Tuesday, 18 December 2012

European investors eye Tanzanian toll road


EUROPEAN Contractors are eyeing the US$535 million Dar-es-salaam- Chalinze toll road in Tanzania, we have learnt. In an internet posting, a Belgium based trading company Group DML, www.dml.com is shopping for a partner for a joint venture with an unnamed European contractor to develop the project on a 3P basis.
Chalinze Junction: To the right is A14 leading to Tanga 

 The company is proposing to invest in equity together with its partners. The Tanzania government, says the firm, will be a minority shareholder in the project. DML estimates that if the partners raise $150 million, they can raise the rest of the money from bank debt. They propose to use cash flows from the project as collateral.

The 100 Km long Dar-Chalinze toll road is a section of the Arterial Morogoro road. This is a very busy section of the A7 highway that carries traffic to central and southern Tanzania and the neigbouring countries such as Zambia, Rwanda, Burundi, Congo, and Malawi where Dar is a key port.  The road design proposes to build three laneson a 50KM long stretch from Dar-es-salaam.The other 50Km to Chalinze will be two lanes.
 Chalinze is the junction town where Morogoro road connects to Tanga road A14 which serves the port town of Tanga and Mombasa Kenya.  Tanga road in turn links to B1 to Moshi which also links to A104 to Arusha and on to Kenya via Namanga. In effect the toll road fronts a pretty rich catchment area. 

According to informed sources and documents seen by this publication, an estimated 70 per cent of freight landing in Dar-Es-salaam Port is shipped through the toll road.  This suggests that the road has a heavy traffic of heavy trucks.  DML agrees suggesting that 70 per cent of the traffic is cargo hauling trucks.

The second largest population is buses since all buses to Kenya, Central Tanzania and neighbouring countries such as Zambia ply this road. Cars, SUVs and   Light trucks also form a significant proportion of the motor population.

Thika superhighway in Kenya. To be a toll road
The proposal to build the project on a PPP basis-if it succeeds-bucks the trend in both Tanzania and other east Africa countries. The trend is for governments to build a project using public funds or third party debt, then concession the complete project –be it roads, railways and power stations – to the private sector to toll and maintain.

This is the business model to be applied on the Kigamboni Bridge. The $135million project is funded by the government of Tanzania 40 per cent and the National Social Security Fund 60 per cent. This is the model commonly applied in east Africa especially in roads and power projects. It is also the model being applied on Thika super highway and Menengai Geothermal power wells in Kenya.

The argument has been that investors do not have the stomach for the risk involved in large initial sunk capital. It is a slow, tedious and frustrating model if the case of Lake Turkana wind power project is anything to go by. If this European partnership succeeds, it will be bucking this trend and also the conventional wisdom.

But why are Europeans- famous for being risk averse- taking this risk? The wisdom of One Time Cabinet Minister in Kenya is catching up with them. Five years ago, the Late John Michuki, then then Transport Minister, bluntly told a delegation of European investors that by the time all Laws protecting their investment are in place, there will nothing for them to invest in.

A mission statement by DML backs Michuki’s wisdom; the company, is lobbying European contractors and the EU to support a financial product that will enable European companies to “compete head-on- with Chinese state funded contractors for infrastructure projects in Africa.” It adds, a financial product it is proposing could “profoundly change the geopolitical strategy of Europe. Group DML is 100% convinced that the major chances for European economic growth lay in Europe's front yard, namely AFRICA and nowhere else.”

The desire to roll back Chinese influence in Africa has aroused Europeans out of their slumber forcing them to stomach high risk capital investments in Africa.  But the speed at which they raise the funds necessary for the projects on offer will determine how soon European companies can stand up to Chinese contractors in Africa.

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