Taxpayers face Sh158b penalty if State pulls out of PPP projects

Uhuru Highway:Nairobi Expressway construction. [David Gichuru, Standard]

Kenyan taxpayers could be forced to pay Sh158 billion to investors if the government opts out of some of the projects under Private-Public Partnerships (PPPs).    

This is according to a disclosure by the National Treasury detailing the financial risk arising from seven key infrastructure projects developed under the model and currently at various stages of completion.

These include the Sh73.8 billion Nairobi Expressway under construction in a partnership between the Kenya National Highways Agency (KENHA) and the China Road and Bridge Corporation (CRBC). 

The 27km road running from Mlolongo through the Jomo Kenyatta International Airport (JKIA) to Westlands is scheduled for completion next year and accounts for more than half the value of the PPP projects listed by Treasury.

“The National Treasury through the PPP Directorate is focussing on revitalising the PPP programme, including cleaning up of the current PPP pipeline and review of the PPP legal framework to ensure that projects to be delivered as PPPs are affordable and fiscally sustainable,” said Treasury in its fiscal risk discloser published last month.

The financing structure of the Nairobi Expressway is 75 per cent debt and 25 per cent equity, with the operators set to transfer the project to the Kenyan government after 30 years.   

The majority of the projects evaluated in Treasury’s latest risk assessment are in the energy sector, with electricity distributor Kenya Power listed as the State implementing agency.

These include Chania Green, a renewable energy project valued at Sh11.2 billion and developed in partnership with Frontier Investment Management. It has a project term of 20 years.

Others are Alten Solar, a 40MW solar energy project in Eldoret valued at Sh11.5 billion.

Treasury says prior to the implementation of the Private Public Partnership Act, 2013, several PPP projects in the energy sector were undertaken by independent power producers (IPPs), a model that is set to change going forward. “All new energy sector projects that are financed through the private sector, in whole or part, will also be assessed through the PPP Directorate and any government support measures (GSM) application will be assessed in line with the GSM policy,” said Treasury.

It, however, assures that the likelihood of the government defaulting on its commitments in the listed projects in the energy and road sectors remain low.

“The estimation of contingent liabilities for PPPs is conducted based on a worst-case scenario that involves the assessment of the key risk event that would have the greatest financial impact on government, that is early termination of the PPP contract due to government default,” said Treasury in its assessment.

The implementation of the Private Public Partnership Act, 2013 was delayed for several years, pending the establishment of the PPP Directorate that is tasked with leading the government through the complex negotiations.