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.

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