Authority backs off fight with Chinese new rail contractor over Sh1.6 bn levy

Workers at the standard gauge railway
Workers at the standard gauge railway construction station site. PHOTO | FILE | NATION MEDIA GROUP 

The National Construction Authority (NCA) has backed off from a potential row with a Chinese contractor building the new standard gauge railway linking Mombasa to Nairobi over the agency’s Sh1.6 billion demand for the newly introduced levy on projects.

The authority was demanding the cash for the newly introduced construction levy of 0.5 per cent of the value of the contract from China Road and Bridge Corporation, which was appointed to build the new Mombasa to Nairobi rail at a cost of Sh327 billion.

Developers whose projects exceed Sh5 million need to pay a construction levy of 0.5 per cent of the value of the contract before they can start work under regulations introduced mid-this year. NCA reckoned that works on the project would start after the introduction of the regulations in June, but the Chinese maintained that the financing agreements for the construction of the multi-billion dollar railway were signed in May before the levy took effect.

Ordinarily, the government was the one expected to pay the Sh1.6 billion levy, but the regulation places the burden of ensuring the owner of a construction work has settled the duty on contractors, hence the sucking in of the Chinese developer.

“We have checked and seen that the contractor doing the SGR (standard gauge railway) won’t pay the levy because the contract was signed before June when the new regulations came into force,” NCA executive director Daniel Manduku told the Business Daily on Saturday.


This came after the authority placed a notice on Friday, arguing that the national government, counties and State-owned firms were not exempted, including the rail contract. “We’re negotiating with them (railway contractor and the government on this issue). We’ve already notified all State corporations in the construction industry about this levy,” Mr Manduku said.

He said a number of State agencies like Kenya Urban Roads Authority and the Kenya National Highways Authority had already started paying. The regulations guiding the levy require the fee be paid to NCA before the start of construction work, placing sanctions on contractors working on projects in breach.

“The authority may suspend, cancel or revoke the registration of a contractor who commences construction work for which the owner has not paid the amount of the construction levy as provided in this regulation,” state the regulations.

Contractors have 30 days to notify and register their projects with NCA, which is expected to clear the projects after payment of the levy within 14 days. Construction of the 609km standard gauge railway funded by the Chinese is expected to start next month.

NCA is poised to raise billions of shillings from the levy. The authority is valuing the annual construction works at Sh400 billion, putting receipts from the levy at about Sh2 billion.