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.

Tuesday, 2 October 2012

Construction of Tanzania’s” bridge over the sea” begins

A prototype of the entire project on Kigamboni side
CONSTRUCTION OF THE long awaited Kigamboni Bridge in Dar-es-salaam, Tanzania, has begun. Tanzania’s President, Jakaya Kikwete, laid the foundation stone two weeks ago, signaling the beginning of construction works.

 The US$138 Million toll-road will be completed in 36 months. The works include the construction of a 680M long-four lane - bridge across the Indian Ocean, 2.5 Km of six lanes highway, pedestrian paths and a toll plaza

The bridge will be linked to Dar city by a 1.0 KM six lane highway while to Kigamboni; it shall be linked by a 1.5 KM six lane road. In total the works include the bridge and 2.5 KM of roads, all totaling 3.2 KM.

 According to a note from Tanzania’s Ministry of Works, the bridge is a joint venture between the Government of Tanzania and NSSF.  NSSF will own 60 per cent stake while GOT owns the rest.  The same note says that on completion its management will be concessioned for 25 years.

 The project will be constructed by two Chinese firms viz: China Railway Construction Group and China Major Bridge Engineering.

The project had been in the drawing board for nearly four-decades. It was mooted in the 1970s but was held back by financial constraints. During its four decade wait, the costs have risen four-fold from US$33 million in the ‘70s to $138 million to date.

 At one point in early 2000s the project was advertised as a BOT project but all 105 bidders later withdrew their bids, underscoring the private sectors unwillingness to undertake certain risks.

 Now the government and its social security fund, NSSF, have teamed up to build the structure and then concession as a toll-road and concession its management and maintenance to the private sector. This is more practical PPP model in east Africa: The public sector builds a public infrastructure and then concessions management of the asset to the private sector.  It has major advantages compared to other PPP models.  
A prototype of the bridge over the sea

Private sector investors do not have the stomach for construction risk. Officials blame this unwilling to take construction risk as the reason for the delay in implementation of the project.  According to officials, at one time, some 105 bidders who hoped to build the project using private funds simply withdrew, leaving the government holding the baby so to speak.

To ensure that a policy project which engenders low financial return but high economic benefits is developed, the public sector undertakes the construction risk, leaving then management and maintenance risk to the private sector. Kigamboni is a policy project in that it is meant to open up Kigamboni area for development.

Kigamboni Bridge and related works is a policy project in that it is meant to open up Kigamboni district for development. This is a beach fronted district which is suitable as a resort city. However, it is constrained by the traffic snarl up at the Kivukoni ferry. The government of Tanzania plans to develop a resort city on a 6,400 acre area at an estimated cost of US$6.7 billion. A resort city is a city in which the major economic activity is tourism and related services and Kigamboni is best suited. 

In fact, government officials complain that tourists just pass through Dar-es-salaam on their way elsewhere because of lack of accommodation. They argue that developing a resort city in Kigamboni will increase the period in which tourists stay in the city.  It will also raise the status of Dar-es-salaam as a conference city. The city will raise the population of Kigamboni tenfold, officials say, rising from the current 45,000 to 450,000 on completion.

The secondly benefit of government developing policy projects is that user fees being is designed to be low. Low-fees ensure optimal use of the structure by both foreigner and citizens alike. For instance in Kenya the Concessionaire on Thika super highway will charge US$0.02 cents per Kilometre for cars and $0.04 for heavy trucks. Low fees will ensure optimal use of the structure.  It is expected the Tanzanian rates will not vary widely from the Kenya rates.

 It is expected that the construction of the city will commence in 2018 or thereabouts. This is to enable the completion of the bridge and its related works for use by heavy trucks transporting building materials to the city. The completion of the bridge will also make the city more attractive to investors.