Sunday, 30 September 2012

KIsmayu: We got it right Al shabaab is annihilated

LET ME GLOAT for a change. Ten (10) months ago on this blog among other forums, I predicted that Kenyan Defense forces will annihilate Al Shabaab. Mine was not nationalistic shenanigans.

 It was the  result of a realistic assessment of the professionalism of the Kenyan Defense forces  and their hardware compared to Al shabaab, I also looked at the military strategy and was convinced Al Shabaab stood no chance because they were herded to ward Kismayu.

No other army would have survived such a strategy: The Air force controlled the air, the Navy controlled the sea and the Army controlled the land. How would an army so isolated survive any assault  from the sea, air and ground?

 They were sitting ducks.  I invite you to read  original copy. By defeating Al shabaab, The KDF, we hope has silenced critics both within the country and without. Most felt the KDF was a career Military force. Now they will think otherwise. 
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Monday, 24 September 2012

Infrastructure: Kenya’s radical paradigm shift

Konza CBD to build build on a long term lease
KENYA'S INFRASTRUCTURE development paradigm has completely shifted.  Public Service provision has been unbundled enabling the private-public sector partnerships. For instance, services in the electricity supply have been unbundled into; power generation, distribution and Transmission functions, each managed separately.

And as a result of unbundling of services, the private sector can now be contracted to provide certain public sector services. These contracts are determined according to the financial risk, urgency in service delivery, economic impact and revenue risk.

In Kenya, like anywhere else in Africa and indeed the world, demand for infrastructure is growing faster than the public sectors ability to deliver. Lack of infrastructure has thus become a major bottleneck to economic growth.

Therefore the private sector is increasingly being invited to provide public services or goods for a fee. Generally the contracts for what is called Private-Public Partnership last 25-30 years. Here various models are in place depending on the commercial viability of the project in question.

For instance in electricity generation, mobilizing the initial capital to sink in the project have proven tricky. Investors do not have the stomach for sunk in capital as drilling a geothermal well for instance. Even in wind power generation mobilizing initial capital is slow and tedious. This is why the largest wind power farm in Africa, the Lake Turkana wind power project in Kenya (LWTP) is still trudging along with financiers asking for this or that guarantee. This project has been on the drawing board for close to ten years, and is making slow progress.

In the geothermal power sub sector, progress by the private sector is equally slow. Few, if any, investors are willing to underwrite the drilling risk. So the government, which can guarantee the drilling risk, created the geothermal Development corp. to drill the steam wells and cap them, then concession them to IPPs.

A geothermal Power station. IPPs to build generating stations
The IPPs then build, operate and maintain their generating capacity which they sale to the power distributor. The funds generated from the sale of power can then be used to service the loans used to drill the wells. Using this model, GDC is now drilling steam wells to generate some 400MW of geothermal power by 2016. The firm plans to have cumulatively drilled and build steam wells with capacity to produce 2000MW by 2020, rising to 5500MW by 2030.

In the roads sector, the government is following more or less the same logic. Build the road then concession it to a private operate to manage and maintain for a fee paid by users. The US$300 million Thika superhighway is the first road to be concessioned.  Observers expect the Ndogo Kundu By pass, in Mombasa, which will also cost about US$300 million to be concessioned.

.This publication has seen documents that confirm that the Lamu- Nakodok Highway on the Lamu-Juba Corridor will also be concessioned. The 1,250Km highway will cost an estimated US$1.396 billion. The recommended tolls range from US$22 per truck to US$748.
 If the recent investor conference on Konza Techno city is anything to go by, then the government will use long term leases to develop the proposed four cities. Lease agreements simply allow developers to put up specific infrastructure such as building the CBD or the Science Park in the case of Konza city. The developer then markets and rents the infrastructure to users for a period of 25-30 years. The government puts up the necessary social infrastructure such as water and waste water disposal infrastructure, roads.

In cases where a project can attract higher user fees, the government is going for design, build finance and Operate contracts. This is the case with the green field terminal at Jomo Kenyatta international Airport in Nairobi. The terminal will increase the capacity of JKIA to more than 20 million passengers a year and create more than 50 aircraft parking lots. This will increase JKIA’s parking capacity to more than 100 aircraft.
A toll Plaza

This publication has seen documents for a proposed toll road within Nairobi on BOT basis. Going by the name Nairobi Urban toll road, the US$627.89m project will include the construction of overpass section through Nairobi Central Business District, extension of dual carriageway to the proposed ICT City at Konza, construction of four (4) interchanges, and tolling and maintenance operations for 30 years.

The project is expected to cut transportation cost on the Northern Corridor by 25 per cent, and reduce travel time between port of Mombasa and the hinterland by two hours.

The proposed Nairobi urban toll Road
The policy shift is expected to increase the quantity of public services relative to demand, hasten the production of public goods, remove production and distribution bottlenecks in the economy, lower the price of public services and keep public goods in good running order.

It also ensures that the public exchequer will not be stretched thin by debt servicing in the future. User-fees will be used to service the debts contracted to provide these goods.

Monday, 17 September 2012

Why Concessioning of Kenya’s Thika superhighway is a smart move

The Thika Superhighway:Lined
 up for concessioning
THE THIKA SUPERHIGHWAY  is now complete and has been handed over to the Kenyan government. Consequently, the road will be commissioned by the President in November this year. And now the US$300 million road is now lined- up for management concessioning.

Sources indicate that the concession is expected to be signed next year and the concessionaire is expected to be operational by 2014. Already a number of bids are said to be in place. It is not clear whether the government of Kenya is playing for time waiting for more bids. It should, say analysts, the more the merrier; meaning that competition among bidders will give the government a good deal.

 The concessionaire will be expected to raise the funds needed to repay the US$300 million used to build the road, maintain it and earn a profit for the concessionaire and perhaps a little concession fees for the government.
The concession is being applauded as a smart move by the government. It places the burden of servicing the loan used to build the road squarely on the user-not the taxpayer. Two, it  transfers the burden of maintaining the road on the concessionaire. Three, it releases public funds from the superhighway to other less prestigious but important roads and even other infrastructure projects.

However, skeptics as usual, wonder whether the project is viable. The free- riders in our midst argue that they pay taxes and therefore should enjoy public goods for free. In fact, the fear that free-riders could reject the road’s tolling is the basis for skepticism.

 A recent study on urban road tolling in East Africa shows that road tolling is a viable business with a   rate of return above 24 per cent. The studies, authored by this writer shows that, for an urban road to be profitably concessioned, it must have a minimum daily traffic population of 10,000 vehicles. Any road with an ADT of less the 10,000 is expensive and unsustainable, the study found.

The study also found that urban roads with an average daily traffic of more than 50,000 are profitable at a toll rate of below US$0.20 per day per vehicle. In fact, such roads have an IRR of 24 per cent at 65 per cent compliance level.
Ndogo Kudu By pass: A potential 
candidate for concessioning
The Thika Superhighway is part of the great North road that traverses Africa from Cairo top Cape Town. In addition it links Nairobi with Central, Eastern and North eastern Kenya. This makes it a pretty busy link. Estimates put the Vehicle Population on this road at 200,000 a day –way above the profitable population of ADT of 50,000 vehicles a day.

What is more, the proposed toll rates are affordable which minimises the potential for objection by motorists. The Kenya National Highways authority proposes to   charge Private Cars at $0.01 per kilometre, Pick-ups, Suvs and Passenger service vehicles$ 0.02 and Heavy Commercial vehicles will be tolled at $0.04 per kilometre. This is to say that Cars will pay US$0.50 to drive on the 50Km road, SUVs. Pick Ups and PSVs will pay $1.00 for the entire stretch will HCVs will pay US$2.00 per trip.

 At these rates, given that there are 200,000 vehicles on this road each day- and given the near-total compliance rate- tolls will generate an estimated US$343,000 a day or US$128 million a year.  The concessionaire will finance operations and Maintenance from the revenue generated. The concessionaire in management contracts is obliged to re-carpet the road every five-years. At current prices, this item alone will cost an estimated US$242 million every five years.

Thika road will be the first toll road in East Africa therefore, the learning curve is steep. If successful, this financing Model can be extended to a number of roads in Kenya and even east Africa. Among the potential candidates is the proposed Ndogo Kundu by-pass in Mombasa, the Southern by pass in Nairobi and even the Lamu-Juba highway.

Concessioning, if successful, is a way to speed up the building and maintenance of roads in east Africa. It releases government funds to construct and maintain other commercially unviable roads while ensuring that the tolled roads are maintained at motorable condition always.

Maintenance has been the bane of roads development in east Africa. Owing to competing demands for public resources, including expansion of roads construction programme, roads maintenance is generally neglected, leading for faster deterioration of new roads. Poor roads, conventional wisdom has it, is a constraint to economic activity and thus growth.

Monday, 10 September 2012

Infrastructure: Kenya confounds friend and foe alike

Thika Superhighway at Globe
 Cinema Roundabout Nairobi
A COMBINATION OF clever financial models, a deliberate shift to the East, political resolve, and economic turn -around has boosted the rate of success of infrastructure projects in Kenya. Some projects were initially deemed white elephants and others that sounded like pipe dreams. However, the uptake that has turned them into reality, has confounded friend and foe alike.

Consistent economic growth has contributed to, and driven the growth momentum in the country as growth puts more money in the pockets, creating more tax-payers. This has enabled Kenya to finance 93 per cent of its budget thus improving service delivery especially in the public sector. It has also had investors eyeing east Africa sit up.

The government also mooted infrastructure bonds that were used to borrow long-term from the public to supplement taxes. The money was used to finance Infrastructure development including roads, water, irrigation systems. An estimated Kshs 100billion (US$1.2 billion) have been mobilized in this way. Infrastructure bonds ring fence the funds to specific projects unlike the consolidated account which can be switched elsewhere if need be.  This is because infrastructure has been identified as the greatest handicap to economic progress.

 Lamu Port: the First three berths will be funded by Govt.
As a result of ring fencing, Kenya now has re-build some 8000Km of road which had fallen into neglect. She has also expanded the road network by an extra 6000KM in the last decade or so. Now, Kenya boasts of 14,000Km of bitumen roads and still counting.  Of course, 14,000KM out of 69,000Km of road network is a tiny figure. However, its spread ensures that nearly the entire country is connected by reliable roads.

Aside from roads, air transport also witnessed rapid expansion with expansion of Airports in Kisumu, Isiolo and Nairobi. Nairobi’s Jomo Kenyatta International Airport was expanded to serve 6 million passengers.   

Ol Karia geothermal power Plant
In the energy sector, the country expects to have increased its power generating capacity to 3000MW by 2016. Much of the power will be generated from clean and renewable sources such as geothermal and wind power. In fact Kenya is the leader in Africa in terms of exploiting these two sources of energy. Kenya has the potential to develop 10,000MW of geothermal power and GDC, the state Corporation created to spearhead the development of geothermal power wells plans to have 5,500MW of these operational by 2020.
 In mega projects such as the Lamu-Transport Corridor and Konza Techno city, a combination of all financing models including PPP, public funding and external borrowing will be employed. This combination has increased the probability of success for the projects to viable.All these projects fall under Vision 2030, Kenya’s Long term development blue print, whose goal is to turn the country into an industrialized Middle income country by 2030. Just few years ago, the vision sounded like a dream. It is now beginning to look real.

 In Konza much of the developments will be PPP where private sector investors develop and operate project for a period of time, says 25 years, and the returns to the government.  Given the high rates of return for the projects some are as high as 20 per cent, these projects are popular with investors. For instance an estimated 200 investors are said to be eyeing Konza Techno city even before the first foundation stone has been laid.

Such credible developers as Egypt’s Smart Villages and the Korea Business Centre are eyeing contracts to develop segments of the city.  Already, a Swedish government firm has bagged a contract to develop the science park and market the project among investors

An Artist's Impression of Ndogo Kundu by-pass
On the second transport corridor, Lapsset, the three resort cities and 29 berths at the Lamu port will be developed on a PPP basis.  Although the Kenyan government is expected to invest an estimated six per cent of her GDP on this project, there are signs that this may not come to pass as both China and Japan are eyeing the corridor. Both are flexing their financial muscle in Kenya-a rivalry that can only benefit Kenya.

Already Toyota Tsusho, the investment arm of the Japanese automaker, Toyota Motor Corporation has bid for the construction of the US$3 billion Lamu-Juba Oil pipeline.

A Chinese firm, Anhui Construction Company, has won the contract for  the US$680 million green field terminal at JKIA that will increase capacity to 20 million Passengers by 2015 should be signed by the end of this month.  The green field terminal will also increase aircraft parking bays to 100 from the current 39. The terminal will be developed on a DBOT basis. Another Chinese Construction Company, Shanghai Corporation for Foreign Economic & Technological Cooperation (SFECO) is eyeing construction of roads and other social infrastructure on Konza Techno city.

This aggressive entry into east Africa - particularly Kenya- by China has the Japanese sit up and act. They have already provided Kshs29 billion (US$342 million) for the construction of the Ndogo Kundu by- pass which will ease transport from the Mombasa port on the Northern transport corridor. Ndogo Kundu, just like the Thika Superhighway, has been on the drawing board for decades. Thika highway , funded largely by AfDB and theKenya government will be completed next month.

Monday, 3 September 2012

Birth of Kenya's Konza Techno City is in October.

Proposed Konza Technocity: Attracting serious investors

THE GROUND BREAKING CEREMONY  for Kenya’s Konza Techno City will be held in October this year, we can report.  This will pave the way for construction work on the US$7 billion project to begin.

It is expected that, after the ground breaking ceremony, work on roads, water and waste water disposal systems will be the first off the blocks. Already a Chinese government owned Construction Company, Shanghai Corporation for Foreign Economic & Technological Cooperation (SFECO) is eyeing construction of roads and other social infrastructure.

  The government is constructing a US$200 million multipurpose water dam expected to be complete by October 2013. The dam will pump one million litres of water to the city.

The proposed city has generated a lot of interest among both investors and developers a like hastening the pace of implementation. Reports have it that some 200 investors are eyeing space in the metropolis, dubbed Africa’s silicon Savannah.

Such fast pace at which the building blocks of the city’s development is being put in place has critics confounded.  In just about one month, several contractors are in place. The Master Planner, HR & A Advisors of New York is already in Place.  A Swedish government firm has bagged the tender to develop the science park and market the project among investors.

The BPO park
Also on the queue for various segments of the project are other experienced developers such as Egypt’s Smart Villages and the Korea Business Centre. The intense interest in the project is not surprising, returns on investment are mouth-watering. Return on leasing ranges between 12 and 15 per cent while capital gains rate is estimated at 20 per cent.

Konza City located only 60 KM south west of Nairobi aims to catapult Kenya into an ICT giant by 2030. It will place Kenya firmly on the competition seat with such global BPO, KPO and ITO giants as India and China. Dubbed the  silicon Savannah of Africa, Konza ICT City is a green field project that will be home of Africa's Computerisation drive–something similar to Silicon Valley in the US.

 The 20-year project will be developed in four five-year phases for a total estimated cost of US$7 billion. The first phase will cost an estimated US$2.3 billion of which infrastructure will cost US$1 billion. The rest will be spent on the development broken under: the ICT Park US$200 million, Residential US$975 million and the Central Business District will cost US$125 million. Each phase will last five years.

The second phase will cost an estimated US$1.7 billion of which infrastructure will cost $400million; the residential area will cost US$850 million while the CBD will cost another $100 million while the BPO will take another $300 million. The university, which shall be built at this stage, will cost some $50 million.

The third phase will cost an estimated $2.1 billion of which infrastructure will consume $600 million. The BPO will cost another $400million, CBD $300 million, Science Park $100Million and Residential $700 million.

In the final phase, BPO will cost $450 million, residential $250 million, Science park $100million while infrastructure will cost $150 million, says an analysis posted on their website, At the end of it all, infrastructure will swallow an estimated $2.1 billion while other developed will cost some $4.8 billion.

The Techno city will be linked to Nairobi by Mombasa Road and served by three high speed fibre optic networks. A high speed Railway link to Jomo Kenya international Airport, is also in the works.
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