Kenya is increasing investment in transport infrastructure, both through direct budgetary allocations and by partnering with the private sector, as part of efforts to improve connectivity and strengthen the country’s logistics network.
Some KSh207.3bn ($2.1bn) was allocated to transport infrastructure in the KSh2.6trn ($25.8bn) 2018/19 Budget Statement, tabled to Parliament on June 15 by Henry Rotich, Cabinet secretary for the National Treasury, with road, rail, maritime and aviation projects all receiving significant funding.
Of this, KSh115.9bn ($1.2bn) has been made available for ongoing road projects, up from KSh63.6bn ($631.6m) the previous financial year. Phase two of the national standard-gauge railway (SGR) project will receive KSh74.7bn ($741.5m) in funding – building on phase one of the network, which began freight services in January – while KSh8.9bn ($88.4m) will be set aside for the Lamu Port-Southern Sudan-Ethiopia Transport (LAPSSET) corridor, a $24.5bn project designed to provide road, rail and pipeline links to countries throughout the region.
Another KSh2.7bn ($26.8m) was allocated to the Mombasa Port Development Project, KSh1.4bn ($13.9m) for the expansion of a series of airports and runways, and additional funds were set aside for emergency repairs to road links damaged by flooding earlier this year.
Private sector to take key role in projects
To undertake some of these projects, the government is looking to a variety of business models to increase private sector participation.
Rotich noted that two road projects expected to begin in the second half of the year – the Ngong-Kiserian-Isinya and Kajiado-Imaroro connections – had been finalised as annuity deals under the country’s Public Private Partnership (PPP) Programme, whereby banks provide funds in the form of up-front loans to contractors, and the Treasury reimburses the lender over a period of time.
In addition, the government has launched tenders for a further four projects under the Road Annuity Programme, along with the Nairobi-Nakuru-Mau Summit PPP Toll Road and Second Nyali Bridge Toll.
This builds on the decision in August last year to award US company Bechtel rights to construct and operate the $3bn Mombasa-to-Nairobi expressway, one of the country’s largest transport projects.
While funding negotiations are ongoing – Bechtel is working with the government to undertake an engineering-procurement-construction-with-financing model – work on the 470-km motorway is expected to start in the second half of the year.
“Governments have started to realise that PPPs have a place, but they are not the only solution available. For example, infrastructure bonds can also serve as a way of channelling funds,” Andrew Patterson, president of Bechtel Africa, told OBG. “An alternative approach could see the government initiating projects before privatising at a later stage, and using the proceeds to provide initial funding for new projects.”
In an effort to encourage successful project outcomes, the Ministry of Transport, Infrastructure, Housing and Urban Development is promoting the wider use of performance-based contracts (PBC) by regional authorities.
National agencies are already using PBCs to contract out road maintenance, with 105 such contracts let last year, covering repair work for 5076 km of roads, up from just 14 km in FY 2011/12, when the scheme was first introduced on a pilot basis.
Road and rail upgrades to improve logistics connections
The upgrade of transport infrastructure, which includes a significant emphasis on rail, is expected to ease congestion and lead to greater efficiency in logistics.
In January freight services began between Mombasa and Nairobi, following completion of the first stage of the SGR network. Monthly haulage rates rose 10-fold from just over 22,000 tonnes in early 2018 to 213,000 by mid-year.
The service has slashed travel times between the cities, improving efficiency of shipments entering the Port of Mombasa en route to the capital. The second phase of the project, which began in June and will eventually link Nairobi with Malaba on the Ugandan border, should further improve connectivity.
Furthermore, it is hoped increased use of the SGR for freight haulage will ease pressure on the road network, which, coupled with upgrades, should further reduce transport and logistics times for those using the country’s roads.
Any benefits to motorists and those in the logistics sector may have to balanced against the levying of tolls, however, which will be implemented to fund some of the new road routes and upgrades.