current road into an expressway, the government decided to construct a completely new road to run side by side with the existing one.

This means that in another three years, a Kenyan travelling from Mombasa to Nairobi will have at least four major options. One may choose the Standard Gauge Railway (SGR) passenger train that takes about five hours or take a flight and land in the coastal town in an hour.

If he wants to travel by road, he will have two roads to pick from.

If in a hurry, and would like to drive at speeds of 120 kilometers per hour, he will take the expressway whose contract was handed to an American firm, Bechtel, three days to the General Election in a deal described as a ‘thank you gift’ to the Americans.

This will not just be the most comfortable drive given how smooth the road would be, it will just take him three and-a-half hours.

But this will not be without a cost. He will have to part with some unspecified amount of money in toll fees to enjoy the road. If he does not want to pay or is not in a hurry, he will still have the current road at his disposal, which will be available but only for smaller vehicles. The current road will also have been downgraded to stop trucks and big buses from using it.

Shelved proposal

It will also mean that the government will buy land afresh, in a similar fashion as it did before it build the SGR, in what could provide land cartels with another round of minting millions from government projects.

The initial proposal, which was shelved in favour of the current deal, involved expansion of the existing highway to four lanes between the Machakos Turnoff to Mariakani. 

It has also emerged that the contractor building the controversial expressway will be allowed to ‘sell’ it to another private contractor, who will charge users toll fees to recoup the billions sunk in the project.

“Under the Exim Bank financing model, the government has the opportunity to privatise or securitise the individual sections of the expressway that could reduce the total borrowing requirements,” Engineer Peter Mundinia, the director general of the Kenya National Highways Authority (Kenha) said in a statement.

The authority, however, refused to comment on the cost of the project.

A source familiar with the project says the government will pass the road to private investors, who have the experience to monetise the road.

“Private investors will buy the road and charge toll fees in line with the initial Public Private Partnership (PPP) model after it is constructed. This must not wait until it is fully built but it can start with the sections as they get completed,” a source said in an interview. This will make the multi-billion road the first ‘private road’ in the region.

Kenha has contradicted the Ministry of Transport which had denied claims that the contract had been signed. In a press release this week, Kenha said the commercial contract for the project was signed on August 5.

Reacting to an earlier story by the Standard, Transport CS James Macharia said the deal had not been signed and that several other companies could be allowed to bid.

But Kenha, which handed the project to the American firm without a competitive process, says the development is under its mandate. Available estimates show that the project will cost about Sh300 billion, before the cost of buying the land is factored in.

Kenha says its economic projections show that there is an infrastructural symbiotic relationship between the SGR and the new road as it offers connectivity for people, business and communities along the road.

“Once completed, the expressway will play a critical role in improving Kenya’s transportation logistics and trade competitiveness while supporting the spatial and industrial development along the corridor,” Mundinia said.

Kenha has defended the decision to opt for the construction of a new road on grounds that it is distinct from the PPP alternative given that it offers a new alignment designed as a high speed six-lane expressway of higher capacity and safety standards.

“The expressway project will include highway capacity through construction of the greater Nairobi-Southern Bypass which has been planned for several years, thereby contributing to decongestion of the fast-growing Nairobi Metropolitan Area,” Mundinia said.

But as details of the deal become available, it is emerging that the mega project has stark similarities to the SGR contract handed to a Chinese company in the run-up to the 2013 General Election.

Both the contracts of the SGR and the expressway project were signed shortly before the elections. The firms constructing them are the ones tasked with determining the costs of the projects.

Worse, both have been single-sourced and were entered in the cover of government-to-government contracts, in deals that reduce the level of public disclosure and scrutiny that open tenders go through.

The biggest concern for sources familiar with government financing is that both of these projects are now going to be financed largely from borrowing at a time when the government is exhausting its headroom to stock up any additional debt.

It has emerged that top officials of the PPP directorate were caught unawares after the government made an about turn on the project and decided to build a new road instead.

A working paper from insiders at the Treasury and the Ministry of Transport seen by this paper raised sharp questions on why the project had to be announced in a rush, three days before the elections, and why it was not competitively done.

The deal has also brought back the American government on the front row seat of firms that have bagged big infrastructure projects after being elbowed out by Chinese companies.

A brief by the State Department of Infrastructure as it sought concurrence to proceed with the project says Kenya will borrow funds from American lenders (US Exim Bank and OPIC) and then sign an Engineering, Procurement and Construction (EPC) contract to build the road on a single source basis.

The brief queries why a previous model financed by the World Bank was abandoned and how it was determined that the single sourcing approach would offer taxpayers better value for money and would be faster than a PPP. 

“Although the proposal is being referred to as ‘alternative project concept’ or ‘highway development concept,’ it is simply a non-competitive, single source procurement of an EPC contractor who is able to bring financing with it,” the brief notes.

Engineer George Kiiru, the head of PPP at Kenha, told the Sunday Standard that the government changed its focus from a PPP to EPC because it will be delivered faster as compared to PPP.

Shorter period

“Achieving commercial and financial close for PPP contracts can take two to three years thereby delaying the start of construction and completion of the project,” Kiiru said.

“A comparative analysis between a PPP model for a 20-30 year concession shows cumulative repayments under the PPP approach would be higher compared to the alternative approach with ECA (US Exim/OPIC) support,” Kiiru said.

The brief from the State Department of Infrastructure, however, intimates that there is no reason to suggest that the construction will take longer under the PPP arrangement.

“Indeed, there are strong arguments that overall construction period may be shorter under the PPP project as it splits construction between three different EPC contractors. In any event, the constraining factor is always likely to be land acquisition, so it would be a mistake to assume that the Betchel proposal can deliver construction completion more quickly,” the brief notes.  

Kenha says the government is yet to determine the exact cost of the project and is waiting for a complete detailed design, which is yet to be undertaken, before it can determine the actual cost.

Kenha also refused to give a cost range that the project is expected to fall in on grounds that it did not want to speculate despite the fact that costs are the first considerations in deciding if a project is viable or not.

Costs per kilometre

“This project is a government to government initiative. The US Government nominated Betchel International to work with the implementing Agencies in Kenya to develop the project,” Kiiru said.

In 2015, Kenha says, the governments of Kenya and the US signed a memorandum of understanding for development of priority infrastructure projects supporting Kenya’s Vision 2030.

Kenya later held discussions with the US government for development of the highway. The US, through the US Exim Bank, has provided a letter of support to Betchel for the Nairobi–Mombasa Expressway under a proposed government to government agreement.

“The US Exim Bank has shown interest to finance the project together with other US Export Credit Agencies such as the Overseas Private Investment Corporation (OPIC),” Kenha said in its response.

The brief says Betchel’s construction costs per kilometer are higher than estimates presented to the ministry by PricewaterhouseCoopers (PwC) on construction costs for the PPP approach of Sh600 million per kilometre versus Sh500 million per kilometre ($6 million Vs $5 million).

“The per kilometre costs under the PPP proposal includes all taxes and duties while Betchel’s proposal assumes complete tax exemption for the project (corporate tax, income tax and import duties) which could reasonably be assumed to cost the government an additional Sh100 million per kilometre,” the brief notes.

It goes on to argue that as part of the American firm’s proposal, an advance payment of Sh30 billion and also a payment of Sh10 billion as ‘establishment fee’ will be required.

“So Betchel will be Sh40 billion in funds and highly cash positive before the start of the project whereby the government will be paying interest on this sum from day one as this will be drawn immediately by Betchel at contract signing,” the brief notes.

There is also a further Sh6 billion of design management fees. The proposal from the American firm excluded all relevant taxes.