Tuesday, 18 December 2012

European investors eye Tanzanian toll road

EUROPEAN Contractors are eyeing the US$535 million Dar-es-salaam- Chalinze toll road in Tanzania, we have learnt. In an internet posting, a Belgium based trading company Group DML, www.dml.com is shopping for a partner for a joint venture with an unnamed European contractor to develop the project on a 3P basis.
Chalinze Junction: To the right is A14 leading to Tanga 

 The company is proposing to invest in equity together with its partners. The Tanzania government, says the firm, will be a minority shareholder in the project. DML estimates that if the partners raise $150 million, they can raise the rest of the money from bank debt. They propose to use cash flows from the project as collateral.

The 100 Km long Dar-Chalinze toll road is a section of the Arterial Morogoro road. This is a very busy section of the A7 highway that carries traffic to central and southern Tanzania and the neigbouring countries such as Zambia, Rwanda, Burundi, Congo, and Malawi where Dar is a key port.  The road design proposes to build three laneson a 50KM long stretch from Dar-es-salaam.The other 50Km to Chalinze will be two lanes.
 Chalinze is the junction town where Morogoro road connects to Tanga road A14 which serves the port town of Tanga and Mombasa Kenya.  Tanga road in turn links to B1 to Moshi which also links to A104 to Arusha and on to Kenya via Namanga. In effect the toll road fronts a pretty rich catchment area. 

According to informed sources and documents seen by this publication, an estimated 70 per cent of freight landing in Dar-Es-salaam Port is shipped through the toll road.  This suggests that the road has a heavy traffic of heavy trucks.  DML agrees suggesting that 70 per cent of the traffic is cargo hauling trucks.

The second largest population is buses since all buses to Kenya, Central Tanzania and neighbouring countries such as Zambia ply this road. Cars, SUVs and   Light trucks also form a significant proportion of the motor population.

Thika superhighway in Kenya. To be a toll road
The proposal to build the project on a PPP basis-if it succeeds-bucks the trend in both Tanzania and other east Africa countries. The trend is for governments to build a project using public funds or third party debt, then concession the complete project –be it roads, railways and power stations – to the private sector to toll and maintain.

This is the business model to be applied on the Kigamboni Bridge. The $135million project is funded by the government of Tanzania 40 per cent and the National Social Security Fund 60 per cent. This is the model commonly applied in east Africa especially in roads and power projects. It is also the model being applied on Thika super highway and Menengai Geothermal power wells in Kenya.

The argument has been that investors do not have the stomach for the risk involved in large initial sunk capital. It is a slow, tedious and frustrating model if the case of Lake Turkana wind power project is anything to go by. If this European partnership succeeds, it will be bucking this trend and also the conventional wisdom.

But why are Europeans- famous for being risk averse- taking this risk? The wisdom of One Time Cabinet Minister in Kenya is catching up with them. Five years ago, the Late John Michuki, then then Transport Minister, bluntly told a delegation of European investors that by the time all Laws protecting their investment are in place, there will nothing for them to invest in.

A mission statement by DML backs Michuki’s wisdom; the company, is lobbying European contractors and the EU to support a financial product that will enable European companies to “compete head-on- with Chinese state funded contractors for infrastructure projects in Africa.” It adds, a financial product it is proposing could “profoundly change the geopolitical strategy of Europe. Group DML is 100% convinced that the major chances for European economic growth lay in Europe's front yard, namely AFRICA and nowhere else.”

The desire to roll back Chinese influence in Africa has aroused Europeans out of their slumber forcing them to stomach high risk capital investments in Africa.  But the speed at which they raise the funds necessary for the projects on offer will determine how soon European companies can stand up to Chinese contractors in Africa.

Wednesday, 12 December 2012

Nairobi Securities Exchange tops the world

Activity at the NSE, Kenya

THE NAIROBI SECURITIES EXCHANGE led five other African bourses to top the charts as world top performing securities exchanges, we can report. the best performing Analysts, among them, investing in Africa, www.investinginafrica.net  show that by the year ending November 30th, 2012, African boasted of the six best performing bourses in terms of dollar dominated index.

The six are; Nairobi Stock exchange, Nigeria stock exchange, Zimbabwe industrials, Uganda securities exchange, BVRM, and Ghana stock Exchanges in that order.

The Nairobi securities exchange topped the pack posting 46.3 per cent return in dollar terms. Nairobi is capitalized at US$1.2 billion. The Nigeria Stock Exchange, capitalized at US$5.5 billion was second posting a 42 per cent return as at the end of November. The investing in Africa report is backed by reports from the bourses themselves. The Nigeria Stock Exchange shows that Market capitalization grew by 129 percent to US5.5 billion in November from US$4.23 billion in January. Index rose to 26,336.7 in November from 20,657 in January 2012.

The value of traded stocks at the Nairobi Stock Exchange rose 312 per cent from US42.2 million to US$130 million while volumes rose 261 per cent to 917 million at the end of November.
An index measures the change in value of a group of stocks over a defined period, usually, a year. Going by this measure, several bourses in Africa out performed bourses in the West. The S&P 500 posted a 12.6 per cent return.

Other good performers were Zimbabwe Industrials 28 per cent; Uganda Securities exchange 26per cent; BVRM 17.6 per cent and Ghana Stock exchange 16.7 per cent. Johannesburg Stock Exchange, the largest bourse in Africa posted 5.6 per cent return. The bourse became a victim of wild cat strikes in the mining sector. Some of the affected companies are listed at the JSE.

Ironically, at the opening of the year, the bourses were all in negative territory.  The Nairobi securities exchange, the leading performer, was 33.30 per cent in the negative territory. And so was the Nigeria securities exchange, which was 26 per cent in the negative territory. Others in the negative territory included; the Uganda stock exchange (34.4 per cent), Zimbabwe industrial (9.32 per cent).

 However, the turnaround began at the end of last year, though in tiny dosages. The Nairobi stock Exchange, in a monthly review of the markets performance, attributes to the change in fortunes a return of investors- both domestic and foreign into the bourse.

The African capital market was adversely affected by high oil prices in 2011 which led to increased inflationary pressures and weakened domestic currencies.

The melt down in Europe, also played a role: There was a stampede out of the African capital market in the second half of 2011 on fears of making loses by fund Managers. However, towards the end of the year, they began trickling back.

Data available shows that the foreign desk in the Nairobi Securities exchange is very active. By August 2012, says the Nairobi Securities exchange. Foreign investors hit 48.9 per cent of all investors in the bourse.
The good performance by African bourses, analysts say, is a result of political and economic reforms, favorable external environment, strong Commodity prices, relatively low interest rates, strong earnings by listed companies and attractive valuations of some scripts
The second reason: economic growth. Over the past decade six of the world’s ten fastest-growing countries were African, says the Economist. “In eight of the past ten years, Africa has grown faster than East Asia, including Japan. This growth has added another 60 million to Africa’s middle class whose per capita is $3,000. This number is expected to rise to 100 million in 2015, says the Economist. This has increased local consumption making local manufacturers and other listed firms profitable and attractive to investors.

Tuesday, 4 December 2012

Is Nairobi Commuter rail service sustainable?

The commuter train service:a 30 year concession
ALTHOUGH PESSIMISTS DOUBT the survival of the Nairobi commuter rail service, an analysis of business variables tells the opposite story -the project is viable and sustainable. In fact, it could turn out a money spinner. The operation of the service will be in the private sector’s hands for an estimated 30 years concession. 

Sentiment and necessity favour rail transport which is clean in terms of pollution, transports many people and is relatively safe and affordable.

Commuter Rail service world-wide are geared to ease traffic jams in cities by persuading motorists to leave their cars at home and ride the train. They are thus designed to be faster-reliable –safer and affordable alternative to cars. Therefore passenger car traffic on the competing roads is critical inputs in assessing the viability of a commuter rail service.
Studies show that the proposed commuter rail routes are on heavily trafficked roads in the city. Traffic Population surveys show that Jogoo road and Mombasa roads boast of the highest population of motor vehicles per day in the city.

The same study also shows that cars dominate the roads in the city. Mombasa road has the highest population of cars at 78 per cent. On Jogoo road, says the study, cars form 55 per cent of the traffic population.  Cars generally carry no more than driver. Consequently traffic snarl-ups on these roads are chronic.
Traffic snarl up on Mombasa road

The commuter service will initially comprise of three modern inter-modal railway stations that consist of a huge parking space for cars and also a parking for passenger service vehicles. Makadara station off-jogoo road will boast of parking for 5000 cars; Imara Daima, designed to serve 2000 passengers will have a parking for 150 cars. While Syokimau Station, designed to sever 10,000passengers a day, will have a parking space for 2500 cars. 

The feather in the cap for the service is the high speed line serving JK International airport. The airport serves an estimated 6.5 million travelers and years and is still counting. By the time the Greenfield terminal at the airport is completed say, in 2020, the population of travelers through the airport will rise to 12 million and onwards to 20 million. The entire project is expected to serve an estimated 15 million passengers initially rising to 60 million passengers by the time the whole project is complete.

The initial service will comprise of six coaches each with a capacity of 200 passengers. That is 1200 per trip lasting just about 30 minutes or less. On the road, that trip can last up to 90 minutes according to Kenya Railways corporation’s estimates. It can go up to 120 minutes in some instances. That trip in the case of Syokimau station will cost US$1.5 one way. It could be more or less depending on the station. Parking will cost another US$2.4 per day. It is not clear what Nairobi CR’s IRR is. However, similar services elsewhere in the world operating in similar circumstance have an IRR of 15-20 per cent.

Despite what seems like exorbitant cost, motorists will save big, providing them with an incentive to leave their cars home and take a ride. Currently, motorists waste up to two litres of fuel in traffic jams one way. For commuters to and from work, that is four litres wasted a day. At the current price per litre, motorists waste up to $6.7 worth of fuel a day. At the CBD, Parking costs US$1.65 a day and it could take up to an hour of waiting for a parking space.

 So motorists spend an estimated US$8.35 a day on vehicles operations. If we factor in the waiting time for a parking space, we are talking about $20 worth wasted on traffic jams in the city per day, or a whole $600 a month. This is what Motorists will save themselves by riding a train to the CBD a month.

The service provider will also make a killing. According to its MD of the corporation Nduva Muli, a single round trip costs $1766. At the current prices, a round trip earns $2824 at full capacity. The break- even level is 756 passengers. These passenger numbers are available in the market. The conclusion then is that the commuter service is viable and profitable.  The corporation plans to operate five round trips a day, generating US$14,120 revenue per day. 

This analysis assumes away the parking fees per day which stands at US$2.4 per car pay day. The implication here is even the leans trips will be underwritten by parking fees.
As for traffic jam, the train will remove 1200 vehicles from the road one way. This means that a round trip will remove are 3500 per hour. With 2400 eliminated per day, only 1100 PCUs are left on the road increasing cruising speed to almost 60KM per hour on Mombasa road and Jogoo road. It will also reduce air pollution in the affected areas.

Friday, 30 November 2012

Nairobi elevated Road: an eyesore - architect

The Nairobi elevated road:facing intense criticism
 A MONTH BACK, we ran an article questioning the viability of the elevated road over Nairobi's uhuru Highway.

 We have come across an article providing compelling aesthestic reasons for discarding the project. The article proposes that the funds be used to expand the Southern by-pass to 8 lanes. The article initially written as a letter to the PS ministry of Roads and public works, first appeared on a blog on urban planning in Nairobi from where we lifted it.

I would like to state my strong disapproval of the planned elevated highway over Uhuru Highway.

On the face of it, the elevated highway might look like a very good thing to build. Unfortunately the environmental and social impact assessment study carried out for NUTRIP did not include in the team or consult, architects and town planners. If the study team had included them, they would have told the roads ministry or at least written in their report that the elevated highway at the suggested road section is the worst possible place to build one.

I am appealing to you to reconsider building the elevated highway by considering a shift from infrastructure that enhances “automobility” to infrastructure that enhances public amenities and quality of urban living (“liveability”). Only 25% of Nairobi’s traffic is generated by personal cars. A refocusing of the infrastructure will be a reasonable and an acceptable thing to do for this particular location. As the elevated highway is right next to a park, this makes it even easier to focus on the public amenities.

In most major cities worldwide you would normally not drive straight through the city centre if you are driving from one end of the city to the other. In New York for example, to drive to New Jersey from JFK International Airport, you drive round the city and not straight through Manhattan. It is not impossible but it just takes more time. It is also not possible to drive through the city centre on a major highway in either London, Munich, Paris, Berlin, Rome etc.

In many urban situations, elevated highways become “Chinese Walls” that divide urban communities and create unpleasant and poorly kept environments. An elevated highway creates a virtual barrier which most residents below it will not cross. As a result, city planners avoid them. I have personally experienced the poorly kept environments underneath elevated highways in African cities like Cairo (6th of October Bridge), Luxor and Lagos. Our road planners must be looking at elevated highways in Dubai, China and Malaysia as examples.

 Unfortunately, these Asian examples do not reflect our lifestyle or way of living. The Lagos and Cairo story are a better reflection of our living culture. Using the Asian countries as yardsticks makes my heart bleed for the heart of the city which will be virtually cut off from Uhuru park. As an example of our living culture, I cite the hawkers located in the middle island of the new Thika Superhighway as something that will need to be processed out of Kenyan citizen behaviour. Policing will not stop such behaviour.
Uhuru Park its beauty to be negated by the "chinese wall"

Another effect of elevated highways is that they destroy the neighbourhood or city fabric and cause a decrease in real estate values. This can be clearly witnessed in Boston where the inner core was impacted in the 1950s by a six-lane elevated highway that caused the destruction of neighbourhoods and lowered property values along its path. Please do not compare the effect of Thika Road to surrounding parcels of land to Uhuru highway. When a new highway is built, the initial impact on the land next to the highway is it appreciates in value, especially where there is “nothing” next to it. Build an elevated highway on an existing highway next to established properties and the effect is exactly the opposite. Property values drop considerably to the extent that some buildings get abandoned.

 Did the study team ask the Intercontinental Hotel how they feel about having guests in their swimming pool while cars whiz by on an elevated highway a few metres away? What of the Standard Chartered bank who have just moved away from the CBD to a new Headquarters in Westlands which will now be overlooking an elevated highway? Or the historical Synagogue and the Kenya Broadcasting Corporation about securing their premises now that an elevated highway will be built right next to them?

Another major problem is getting on and off the elevated highway will become unmanageable as more traffic will tend to use the “express way” than drive underneath it. Lagos is famous for such traffic jams. This has led to many cities pulling down the elevated highways. Without question, the boldest and most dramatic elevated highway removal to date has been Seoul, Korea’s Cheong Gye Cheon (CGC) project. The mayor defended the project on the grounds: “we want to make a city where people come first, not cars”.

The dilemma here is that highways are important for economic development of a metropolitan area and the surrounding regions. On the other hand the “liveability” of cities is important to attracting professional-class workers to reside in or close to the city centre. What then can be done to balance the two seemingly opposing views?

A question I ask myself is, why glorify the thoroughfare in Nairobi CBD by building an elevated highway specifically for them? My suggested solution to this issue would be to use the money allocated for the elevated highway to buy land adjoining the Southern Bypass and use it to add lanes to the bypass. There is no reason why the Southern Bypass cannot be a 8 lane highway to be used as the onward route for thoroughfare traffic. This way traffic driving through the city does not need to pass through the CBD thus reducing the amount of traffic on Uhuru Highway by a large number of slow moving trucks.

My prediction for the elevated highway is that once built 25-30 years later, after the loan taken for its construction has been repaid, the elected Nairobi County governor of the time will tear down the elevated highway in a bid to draw back people to the CBD since everyone will have moved to the new TATU and KONZA satellite cities. If Seoul is something to go by, the governor will be celebrated for doing something positive for the city. The fact is, a ground level boulevard is more appealing to the eye.
For other comments on the project please http://nairobiplanninginnovations.com

Monday, 26 November 2012

Tanzania to exploit geothermal power capacity

TANZANIA, EAST AFRICA'S second largest economy,  has turned to geothermal power to meet the increasing demand for power in the country.  Power shortages are a mill on the country economic progress. The country will drill its first geothermal power wells in Mbeya next year.

Ol Karia wells: Africa's leading geothermal wells
The country has the potential to generate some 650 MW of geothermal power.  However, it will start with 200 MW implemented in two phases. The first phase will produce 100 MW or 12.5 per cent of the country’s power output by 2016. The second phase, which starts in 2015, will load another 100 MW to the national grid by 2018.

It costs an estimated US$2 00 million to develop a 100 MW geothermal plant at current prices. Therefore to develop the first 200 MW will cost an estimated US$400 million. This means that for Tanzania to develop its full potential it will require more than US$1.2 billion.

Already she has applied for a total of US$50 million from the AfDB to finance the project. The funds, we have reliably learnt will be approved by February next year.

Tanzania currently produces an estimated 800 MW, way below power demand, which is expected to reach 1 583 MW by 2015. Her major source of power is hydro vulnerable to erratic weather However she is looking at developing a mix of power generation sources. Apart from hydro, and geothermal the country is also looking at producing power from natural gas following big discoveries offshore. Other sources to be developed simultaneous with the geothermal sources are wind and solar sources.

 Tanzania is the second African country to exploit geothermal power after Kenya. Kenya is the giant in Africa in exploiting geothermal power to meet domestic demand. To date she generates more than 150 MW of geothermal power but expects to raise this capacity to more than 1,000 MW by 2016. Kenya estimated potential is 10.000 MW of geothermal power. Sources indicate that there's a  huge undiscovered potential in Tanzania.

Signs that Tanzania was considering exploiting geothermal energy emerged in early September when the Tanzanian Pre3sident, Jakaya Kikwete, visited Kenya and spent time visiting the Ol karia Geothermal wells.
Geothermal energy is the natural heat stored within the earth’s crust. The energy is manifested on the earth’s surface in the form of fumaroles, hot springs and hot and altered grounds. To extract this energy, wells are drilled to tap steam and water at high temperatures (250-350°C) and pressures (600-1200 PSI) at depths of 1-3 km. For electricity generation, the steam is piped to a turbine, which rotates a generator to produce electrical energy.

Monday, 19 November 2012

East Africa bracing for M&As in oil sector

An oil pipeline: Critical infrastructure in oil marketing
THE FLURRY OF discoveries of hydrocarbons in the eastern Africa coast has changed the game for explorers. It is no longer a juniors market. The countries are no longer pleading with explorers to explore for hydrocarbons in the territory. The existence of viable quantities is a confirmed fact and therefore the rules of engagement are changing.
The discoveries have spawned demand for infrastructure that does not exist in the region. Yet the infrastructure is a necessary component in oil marketing.  We are talking about export terminals, pipelines, marine terminals and offshore mooring facilities. Such investments require deep pockets, a preserve of the seniors in the sector.

In Mozambique, LNG refining and transport infrastructure will require around $20 billion in investment. In Madagascar, reports oilprice.com, the same infrastructure requires US$1.5 billion. South Sudan estimates that  a 2000KM pipeline from its wells to the Lamu Port in Kenya will cost some US$4 billion. Uganda, it is estimated, will invest an estimated US$10 billion on the same infrastructure.

Tanzania will invest some US$1.1 billion to build a gas transportation pipeline from Songo Songo wells to Dar-Es-salaam, the capital city. Kenya on the other hand will invest US$8.1 billion to construct a standard gauge Railway line from the Port of Lamu to Juba in South Sudan.
An offshore Oil rig

However, to the relief of South Sudan and her neighbours Uganda and Kenya, Toyota Tsusho, the investment arm of the Toyota Corporation, has bid US$3 billion to build the Juba-Lamu Port pipeline which could be upgraded to US$5 billion if it is extended to Uganda and Ethiopia. 

These increased demands place the juniors between a rock and a hard place. They do not have the financial muscle to meet these demands and yet they want to benefit from their sweat. Oil juniors, reports the oil intelligence, Oilprice.com www.oilprice.com , are finding difficult meeting   their contractual obligation.

These developments point to only one direction, Mergers and Acquisitions in the sector. The first volley in this direction was shot by Thailand’s PTT E&P. The firm paid some US$1.9 billion to takeover of Cove Energy Plc. PTTE&P had outbid Shell/BP by more than $300 million.  But it is expected that Shell/BP will seek another suitor.

This acquisition gave PTT Exploration and Production exposure to the giant offshore discoveries made in East Africa in the past year. The region is emerging as a future LNG and crude oil giant and is well-situated to export into Asia.

Cove owns an 8.5 percent stake in a Mozambique license in the Rovuma offshore basin containing gas discoveries that could be a major provider of liquefied natural gas (LNG) to energy-starved Asia. She also has a 10 per cent stake in Ruvuma offshore. In Kenya, Cove Energy Plc. has a 10 per cent in offshore area 1.5; 10 per cent in 17; 25 per cent in 1.10A; 15 per cent in1.10B and a 10 per cent in 1.11A.

Apart from demand for infrastructure, governments are looking to gain from their resources thus raising fees. They are also looking to attract the seniors who have the financial muscle to invest in upstream and downstream infrastructure.

Tuesday, 13 November 2012

Watch out for lavish development projects

Railway Lines substitutes roads transport
CHINA IS FIRMLY ESTABLISHED as a leading development partner for Africa. This development has jolted development partners in the West who are adopting China’s no frills business model, so popular with Africa. 

This competition is opening up the purse strings as never before. Development aid is flowing to Africa in fast and furious manner. This is a good thing. It is also risky and dangerous.  

The danger is; as China takes the front seat in development of Africa, others, especially the West,”will want to catch up.” Herein lies the danger: in a bid to catch some financiers may drop their guard, funding any project that comes their way.  It also some professional excited about availability of funds, could easily come up with grandiose projects.

That Africa needs huge investment in solid infrastructure is not in doubt. The continent needs roads, railway lines, sea ports to open up itself for trade and development. In fact, the short cut to increased and sustainable intra-Africa trade is through transport infrastructure.

But Africa’s agenda must be clearly defined and strictly adhered to avoid wastage.  There should be no “room for catch-up financiers.” Those that feel left out and want to be relevant in Africa.

Development projects are fit in three categories,  either complementary,  vertical progression or substitutes.

Mombasa Southern by pas: Complements Port exapnsion
In vertical progression, the completion of one phase leads to another. For instance, drilling of Ports to deepen them is followed by expansion of the Port’s facilities such as terminal to accommodate increased output. Expansion of airport termini will lead to demand for additional runways, parking lots and taxi-ways.

Complementary projects are projects that support the efficiency of a development project but are not exclusively for use by the previous project. For instance a wider road serving a sea port is complementary in that it eases traffic flow from the Port but it also used by other motorist who perhaps have no business at the Port.  

The Southern by-pass in Mombasa is a complementary project of the Mombasa Port. But the Kipevu link road, which originates from the Port linking it to the by-pass, is a vertical project. The link shall be exclusively used for Port operations. Railway lines linking the Port to the main Kenya-Uganda line are vertical projects. But the main line is a complementary line.

The upgrading of the Lunatic express –the Kenya –Uganda Railway to standard  gauge is substitutive in that it plans  much of freight cargo from the Mombasa Port to in land destination from roads to rail transport. The urban Railways commuters services are  similarly substitutive in that they  will transfer much of passenger traffic from road to rail.

It is on the basis of complementarity and verticality or substitutability that projects should be evaluated. And it is on this basis that questions are being voiced over the the proposed Nairobi 50Km Nairobi double -decker road. There are conflicting reports over where the road begins and where it will end. It is also not clear whether the road is a PPP project or it is a public project.

Initial reports indicated that the viaduct will begin at St. James junction near South C estate. However, other reports indicate it shall be extended to Embakasi Junction, five Kilometres away. Whatever the case, the road is justified on the basis of easing congestion on the Mombasa road/Uhuru highway and the Nairobi CBD.

At this point question arise. The Nairobi southern by-pass already under construction will divert unnecessary traffic from the CBD. It will originate from Mombasa road at the St. James junction and connect Nakuru highway at Rironi in Kiambu County, more than 30 KM away.

In addition, a Railway commuter service is already in advanced stages of development. A contract is out for a construction of a 5KM line and a Railway station at the JKI airport.  The Major link station, the Syokimau Railway station is already complete and is due for commissioning this week. 

  According to Kenya railways Officials, the JKIA- city centre route will be served by two high speed trains each drawing six coaches wagons. Trains have a capacity of carrying 1200 passengers on a  20-minute trip from the Airport to the CBD.

Studies show that, the dominant vehicle mode are cars followed by 14 seater- public service vehicles. These are generally low density vehicles. The studies show that most motorists would leave their cars at home if provided with a reliable and safe mode of transport. A commuter train fits the bill.

The trains will carry 1200 passengers per trip.  This would remove at least 200 vehicles from the road per trip. Since Mombasa road traffic density is just about 3000 vehicles per hour, the commuter train will eliminate about 500 vehicles per hour. Given that the Southern- by pass will divert an estimated 100 vehicles or more per hour, then the double decker road becomes a white elephant.

 It may never reach its design capacity at all. Documents seen by this publication show some doubt regarding the viability of the project. It says that the government will not charge license fees until the project’s IRR has reached 23 per cent.
As Kenya Railways extends commuter services to the southern suburbs of Ngong,  Rongai and adjoin areas. Traffic on Langata road will also ease. The effect will be the same once the services are extended to the Western suburbs of Kikuyu, Westlands and adjoining areas.
Investment in the double decker road beats the  sacrifice logic. While we save and invest so that we can enjoy more and better goods and services in future, the World Bank funded project does not fit the bill. We may be stuck with a US$250 million white elephant in future. 

Tuesday, 6 November 2012

Mombasa's Expansion to Mega Port begins in December

The container terminal at the Mombasa Port 

THE EXPANSION of the Mombasa port into a mega port will begin in December 2012, we have reliably learnt. The expansion brings to a close the Port’s US$ 320 million development project that began last year. 

 The project is funded by the Kenya government jointly with the Japanese International Co-operation Agency,JICA. 

The first phase of the development project included the dredging of the port to a depth of 15 Metres. It also widened the Likoni Channel from 250 Meters to more than 300 meters, while the turning basin was widened to 600 meters. 

This phase cost US$62 million and was completed in 18 months. Its completion enabled the Port to receive the largest sea freighters in the market.

The second phase which involves construction of three berths with a straight-line quay of 900 meters, reclamation of 100 hectares of land, second container terminal with a capacity of one million TEUs, reclamation of 100 acres of land, construction of a 5KM link road to Mombasa southern by-pass and a Railway line.  At the end of the two-years US$200 million project, the Mombasa Port will have a capacity of 1.25 Million TEUs. 

The Mombasa port, which is the hub of shipping business in east and central Africa, has come under intense pressure to expand in the recent past due to robust economic growth in the region and also changes in vessel sizes. 

Robust economic growth both in Kenya and among her landlocked neighbours such as Uganda, Rwanda, Burundi and South Sudan generated increased demand for imports and exports through the port.

This increase in demand has stretched facilities at the port to the snapping point. The container terminal, build in 1980 to handle just 250,000 TEUs a year found itself  handling some 695,000 TEUs in 2010.  That was three times beyond its capacity. This resulted in unwarranted delays in cargo discharge and the associated costs. Being the gateway to east Africa, congestion at the port increased the cost of doing business in the region.

The second   source of pressure for the port was advance in construction of freighters. In order to minimize average costs, shipping Lines were investing in large capacity vessels.  In 1996, says an analysis by the Kenya Ports Authority which is in charge of all ports in Kenya, the largest vessel had a capacity of 4000 TEUs. This grew progressively to 11,000 TEUs in 2011 and is projected to rise to 20,000 TEUs by 2020.
A prototype of Mombasa southern by pass

This growth in large vessels put pressure on major ports in Africa to invest in capacity expansion. The Mombasa Port was no exception. The expansion project that will be completed by the end of 2014 will ensure that Mombasa retains its positions as a mega port in Africa. 

At the moment all- post panamax vessels can easily be accommodated at the port. These are vessels that are up to 350 metres long and have a larger loading capacity.

Apart from building facilities at the port, JICA is also funding  complementary logistical projects around the port. Although they are not part of the port expansion project, they will ensure its efficient operation.

These include the proposed  US$300 million Mombasa southern by pass on the South Coast linking the Nairobi high way at Miritini, 19 KM away.  The Port itself will be linked to the by-pass by the 5-KM Kipevu link road thus transferring the freight trucks to the by-pass and hence decongest the City of Mombasa. Construction of the by-pass is expected to start early next year.

In addition, Kenya is upgrading the 1,300KM lunatic express, the Kenya –Uganda railway to standard gauge with funding from China. The five-year upgrade project will be launched towards the end of this year.

The upgrade will raise train speeds to 120KM per hour for Cargo and 80 Km per hour for passenger trains. The idea is for the railway line to reclaim its past glory when it used to be a transport mode of choice for passengers and freight in the region. Lack of rail transport is a major cause of congestion at the Port of Mombasa.  Please go to.http://eaers.blogspot.com/2012/10/kenya-to-begin-us24-bn-railway-upgrade.html

Tuesday, 30 October 2012

Is Nairobi's double decker road sustainable?

The elevated uhuru Highway 

THE GOVERNMENT OF KENYA plans to construct a 12Km over-pass over Uhuru Highway at a cost of US$200m. The World Bank funded project, will also include building by-passes in Kisumu city and Meru town. 

The two by passes will cost an estimated US$60 million.Therefore the entire project will cost US$260 million of which the Kenya government must raise 20 per cent or US$52 million. Other components of the project include construction of an additional Lane from Nairobi West lands suburb to Rironi in Kiambu County. It will also include service roads.

The project is variously justified as a solution to congestion on the Northern corridor and as a panacea to slow movement of traffic between JKIA and its customers to the West of Nairobi.  And critics have raised the red flag wondering if the road is necessary now or in the next 15 to 20 years.  The critics have a point as there are other on-going transport infrastructure developments in the city that aim to ease congestion in the CBD.

The on-going projects especially the Southern by-pass and the construction of a rail link from the Airport to the city are also designed to ease traffic congestion in the city.
 The US$235 million Southern by-pass now under construction ill divert all traffic towards western Kenya from Mombasa side from Uhuru highway. 

 The 49 KM road links Mombasa road at St. James Hospital and terminates at Rironi where it joins the Nakuru road.  Further, the by-pass has a direct link road to Waiyaki way at Westlands from Kileleshwa estate.

In effect, on completion of the Southern by pass, Uhuru highway in whatever form will not be part of the Northern Corridor.

In addition, the  Kenya Railways Corporation  has advertised for a contractor to build a 7Km railway line linking Jomo Kenya Airport with the city as part of the greater Nairobi commuter rail service. 

 The building of the line will enable a high frequency, high speed train service that will cut travel time from the airport to the city center to 20 minutes from the current 90 minutes .

The project will include construction of inter-modal exchange for passenger traffic from Athi River and outlying areas. This means that the stations will also include a bus park and a a parking bay for private cars. Even car-owners can leave their cars parked at the Railway station, board a train to the CBD. Already the Syokimau station through which the line from the airport will pass is in place.

The total sum effect of these developments is to reduce traffic congestion in the city and also de-congest Mombasa road/Uhuru highway. This leads to the question: can the double decker road be sustained? In other words, will there be enough traffic to use the elevated road to justify the large investment?

JKIA Railway Line: To cut travel time to less than 20 minutes
Supporters of the project say yes. Critics differ. A road is sustained by demand, that is, by the number of vehicles that use it. The optimum demand for a single lane road is 1350 cars per hour both ways, working to about 18000 cars per 13-hour day.

  That Uhuru high way / Mombasa roads which are six lane affairs are congested means that the current usage is more than 3300 vehicles per hour both ways. Estimates put the traffic load per day on these roads are about 150,000 especially at peak hours. They are stretched thin hence the need for expansion of the road.  

A traffic count in 2004 established that 73.7 per cent of the traffic on Uhuru high way at Museum Hill was private cars. The same study established that cars comprised 77.7 per cent of vehicle population on the same highway at the Mombasa road. It is expected that the composition of vehicle population has not changed.

The southern-by pass was initially slated to be a toll road. Studies indicate that for a trunk road to be profitable it must have 13-hour traffic not below 20,000 vehicles. So we can safely assume that an estimated 18,000 vehicles will divert to the by-pass. The figure could be high given that the road cuts through the leafy areas of the city. It cuts through Ngong road, Hurlingham road and Westlands and adjoining estates. This means that the by-pass would ease traffic also on other intersections of the city.

Syokimau Railway Station: an inter-modal  station
  Critics also point out that the creation of Bus rapid Transport, which like the railway line is also a mass transit system, would reduce further the number of vehicles plying the city streets and hence the demand for roads. Consequently, they argue the elevated road project should wait for effect of the on- going infrastructure developments on traffic to be felt so that the need for another road is evaluated.  They say that the money would have been well spent in the construction of Outer-ring road that links Thika Superhighway to Industrial area and the Airport.

The critics caution against saddling Kenyan with debts for unsustainable projects. With the changing geo-political set up, Kenya is now well placed to attract funding for development project.  The east-West Rivalry on Africa has ensured that development finance is easily available. Kenya must leverage this advantage to develop useful projects.

One way of doing this, critics say is to evaluate the project on commercial lines to see if it is viable. If the price is not sustainable, then the project is not sustainable either.

Monday, 22 October 2012

Kenya’s housing sector to remain vibrant till 2030 says govt.

Impression of proposed Tatu City

THE KENYAN HOUSING MARKET IS booming. And it will remain vibrant until 2030 when supply equal demand official estimates show. Consequently, the sector appears to shrug off economic shocks such high interest rates. Demand for credit by the sector is up while consumption of Cement, another measure of the health of the sector, is also up. 

According to the central Bank of Kenya, credit to the sector in the year to June 2012, rose by US$385 million, second only to trade. And more is yet to come, say developers.

What drives the growth? Several factors combined.  Among these is the policy shift and legal reforms in the housing sector; high unmet and growing demand, economic growth in Kenya, the growth of the middle class, increased investment by Kenyans in the diaspora, construction of major roads in the country and foreign investment in the property market.

 Years of neglect and cirrhotic economic growth during the Moi era (1978-2002) resulted in a huge deficit for housing. While demand stood 150,000 units a year, supply hardly exceeded 30,000 units a year. The resulting deficit pushed the price of housing up, making it a lucrative business venture. But the sector was still closed by policy and legal hurdles.

Among the hurdles was the law which recognized land titles. This meant that flats were not recognized as property for legal and financial purposes. The law was amended so that a flat was recognized as property which could be titled individually. That amendment led to growth apartment blocks on plots that used to hold a single family unit.

This reform coupled with the policy shift opened the way for investors develop apartment blocks given the high cost of land. This shift to Vertical growth was welcome as the rapid economic growth in 2003-2007spawned a high demand for housing units.

Further, the construction, expansion or rehabilitation of major roads around Nairobi opened up the city’s suburbs for housing development. Nairobi is facing a major shortage of Land to build houses. This led to outward movement to the suburbs of the city such as Athi River, Kitengela and along Thika road.  Goods roads also contributed to the outward expansion as the driving time to the city was reduced by smooth roads. This growth will be spurred further by development of exclusive communities such as the Konza Techno-city

Even then, the demand for housing is still way beyond supply. The stock of new units has grown to just about 50,000 units a years while demand is still 150,000. Consequently, the return on investment in housing is very high, in the range of 30-40 per cent, official sources say.  The price of a house, industry players estimate, comprises of a 15-25 per cent shortage premium.

This is why demand for credit by the housing sectors was not stymied by high interest rates witnessed for over the last two years. Developers continued borrow to complete projects.  Credit to the housing sector says the Central Bank of Kenya, monthly economic reports shot up US$385million in the year to June 2012.
The government estimates that supply for housing will equal demand by 2030. That means that over the next 18 years, the housing sector will continue to boom.  Last year, the sector grew by 10.7 per cent  while other sectors were depressed. And this growth is expected to continue vibrant. Developers will continue to reap a windfall.

It is this windfall that is attracting developers and financiers, both domestic and foreign into the sector.  Despite high interest rates in the last two years, the industry has remained vibrant, because the newly rich Kenyans want to own houses. That is why mortgage houses are doing a booming business. Even commercial banks have joined the fray. Normally banks shy away from lending long-term especially mortgage houses. However, foresighted banks raised millions of US dollars in fixed rate bonds to finance housing mortgages.

 Key players in the sector include commercial banks, Building Societies, Housing Finance Corporation and Savings and Credit Co-operative Societies (SACCOs).  The Saccos are very aggressive players who mobilize resources from their Membership, build homes for them and then move onto other project. Some of the SACCOs are quite popular with Kenyans in the diaspora through who they invest in the local housing sector. Kenyans in the diaspora remit home an estimated US$800 million a year a large chunk of which goes to housing sector.

Nairobi Business Park
 Local institutional investors have also jumped into the fray. Renaissance Capital is developing a US$3 billion Tatu City along Thika superhighway. The city will hold 75,000 people. The local social security fund, NSSF is also planning to build a similar city in Athi River, 30 KM south west of Nairobi. It will host 30,000 people. It is not clear how much the city will cost but the US$7 billion Konza techno city is not far from the proposed city in Athi River.

 Apart from residential units, the commercial building sector is also attracting investment. Among the developments include the proposed Railways cities in Mombasa, Nairobi and Kisumu. These will be joint-ventures between Kenya Railways Corporation and private developers.  The three proposed cities will cost US$2.4 billion. Among the developments will be five-Star hotels, an industrial park, modern Railways stations recreational areas.

Other investors of note in the commercial development segment include the London based London- private equity fund Actis  which is developing  the Nairobi Business Park project along Ngong Road in Nairobi.

The U$220 million development, which will comprise five office blocks, will create 15,000 square metres of commercial floor space upon completion in mid or late next year. This development is the second Phase of the Business Park, the first phase in the same location created some 8,000 square metres of floor space. This was taken up by Multinationals that have entered the African market but have chosen Kenya as their hub. As more Multinationals set up shop in Kenya, demand for accommodation rises.

Monday, 15 October 2012

Power plant lights up Uganda’s future

An aerial view of Bujagali

THE CONTROVERSIAL Bujagali hydropower station in Uganda has been commissioned and is now on the grid. It loads an additional 250 MW on the national grid effectively doubling the power generation capacity in the country. 

This development is a sigh of relief for Ugandans in several ways:  it eliminates expensive thermal power; It releases some US$9.5 million in electricity subsidies to the exchequer;  it eliminates load shedding and brightens prospects for economic growth.

 For Ugandan President, Yoweri Museveni, who launched the dam, it was a vindication that tenacity pays. He had the last laugh over opposition to the project!

The project Uganda was dogged by controversy, some of it crass.  Mooted in 1990s, Bujagali immediately faced all sorts of opposition from donors and their cohorts in the civil society sector-that at a time when the country experienced 12 hour loading shedding due to drought.

 Activists and foreign donors argued that the project was not development effective –whatever that meant.  Others cited corruption in the government and such crass.  Critics argued that the project was not the least cost option for it failed to factor in “costs due to losses in tourism, environmental quality, culture and spirituality as well as socio-economic and socio-political stability.”

They argued that Karuma hydro was cheaper for it was “not environmentally, socially and culturally destructive. Further the Karuma dam’s electricity will be cheaper.”
Eventually, donors, led by the World Bank’s IFC pulled out of the project, effectively killing it. The local civic society gloated celebrating what they thought was the death of Bujjagali. Then in 2006, the Uganda government decided it will finance the project from domestic sources.

Ugandan motorists were to pay an additional UGx100 (then US$0.02) to finance the project. A frustrated President Museveni- in a show of his resolve to build the project- gave the diplomatic community a dressing down from the floor of Parliament.  His conclusion: “we shall fund the project from domestic resources and foreigners should keep off.”
A month later, IFC approved the US$320 Million loan thus unlocking funding to the project whose construction began a year later.  This raised eyebrows in Kampala and the East Africa, Such inconsistency on the financier community put to question their objectivity.

Back to Bujagali. The US$900 million project was built in five -50 MW units by Industrial promotion services, IPS, an infrastructure development arm of the Agha Khan Foundation.
The foundation and its affiliates invested some US$200 million in the project while the rest was sourced from IFC, AfDB, KfW and the Barclays Bank, Uganda media reports say.It 

The Plant During Construction
 Now, seven years down the road, it is fully operational. Bujagali will supply 49 per cent of the demand for Electricity in Uganda whose peak demand is now estimated to be more than 400MW. Demand is estimated to grow at 10 per cent a year. This means that Uganda must as soon as possible develop another source of power generation.

 Bujagali joins five other mini-hydro stations commissioned in Uganda in the recent past. The five combined supply 41MW to the national grid raising to 290MW the new power generation capacity in Uganda.  The availability of an additional 290MW, coupled with the output of the Owen Falls dam raise Uganda electricity generation capacity to more than 500MW. This is expected to spur economic growth in the country.

An analysis by the World Bank experts shows that lack of reliable power supply stifles economic growth in Uganda by 1.5 per cent. This means that with a reliable power supply, the economy could grow by an additional 1.5 per cent. The same report says that lack of electricity affects manufacturing productivity by 40 per cent leading to a 10 per cent loss in industrial output.

Without the additional sources of Power, the Ugandan economy has consistently grown at six per cent, the president was quoted as saying.  This means that availability of reliable and affordable power supply can jolt the GDP growth to 7.5 per cent. If we factor in the ripple effects of this growth, then Bujagali and co could unlock an additional 3.8 per cent growth rate.

All things considered then, the entry of Bujagali could see Uganda’s GDP growth rate hit more than 10 per cent. Given that Uganda’s population growth is 3.3 per cent, GDP per capita could rise to 6.0 per cent. Development is defined as a good life for the individual and a good society. Among the measures of a good life for the individual is the number of people lifted above the poverty line.  A positive per capita income is one measure of the effectiveness of development.

Critics have been shamed while the hand of the Uganda government has been strengthened.

Monday, 8 October 2012

Kenya to upgrade Railway Network for US$2.4 bn

KR Infrastructure to be upgraded
THE KENYA  RAILWAYS CORP.is to upgrade its 100 plus year-old narrow gauge rail network, replacing it with a modern standard gauge system. The ground breaking ceremony for the five-year project will be conducted before the end of the year, said the chairman of the Vision 2030 delivery Secretariat, Dr. James Mwangi. Dr. Mwangi is also the Chief executive of Equity Bank

The project involves building a 1300KM long Standard Gauge railway line from the Port city of Mombasa to Malaba border on the border with Uganda,. It will also have a branch to Kisumu city on the shores of Lake Victoria. The Uganda Railway line build in the last century by the colonial administration is in the Northern Transport Corridor in eastern Africa which serves several land-locked countries in the region. These are: Uganda, D R Congo, Rwanda, Burundi and South Sudan. In some instances, it also serves northern Tanzania and Somalia.

However, the ancient railway network has, over the years, been a major draw-back to economic progress in the region and a major cause of the high cost of transport in the region. The system is inefficient as its top speeds hardly exceed 50KM an hour. Consequently, passenger and freight transport have shifted to road transport, which is expensive and dangerous.

The Iron snake will run faster on wide gauge rail
The upgrade will raise train speeds to 120KM per hour for Cargo and 80 Km per hour for passenger trains. The idea is for the railway line to reclaim its past glory when it used to be the  transport mode of choice for passengers and freight in the region. Lack of rail transport is a major cause of congestion at the Port of Mombasa.

The port which is the gateway for five landlocked countries in addition to Kenya has a capacity for 20 million tons.  It now operates at almost full capacity having handled 19.93 Mt in 2011. Its container capacity is also stretched thin. Last year, it handled 711,000 TEUs. As result, the port is investing in capacity expansion, but its growth could be chocked by inefficient Railway and roads links to the hinterland.

 The investment in the modernization on the Northern corridor is therefore a critical input into the survival of the Port of Mombasa. Reliable sources have indicated that Uganda, which shares a common rail link with Kenya, is also considering upgrading its railway network in sync with Kenyan development.

 The upgrade to be built by the Chinese firm, China Road and Bridge Corporation, will cost a whopping US$2.35 billion and will last five years. It is funded by the Chinese government.

 Media reports in Kenya last week indicated that the Chinese have demanded that the new rail road be de-monopolized to allow more than one operator to transport Cargo and passengers on the network. Currently, a company called Rift Valley Railways, RVR, is the sole concessionaire on the network.

However, experts indicate that upgrading the rail network does not amount to breach of contract. They point out that RVR’s contract has survived because of the generosity of both Kenyan and Ugandan governments. The firm has not met any of its contractual benchmarks since it began operations in 2006.

Given that the firm was under –capitalized, it may not provide the level of services needed to support economic growth in the region.   The region, which is also becoming an oil producing region, is expected to post growth above 5.0 per cent into the near-future. This, coupled with the policy paradigm shift in Kenya calls for competition on the line.

Kenya has shifted its operations and maintenance policy towards making users pay for use of infrastructure. This will enable the country to maintain and operate roads and railroads and even servicing the debts incurred to build the infrastructure, with depending on the treasury.

 A  Feasibility study seen by this publication proposes that concessionaire on the proposed Lamu- Juba Railway line pay a lease charge of the track of US$343 million a year. This proposal implies that the line can be leased to multiple operators. It also implies that operators will be expected to bring in their own rolling stock.

The study suggests 78 trains will ply the Lamu-Juba Line per day- 74 freight trains and 4 passenger trains. Analysts say that, such a huge number of engines and wagons cannot be supplied by one operator. Multiple operators, each supplying their own stock are a viable option to support the expected robust growth in the region.

 A similar robust demand is also expected on the Northern Corridor which is now served by an estimated 10,000 heavy commercial trucks. RVR’s concession says experts, was for the operation of rolling stock previously owned by Kenya Railways and Uganda Railways. It does not preclude other operators running their own rolling stock.