Why Concessioning of Kenya’s Thika superhighway is a smart move
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| The Thika Superhighway:Lined up for 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.
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| Ndogo Kudu By pass: A potential candidate for concessioning |
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.
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