Industry

Strabag in talks to salvage Sh67bn city road project

Traffic-jam

The Nairobi Toll Road project entails paving of the 77-kilometre road between the Athi River Junction and Kikuyu. Photo/FILE

Construction firm Strabag International has entered fresh negotiations with the World Bank in an attempt to salvage a deal that would see the building of a Sh67 billion pay-for-use road meant to ease traffic jams around Nairobi.

This follows a conditional offer by the World Bank that it would only finance the project once Strabag — the project’s contractor — complied with its social and environmental safeguards including land acquisition and Kenyan legal provisions.

The project is at the centre of a dispute between the government and property owners over why buildings valued at billions of shillings should be demolished while an alternative road can be redesigned to pass through a less built-up area.

World Bank country representative Johannes Zutt had on Wednesday said the institution would only finance the project if Strabag agreed to “expand its integrity compliance procedures and training programmes to cover the company more completely.”

The announcement came after a lengthy audit of the project as well as Strabag’s operations.

The conditions by the World Bank threw prospects of implementing the project into a spin, with Roads minister Franklin Bett yesterday admitting that the concession deal may have to be abandoned altogether.

Said Mr Bett at a news conference: “The project as envisaged through the consortium has regrettably collapsed.”

But in what could give hope to plans to tackle traffic congestion around Nairobi, Strabag on Thursday moved to quell fears that the project would collapse and vowed to carry on with negotiations that would guarantee its implementation.

“We are in fresh negotiations with the World Bank on how all the conditions will be met. We are fully committed to complying with their terms and we shall work to see that the project is done,” Ms Diana Neumüller-Klein, the head of communication at Strabag, told the Business Daily by phone.

The project, dubbed Nairobi Toll Road (NTR), would entail paving of the 77-kilometre road between the Athi River Junction on Mombasa Road and Kikuyu on the Naivasha Highway.

Though the project was to be started two years ago, ground breaking is yet to come to fruition after the World Bank raised several objections over Strabag’s involvement.

According to the project design, the concession would consist of six road sections along Uhuru Highway, a stretch within the greater Nairobi area following the alignment of what is referred to as the Northern Corridor.

The seventh section would be a bypass (29km) as an alternative to the urban stretch of 25km.

The project was to be run on a 30-year build-operate-transfer (BOT) deal.

Motorists using the facilities would be required to pay a fee referred to as “toll charges” to the concessionaire.

Initial estimates had shown users would be required to pay about Sh572 per day.

Mr Zutt said the due diligence exercise had revealed some “irregularities” that Strabag would be required to clarify before the World Bank could unlock finances for the Sh67billion project.

“The World Bank found that the systems and approach to compliance procedures would not be commensurate with the circumstances of this project and the governance risks facing this sector. Accordingly, the World Bank Group is not prepared to participate in financing the consortium involved in this project as currently structured,” he said.

Mr Bett said on Thursday that the government was still keen on implementing the project with support of financiers including the World Bank.

Public sector

“The government will explore alternative ways of executing the project which may involve restructuring and re-design,” he said.

“We are also pleased that the World Bank has expressed willingness to support the project through any other feasible form of contract, either as a concession or as a conventional public sector project,”

The minister’s position that Kenya was willing to work with the World Bank reflected the difficulty in getting credible financiers after lending taps dried up with the effects of the recent economic crisis.

Finding a new financier would take time, further delaying the project. A financier relying on commercial loans would also make the project more expensive.

Removal of Strabag from the deal would also have legal implications that could cost tax payers billions of shillings in compensation for lost business.

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