Why PPP model has not succeeded hereThursday May 17 2018
I gather that major changes are about to happen at the bureaucracy running the Public Private Partnership (PPP) Unit, which is based at the National Treasury.
Truth be told, we have not been very successful at rolling out the so called PPP projects.
More than six years since we introduced a PPP law complete with a bureaucracy to spearhead and roll out projects, not a single project has reached financial close.
To succeed, you must have a strong and efficient institutional PPP unit.
The North-to South Highway in Malaysia that literally cuts the country into two- and is reputed to be most successful PPP road project in the world’s emerging markets- has achieved success because that country has good institutions. The publicly-owned concessionaire running the system there is an efficient machine that has been completing and bagging one complex transaction after another every other year.
We have not been too lucky. Indeed, many people who used to tout the PPP model as the panacea for infrastructure development have long become cynics.
Last week, Transport and Infrastructure secretary James Macharia declared that the proposed Nairobi-Mombasa Expressway will be executed under a PPP arrangement.
That statement was greeted with cynicism because everybody watching this space in this country knows that we have had a poor run at rolling out PPP projects.
If we want to try the PPP model on roads, why don’t we start by tolling the Nairobi Southern By-pass.
It makes sense because the main reason why appetite for PPP road projects has remained low is inadequate feasibility studies that lead to unrealistic traffic revenue forecasts. Starting the experiment with the Nairobi Southern Bypass may be a good starting point because investors will be able to see clearer traffic numbers and revenue trends.
We are still waiting to see how the Nairobi -Mai Mahiu - Mau Summit- Nakuru Road that is currently being procured under the PPP model will progress.
After initially attracting big international players, the appetite subsided with big names pulling out of contention. I can’t wait to see the first successful and functioning road toll system in Kenya.
We were told many months ago that the Nairobi-Thika Highway would be tolled and that the government had earmarked a number of roads on which it plans to install tolling systems.
Many months ago, the National Treasury even went to the extent of going to the market to procure a private operator to manage tolls on the chosen road.
We were told that the transaction adviser was to assist the Public Private Partnership (PPP) Unit in contracting a tolling operator for Kenya’s First Mover Toll Roads PPP programme through a PPP arrangement.
The projects earmarked for tolling included the Nairobi-Mombasa Highway, the Second Nyali Bridge that will connect Mombasa Island to the mainland, the Nairobi-Nakuru-Mau Summit Road, the Nairobi Southern Bypass, and the Thika superhighway.
I must confess that I am not a fan of road tolls.
Is it really conceivable that a functioning and efficient road toll system can work on the Nairobi-Thika Highway?
Road tolls work where first, you have an alternative route that is always slow and congested- and secondly-is long and expensive.
Apart from Thika Road, there is no other channel to Central Kenya from Nairobi. Roads are public assets. And as a taxpayer, you cannot just curtail me from travelling to Thika whenever I want by erecting tolls on the only channel to that town.
Tolling of roads in emerging markets have not worked very well because the cost of building roads in countries like ours are just too prohibitive. With expensively constructed roads, the market tariff will be inevitably pushed to the roof.
And when you introduce a subsidy, you kill and invalidate the very rationale for introducing tolls in the first place. Tolls only work when you have very high volumes and tariffs lower than the price of buying a bus ticket on the same route.
Clearly, the economics is simply unworkable in our environment.
A working road toll system will also require us to invest in expensive electronic and world class infrastructure including working vehicle registries and robust databases.
We will need to have a system that can read your number plate and automatically send you the bill. You must have good systems and strong and competent institutions.