Kenyans set to pay for use of roads built by private money

President Uhuru Kenyatta has lined up mega infrastructure projects to be executed in partnership with private investors setting consumers up for payment of user fees for many of the public services currently accessible for free.

Motorists will be charged road tolls, tenants will pay higher rents for public housing and commuters will pay higher fees on the trains if private money is used to build or upgrade the infrastructure seen as Mr Kenyatta’s legacy projects.

Private investors in public projects have to recoup their money – usually through pay-for-use arrangements such as road tolls.

Under the Public and Private Partnership (PPP) arrangement, investors develop the infrastructure and are given a defined period to operate it for purposes of recouping their investment before ultimately handing over the asset to the government.

The arrangement commonly known as Build Operate and Transfer (BOT) has been used in many parts of the world – including South Africa, India and France to build national infrastructure.

“We have to embrace tolling. Look how far it has taken China and India,” Transport secretary Michael Kamau, in whose docket most of the projects fall, said.

The list of approved projects that are open to tolling include construction of a second bridge at Nyali and the building of a dual carriage superhighway between Mombasa and Nairobi and on to Nakuru.

Investors who put their money into Nairobi’s planned 100 kilometre commuter rail are expected to recoup their investment by charging users market rate fees while those who invest in Kenyatta University hostels will recover their money from the accommodation fees paid by students.

Other projects include the construction of 60,000 low cost housing units and 66,000 units for the police.

Inclusion of private players is expected to hasten the pace of implementation while ensuring that the government whose coffers are strained by the ever-rising wage bill escapes the trap of accumulating more public debt.

The pay-for-use arrangement is usually preferred for such multi-billion-shilling projects because it enables the government to meet its development obligations without having to incur debt.

Besides, completion of such mega infrastructure projects should spur economic growth that ultimately translates to higher tax revenues.

In the 10 years of Kibaki presidency, between 2003 and 2013, public debt almost tripled to Sh1.7 trillion from Sh613 billion as the State raised money from both local and global markets to fund key infrastructure such as Thika Superhighway.

Kenya’s public debt burden currently stands at Sh2 trillion.

“PPPs are seen as an important tool for producing an accelerated and larger pipeline of investments that helps to reduce the infrastructure deficit,” the director of PPP unit at the Treasury, Stanley Kamau, said in a presentation early this year.

The government has been weighing the possibility of charging motorists a fee for use of Thika superhighway but has yet to materialise.

Motorists pay for maintenance of roads through fuel levy, charged on petroleum pump prices and any toll charges would be in addition to the fee.

Tolls, however, remain an unpopular model of operation among citizens across the globe, who see it as a form of double taxation.

South Africa decision to increase the number of tolling points on its roads has recently caused a major uproar despite the citizens’ enjoyment of the world-class infrastructure built in the run-up to its hosting of the soccer World Cup in 2010.

The government has since shelved the idea – a decision seen to be informed by next year’s general election.

In Kenya, the Kenyatta Cabinet has approved 47 projects to be undertaken by different investors expected to seek different support mechanisms and guarantees from the government.

Kenya enacted a Public Private Partnership law early this year, paving the way for the government to support private investment into public infrastructure through incentives such as provision of land and guarantees.

The huge financing gap for infrastructure development, estimated at between Sh170 billion and Sh255 billion annually, has made PPPs an obvious choice for the Jubilee coalition to build its own legacy without necessarily following the Kibaki script.

At the tail end of his term Mr Kibaki applied high gear in the launch of projects conceived under his tenure.

“He only has to redefine how things are done, and you can see he is a bit forceful in terms of being vocal than his predecessor in upholding Kenyan interests,” said Macharia Munene, a history professor at the United States International University (USIU) in Nairobi.

The aggressiveness is expected to reflect in the way that the government bargains with the private investors during the crafting of these deals.

Mr Kenyatta, whose family has vast business interests in various sectors of the economy, also hopes to bring private sector efficiencies to government.

The President’s recent use of private sector experts to craft the grand parastatals reform plan has been seen as the clearest signal of his resolve to look outside government for solutions to the many public sector challenges.

“One can only hope that the private sector will make an immediate impact in helping to make government plans a reality, otherwise we run the risk of the public and private sector forming an unholy alliance to drain national resources,” said Economics lecturer at the University of Nairobi, Dr X.N. Iraki.

Turning to private investors also gives the Jubilee Coalition some leeway to continue with its anti-western diplomacy even as it tries to shield the economy from possible negative influence of the ICC cases.

Investors from different parts of the world have been lining up for a piece of Kenya’s growth promise complete with lenders to bankroll them.

Nigeria’s African Finance Corporation has, for instance, been eyeing the Lapsset project (Lamu Port) while 17 companies, including Samsung, Hyundai and leading rail companies from Europe and China have expressed interest in the Nairobi commuter rail.

The rail project involves rehabilitation of 100km of the existing rail system, construction of 5-7 km of new track to the Jomo Kenyatta International Airport (JKIA) and the upgrade or construction of stations and other facilities along the network.

The President’s pet project of free laptops to primary schools will, however be fully funded, having been allocated money in the Budget.

Kenya’s tax revenues have risen steadily in the past 10 years but citizens have been ranked as some of the most heavily taxed in the world.
This year the government introduced a 1.5 per cent railway levy on all imported goods to help it build a standard gauge rail.

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