State House hands dealmakers control of Lamu projects

The Jubilee government has embarked on yet another round of multi-billion-shilling infrastructure projects to be funded by foreign private money even as it struggles to win public support for the controversial standard gauge railway plan.

The Business Daily has learnt that President Uhuru Kenyatta met a team of dealmakers at State House, Nairobi on Sunday afternoon and directed the Treasury to facilitate their entry into the multi-billion-dollar Lamu Port South Sudan-Ethiopia Transport (Laspsset) corridor contracts.

The team of powerful dealmakers, including Shamaz Savani of ABC Bank, lawyer Njau Mukuha, accountant Kairo Thuo and investment banker Peter Gachuba, committed to invest $3.29 billion (Sh280 billion) in the Lamu corridor projects.

Though the group of business operatives was largely made up of Kenyans, it had big muscle support from the US embassy in Nairobi, US conglomerate General Electric, Spanish energy firm Iberdrola, Norwegian gas company Hoegh LNG, AKL Wind Energy, transport solutions provider Indra Systems and independent power producer Aeolus Kenya.

The consortium of foreign companies has an interest in building three berths at Lamu port, an 850 megawatt gas-fired power plant, Lamu International Airport, Lamu-Isiolo highway and a water desalination plant. Mr Kenyatta approved the proposal and ordered it to be fast tracked.

State House spokesman Manoah Esipisu said there was “nothing to report at present” about the involvement of the consortium in
rolling out the Lapsset project in reponse to our enquiries.

But the Business Daily has reliably learnt that the investors have promised to raise money from US agency Overseas Private Investment Corporation (Opic), the Export-Import Bank of the US, the United States Agency for International Development (USAid), South African lender Standard Bank and US private equity firm American Capital Energy & Infrastructure corporation.

READ: Door opens for Western companies in Lamu project

Mr Kenyatta accepted the planned use of private money and debt to build the infrastructure and recover the same from user fees, setting the stage for possible introduction of new rules that ring-fence such operators from competition.

“The consortium is expected to recover its investments by charging user fees on the services they will provide at agreed tariffs,” a memorandum of issues discussed during the 2 p.m. meeting says.

Mr Kenyatta’s chief of staff and head of public service Joseph Kinyua has been tasked to form a team of Treasury and Lapsset officials that will help the investors begin works under a public-private partnership (PPP) arrangement whose details have yet to be discussed. 

The Kinyua-led team and the consortium of investors have two weeks to come up with a list of what is needed for the successful implementation of the plan.

The Sunday meeting followed two earlier presentations to the Treasury and the Office of the President on January 20 and 23 respectively.

Mr Thuo is a seasoned deal-maker who works as a partner with Viva Africa — a tax consultancy — while Mr Mukuha is a lawyer with one of Nairobi’s top law firms Daly & Figgis.

It was not clear how State House identified the team of investors who are seeking exclusive permits to undertake the Lapsset projects —putting the government on a path that effectively removes competitive bidding for the projects and ring-fencing the business for the investors to recoup their money.

“The consortium would require exclusivity such that the government cannot develop competing projects,” says the State House brief.

The team, which operates as ‘Aeolus Kenya and Manda Bay Consortium’, was accompanied to the Sunday State House meeting by Lapsset chairman Francis Muthaura, Lamu Governor Issa Timamy, Cabinet secretaries Davis Chirchir (Energy), Michael Kamau (Transport) and Judi Wakhungu (Environment), and Lapsset director-general Silvester Kasuku.

READ: Infrastructure projects set to resume in mini budget

The new team gives fresh impetus to the development of the Lamu corridor system, which has not taken off since its launch in November 2012.

It is, however, not yet clear what the projects to be implemented in partnership with the government will cost the taxpayer. Estimated to cost about $21.5 billion, the multiple infrastructure projects in the Lapsset corridor aim at linking the port city of Lamu to Juba in South Sudan and Addis Ababa in Ethiopia through a transport corridor made up of a railway, a highway, an oil pipeline and a fibre optic cable.

The Lamu corridor seeks to connect South Sudan and Ethiopia to the Indian Ocean coast giving the two land-locked states a safe route to market for their exports and imports.

The confidential State House brief says the consortium plans to spend $1.6 billion on the 850 MW gas-fired power plant with offshore jetty storage and regasification plant.

The three berths free port at Manda Bay is expected to cost $600 million and will be developed on Build Own, Operate and Transfer (BOT) model. The facility will sit on a 5,000-acre piece of private land.

The proposed Lamu International Airport comes with a price tag of $200 million while the 600km Lamu-Garissa-Isiolo Road will cost $840 million and will be operated under a 20-25-year concession.

The water desalination plant will cost $50 million and is expected to provide Lamu residents with 20,000 cubic metres of water per day.

The Kenyatta government has promised to ensure Parliament enacts the special economic zones Bill, 2012 to facilitate the development of a free port and Special Economic Zone (SEZ) in Lamu.

Kenya is also required to enter into a Power Purchasing Agreement (PPA) for the 850 MW gas-fired power supply for a period of 25 years at a tariff of 9.9 US Cents/KWH. The consortium also requires the government to provide way-leaves for road and power transmissions.

“The investment and development proposal presented by Aeolus Kenya and Manda provides a golden opportunity for the government of Kenya to tap private sector resources under the PPP arrangement to implement the Lamu Port, South Sudan, Ethiopia Transport (Lapsset) corridor projects,” the brief says.