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.

No comments:

Post a Comment