Year in review: How Nairobi Expressway paved the way for major bucks for mega projects

A section of the Nairobi Expressway, September 24, 2022. [Boniface Okendo, Standard]

The Nairobi Expressway is the first major road project constructed under the Public-Private Partnership (PPP) model, marking a critical milestone in Kenya's pursuit of alternative infrastructure financing.

The project, whose construction started in 2019 and was completed earlier in 2022, is seen as having set the stage for the many mega projects that will now be built through the PPP model.

While PPP has in the past been billed as the panacea for reliance on costly debt, it remained elusive with investors giving Kenya a wide berth.

PPPs have to an extent only been successful in the electricity sector where a number of Independent Power Producers have been facilitated by the government to put up power plants despite the controversy over their power purchase agreements with Kenya Power.

The expressway was designed, financed and constructed by the China Road and Bridge Corporation (CRBC), with the government only providing land and playing other facilitative roles that were not as capital expensive as would have been had the State built the road.

CRBC will operate the road - through its subsidiary Moja Expressway - for 27 years, charging motorists toll to recover the money spent to put up the road.

The Nairobi Expressway was opened up to motorists on May 14 but on a test basis and officially commissioned on July 31 by former President Uhuru Kenyatta.

Traffic on the road, the operator said last month, has grown to 50,000 vehicles per day.

Saloon cars pay a minimum of Sh10 to travel short distances and Sh310 to use the 27.1-kilometre road between Mlolongo and Westlands, with charges going up depending on the size of the vehicle.

The road has cut travel time from Westland to the Jomo Kenyatta International Airport to a matter of minutes from several hours previously.

The successful implementation of the expressway as the first major PPP project possibly marks the beginning of an era where the State may no longer need to borrow expensive loans for mega infrastructure projects.

It is an appealing model to the government in that it has little room to borrow amid growing need for more roads, railways, dams and other infrastructure.

The model has, however, been criticised in that it amounts double taxation as motorists are paying for a service that the State should provide using taxes.

The completion of the expressway has also left a sour taste in the mouths of many using the lower deck roads that were damaged during construction of the modern road.

The other major road project that is set to be built through the PPP model is the Rironi (in Limuru)-Mau Summit Road. The contract for upgrade of the road has already been given to a consortium of French firms - Rift Valley Highway - which will design, source for funds ad undertake construction of the 175 kilometre road at a projected cost of Sh160 billion.

Rift Valley Highway - the firm formed by Vinci Highways, Vinci Concessions and Meridiam Infrastructure Fund to oversee the project - will then operate the road for 26 years, during which motorists will be paying to use the road. It is expected to revert to government at the expiry of the period, during which the firma are expected to have recouped their investments.

According to recent tabulations, the toll charge has tentatively set at Sh6 per kilometre for saloon cars and Sh24 for heavy commercial vehicles, which would mean motorists pay at least Sh1,000 driving through the entire length of the road.

The Kenya Highway Authority (KenHa) said toll tariff, based on a past study, is still being refined.

The charges will be pegged on the weight of the vehicles with heavier load-carrying trucks that cause more damage to roads paying higher rates.

"A study in 2015 to establish how transport infrastructure can be funded and one of the outcomes was that the government can adopt PPPs to tap into private sector financing. When this happens, there has to be a mechanism to compensate them for the investments. Generating revenues through tolls was one of the mechanisms that was identified," said Kenha in a recent presentation.

"The study came up with a rate of Sh6 per kilometre per passenger car unit. This is the number being reviewed on whether it is affordable and once it has agreed upon, we will be able to tell the public what the government has adopted as a toll tariff."

It is not just roads that are set to see increased private sector participation, with the government hoping it can interest investors to build infrastructure across different sectors.

President William Ruto recently said his administration would seek to increase private sector participation in the supply of water to Kenyan households in an attempt to increase access to the essential commodity.

In his inaugural joint address to Parliament said the government is evaluating to possibility of having Water Purchase Agreements with private firms, which will then develop water supply infrastructure and ease supply of water to homes.

The agreements are expected to mirror the contracts in the power sector that electricity producers have with Kenya Power, which have been blamed for the high cost of electricity in the country.

"In order to achieve our target of raising access to water from the current 60 per cent to 80 per cent, Sh500 billion is required. The government can provide this gradually, but the private sector can mobilise it all at once. We will thus adopt a PPP framework by entering into water purchase agreements with investors," said Dr Ruto.

"I have already instructed the PPP Unit at the National Treasury to work on the regulations that will facilitate the mechanism like we have on our energy sector for investors to work with us on a formula under the Water Purchase Agreement instrument. This way, we will achieve water for all in under a decade."

Experts have urged caution considering that the energy sector power purchase agreements (PPAs) have been so problematic that the Jubilee administration on several occasions tried to look for a way out of the contracts, with its latest effort being last year's Presidential Task Force on Review of the PPAs.

The task force, formed in March and reporting back in September, made recommendations, including that Kenya Power, together with the Energy Ministry, renegotiate the contracts.

They have, however, been unsuccessful with independent power producers (IPPs) opposing the proposal amid concerns that arm-twisting the power producers to open their contracts for renegotiation could result in court battles.

Power players have justified the structure of the PPAs, noting that Kenya Power is the only customer for the electricity producers and hence the need for certain guarantees.

These include requirement to pay what is termed capacity charges - which is money power plant owners earn whether they supply power to the grid or not as long as their plants are available to push power to the grid. It is in addition to money paid whenever they supply electricity to the grid.

While the new expressway might heavily influence the direction that financing projects through PPPs takes in the coming years, it has been a bitter pill for many working and living in Nairobi and its environs.

This is especially for motorists who use the lower deck roads that were badly damaged during the construction of the new swanky road.

There has been push to have Mombasa Road, Uhuru Highway and Waiyaki Way restored to their original - if not better - states. CRBC did not repair the roads, leaving motorists to grapple with deep excavations, boulders in the middle of the roads, and smaller lanes.

"The initial Mombasa Road has been narrowed and in most areas, the initial three lanes reduced into two lanes ostensibly to cause more traffic jams at the bottom (original Mombasa Road) so that motorists are forced to use the private elevated road (upper deck)," said Consumers Federation of Kenya Secretary General Stephen Mutoro.

"The original public Mombasa Road has not been reinstated to its original state - of three lanes, road markings, and road signs, lighting and worse - storm water from the elevated road hit the ground motorists screens and pedestrians in an unacceptable manner and the trees that were cut down during construction have not been replaced."

The government has recently reviewed the PPP Act, with the new legislation enacted in December and Treasury recently proposing further interventions that seek to attract more private sector players.

The new PPA Act cuts the bureaucracies, according to Treasury, that were previously embedded in the processes of engaging private sector players in infrastructure building.

The law review was aimed at getting rid of the too many approvals that investors had to get before a project got the green light.

"The PPP programme has gained traction under the new PPP Act,2021 that has reduced the number of approval processes, introduced timelines and strengthened the institutional framework by elevating the PPP Unit to a Directorate in the National Treasury," said Treasury in the 2022/23 budget documents.

"So far, the government has achieved closure on a number of projects, of which a key one seeks to deliver over 4,000 housing units to frontline Kenya Defence Forces personnel."

The new law also transforms the PPP Unit at Treasury into a directorate, giving it more autonomy.

"To ensure projects with the highest socio-economic returns are selected and implemented, we are putting in place a joint Public Investment Management and PPP planning framework and strengthening the coordination between Public Debt Management Office and the PPP Directorate for effective control of fiscal exposure, as envisioned in the new PPP Act 2021," said Treasury.

"Further, the government will fully operationalise the PPP Project Facilitation Fund to support activities of PPP Directorate and those of the contracting authorities in the preparation phase of a project during the tendering processes and project appraisal."

Analysts at Deloitte Kenya have in the past noted that the law review is a starting point for getting more private capital into the local infrastructure scene.

"The government took a step in the right direction, with the PPP Act, 2021 coming into effect in December 2021, setting fit for purpose laws for the participation of the private sector in development projects. The re-prioritised PPP pipeline targets to unlock an estimated Sh350 billion in new development capital for priority projects in 2022," said Deloitte Kenya in an analysis of the 2022/23 budget.

"Developing Kenya's infrastructure is one of the key factors expected to support economic growth in the medium term, as the country plans to establish itself as a gateway to East Africa."

Other than the numerous projects that have been earmarked for development through the PPP model, the government has also been implementing the Roads 2,000 annuity programme.

Through the programme, a variation of PPP, the government engages private contractors to build and rehabilitate 2,000 kilometres of roads (and eventually build this to 10,000km). The companies raise an agreed portion of the funds required to do the roads and go on to do the works, with the government repaying the money over time.

The programme has, however, had teething problems, predictably, as many of the contractors selected struggled to raise capital, including credit from banks, which did not see viability of the project.