Roads cost set up cap kills dreams of get-rich-quick local contractors

The Transport ministry has set new limits on the cost of building roads under the annuity programme, dealing a blow to unscrupulous contractors.

Transport secretary James Macharia said firms that had quoted Sh300 million per kilometre last year will have to do with prices of between Sh90 million and Sh100 million.

“The bids we are rolling out are around Sh90 million to Sh100 million that is significantly lower than the Sh300 million and you can imagine someone quoted Sh1 billion for a kilometre at the time,” Mr Macharia said last week on the sidelines of the United Nations Conference on Trade and Development (UNCTAD) 14 forum in Nairobi.

The government had initially hoped to spend about Sh25 million for every kilometre of rural roads, and between Sh50 million and Sh80 million for the same length of urban and trunk roads under the model.

The project, however, fell apart last year after contractors submitted bids that averaged Sh300 million a kilometre or four times the government’s estimates.

The ministry has since been talking to them to lower their bids.

Kenya managed to unlock a financing stalemate this year after the World Bank extended a Sh150 billion concessionary loan to speed up its annuity roads financing programme, which had been rocked by the high cost of borrowing from banks and inflated contractual costs.

With just 12 months to the General Elections the government is in the race to deliver the promised 10,000 kilometres of road or at least part of it.

The revised bids will mean that the government will spend an estimated Sh43.5 billion for the 435 kilometres of urban roads selected by the Cabinet to roll out the plan.

The first roads under the programme, Ngong – Kiserian – Isinya and Kajiado - Imaroro in Kajiado County were recently awarded to Intex Construction Company Limited.

Director- general of Kenya Rural Roads Authority John Ogango in May signed the project agreement with Intex representative, Mr Samit Gehlot, for contracts for two roads under Lot Number 33.

Several firms have been battling for the rest of the first five lots in the annuity programme in Kajiado, Kwale, Isiolo, Wajir, Taita Taveta, Nakuru, Nyandarua, Samburu, Narok, Kericho and Bomet.

Mr Macharia had earlier indicated that finalisation of contract arrangements for the remaining Lot 1 (Kwale – Kinango - Mariakani), Lot 3 (Modogashe – Samatar and Rhamu – Mandera) and Lot 32 (Illasit – Njukini – Taveta) are underway, while Lot No 17 comprising various urban roads is under review.

He now says he will be signing three more contracts for the firms that won the first batch of roads under the initial project phase.

Mr Macharia said the bids will have their own engagements with banks which will receive the onward lending facility from the World Bank to finance the programme as the Ministry will not set a rate for borrowing.

Last year the government had proposed a 12 to 13 per cent rate but banks shot down the proposal insisting that they will need to asses each contractor on a case to case basis.

The government is seeking new ways of financing infrastructure projects outside budget constrains by bringing in the private sector.

“The growing need for infrastructure development, maintenance, and repair in most countries has outstripped the available public funding. However, things are changing since governments are today ill-equipped to provide the least amount of 4 per cent required of national and global GDP per annum,” Mr Macharia said during the 7th international forum of infrastructure investment and construction in Macao, China.

The road annuity framework is a new concept of development of road infrastructure whereby the service provider will be responsible for finance, design, construction and a 10-year long-term maintenance of the roads under a public private partnership arrangement.

Construction of the roads will be preceded by the design phase. Works will commence soon after and be completed within 24 months.

Other key roads in the programme that have been lined up are: Lamu - Garsen Road (Lot 2), Kakamega – Ingotse - Namukoye - Nzoia River - Musikoma, Kimaeti - Malakisi – Lwakakha, Shikhendu-Endebess and Ugunja - Ukwala – Ruambwa roads (Lot 6).

Mr Macharia said that an OECD study indicated that the required infrastructure investment at global levels would amount to $60 trillion by 2030, and the gap between the need for infrastructure investment and the size of national budgets has continued to widen worldwide.

World Bank estimates also indicate that excess demand for infrastructure stands at 1 per cent of the global gross national product due to population growth and the resulting increase in the cost of constructing, modernising, or replacing existing infrastructure facilities.

The big question then is “are we complacent with the level of traditional funding, the amount of infrastructure being developed, and the pace of development of the infrastructure, given the needs and demand for infrastructure facilities?"

What role can industry-finance play in the development of infrastructure and is there room for it?

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