Kenya cements its top perch in PPPs

The Road Now

 Finally! Construction of the 170 KM Rironi Mau summit road has begun. The road, a section of the arterial Northern Corridor - the economic lifeline of East Africa. Due to heavy traffic and rugged terrain, movement is slow. Traffic jams sometimes last more than 10 hours, and accidents are frequent. Consequently, its upgrade was long overdue.

 The upgrade involves two roads being constructed simultaneously: The Rironi- Nakuru-Mau summit highway is 175 KM long and will cost a whopping US$863 million. The second, is the 58 KM Nairobi -Mai Mahiu –Naivasha highway for $678 Million.  In total, the two highways will cost a whopping US$1.5 billion.

  The 175 KM Rironi Mau-Summit Expressway is a toll road on a 30 year PPP contract meaning, the contractor will design, Finance, build, operate, and maintain the highway for 28 years. After that,the road will revert to the government of Kenya.

The work involves upgrading the single-lane road to four- lanes between Rironi and Naivasha. The Naivasha-Nakuru section will be upgraded to six lanes with a viaduct in Nakuru. Beyond Nakuru city, the road will be a dual four-lane carriageway.

How it'll look in 2027

The road is jointly financed by Kenya’s National Social Security Fund (NSSF) and China Bridge and Road Construction Company (CRBC). CRBC will construct a section of the road.

Coming at the heels of the Nairobi Expressway and a few other PPP projects in the energy sector, coupled with the proposed Nairobi- Mombasa Express war, the Rironi-Mau summit Expressway cements Kenya’s position as the pioneer in PPP development in East Africa.

See alsohttps://eaers.blogspot.com/2019/05/kenya-pioneers-east-africa-in-ppps.html

Critics are already up in arms against the project. Some have even gone to Court seeking to stop the project as a toll road. Others have raised questions about the cancellation of the previous contract with the French firm Vinci Highways.  Contrary to the critics’ assertion that the contract was terminated early this year, it was terminated in 2023 after lying in limbo for three years. The contract was signed in September 2020 and was to commence in 2021. But three years down the road, construction had not begun.

Informed sources say that, the delay was due to financial constraints. The French firm could not raise long-term funds from the capital market. The only source was the short-tenor commercial debt market which is very expensive. For this reason, the French firm sought to transfer its risk to the Kenya government requiring it to pay the contractor $178 million a year from taxpayers’ kitty.  This is the same problem that bedeviled the Mombasa- Nairobi Expressway contract awarded to the American Firm, Betchel Engineering.

In both instances, the project metamorphosed to a public project ceasing to be a PPP project. PPPs are expected to de-risk the tax kitty.

CRBC raised the funds for the construction of the Nairobi Expressway from the Hong Kong capital Market. Now it is raising capital from the social security fund in Kenya and also the Chinese capital Market.  

This is the same model the Usahihi project has adopted to raise the Capital necessary to build the 490 KM Nairobi- Mombasa expressway. The implication here is; Civil engineering firms in the West will be competed out of the African Market if they cannot raise long-term capital.

Back to Rironi- Mau Summit road.  The purpose of a road upgrade is to improve efficiency in service delivery. The Rironi- Mau summit project is not just a road, it is the economic life-line of East Africa. It is a section of the Northern Corridor which serves Kenya, Uganda, Rwanda, Burundi, Eastern DR Congo, and South Sudan.  Its upgrade will improve economic fortunes in the entire region. It will cut travel time in this section by more than 50 percent, from four hours to one-and-a half-hours or less at a toll rate $11.00 for the whole trip or $0.0663 per kilometer. This is the equivalent of 12 litres of fuel.

If we take a cost- benefit approach, the toll road benefits users more than it costs them. A three-hour reduction in travel time translates into less fuel consumption, less pollution, and fewer accidents. It will cut travel time between Nairobi and Kampala to 10 to 11 hours or less from the current 14-16 hours. The economic cost for a passenger in a bus is US$11 per hour. This means a passenger in a bus will save the economy anything between $22 and $66 per trip.

 For freight trucks, experts say, elimination of the bottleneck will cut travel time to Kampala from 2-4 days to just about 1 or two days. The cost per kilometer hour per ton is valued at $0.02. This means that a truck carrying a single 20 TEU container saves a total of $720 on a fast road.  Multiply this figure by the hundreds of vehicles plying the same route and the costs reduction runs into millions of dollars in savings. This translates into lower cost of goods, improved balance of trade due to reduced fuel consumption and lower cost of maintenance.

Add to these the savings in terms of produce reaching the market on time, and the benefits exceed the cost of a toll ticket. See also

https://eaers.blogspot.com/2021/12/we-pay-for-good-infrastructure-whether.html