Buses, trucks will be forced to use new expressway

Nairobi Expressway

Nairobi Expressway along Waiyaki Way, Westlands.

Photo credit: Pool I Nation Media Group

The cost of transporting goods and passengers on the Mombasa-Nairobi route is likely to increase after the government agreed to force trucks and buses on the proposed high-speed highway to be built by a consortium of US companies.

In an investor presentation, the consortium for the Mombasa-Nairobi Expressway disclosed that this is one of the six responsibilities of the government in the Sh477.9 billion public-private partnership (PPP).

The government has also agreed to adjust the toll fees charged by the consortium in case of exchange rate fluctuations, a move that will see the user fees paid by motorists rise when the shilling weakens.

Although the contractors of the toll, dubbed Usahihi Expressway, have insisted that some of the financing will come from local investors, a big chunk of the debt financing is expected to come from US and UK investors.

The 440-kilometre four-lane dual carriageway will be built by a consortium of US companies led by private equity (PE) firm Everstrong Capital LL.

Last week, Everstrong signed a development agreement with the Kenya National Highways Authority for the construction of the road that the US expects to rival the Chinese-built standard gauge railway (SGR), which traverses the same route.

“The GoK (Government of Kenya) has some important responsibilities: decommission existing roads for all trucks and buses,” reads part of the presentation.

Former president Uhuru Kenyatta’s administration had a similar arrangement with the Chinese financiers of the SGR in which importers moving goods to Nairobi from Mombasa port were forced to use the SGR.

President William Ruto reversed the directive when he came to power in keeping with his campaign promise to the coastal people that he would ‘bring the port back to Mombasa’.

The coastal town is a popular destination for business and leisure, with travellers having the option of either using the SGR or the existing Mombasa highway.

While the existing highway will be retained, buses and trucks will not have the choice of using the free road, a move that will push up freight charges and bus fares.

Passengers travelling on buses on an ordinary ticket pay between Sh1,300 and Sh1,500.

Kenya Railways Corporation raised the fare prices on the SGR train between Nairobi and Mombasa by 50 percent in January to keep up with the rising costs of running the train service, especially the higher fuel prices.

The price adjustments have seen passengers in first class coaches now pay Sh4,500 from Sh3,000 last year to travel between the two cities.

Those travelling in economy-class coaches are paying Sh1,500, up from Sh1,000.

Making it mandatory for buses and trucks to use the new expressway will force transporters to raise their costs to cover the toll fees.

Everstrong, which is the lead sponsor of the project, has not yet revealed the toll fees they will charge motorists in the 30 years they will operate the concession.

The government will also be allowed to revise the toll rate to hedge against exchange rate risks. This means toll fees will go up should the shilling be devalued, as happened recently with the Nairobi Expressway.

The construction of the road is set to begin in 2026 after the financial close in December 2024, the presentation shows. The entire project is set to end and start operating in 2029.

While Kenya has moved to adopt public-private partnerships (PPP), including investors building and charging toll fees, getting adequate traffic has been a challenge for most of the proposed toll roads.

Disagreements over the proposed toll fees for the Nairobi-Nakuru-Mai Mahiu toll road forced the government to pull the plug on the 233-kilometre highway.

KeNHA said the project was terminated because the contractor of the Mau Summit toll road, which included a consortium of French contractors, did not want to change the terms of the contract.

Through the Availability Based Service Payment Model, if the contractor does not get the specified traffic, the government would compensate for the deficit to guarantee investors returns, said KeNHA in a statement.

The agency said although the project was a PPP, the government was allocated the traffic risk due to a lack of historical data on the performance or acceptability of toll roads in Kenya.

There was also no reliable traffic data for toll revenue projections.

Construction of the toll road, dubbed Usahihi Expressway, is one of the deals signed by President Ruto in his three-day State visit to the US and is seen as rivalling the Chinese-built Mombasa-Nairobi SGR.

Local investors, including commercial banks and pension funds, will partly finance the projects. The project will have a debt-to-equity split of 70 percent and 30 percent, respectively.

Initially, Bechtel was to start the construction of the road in 2018 but did not agree with the government on the financing model. Bechtel wanted the government to pay for it through debt, but the government insisted it wanted it to be a PPP.

Bechtel would later return to the negotiating table with a different financing model, having teamed up with Everstrong.

With Kenya running out of headroom for borrowing, it has resorted to PPP to build most of its major infrastructure projects, including roads and dams. However, the cost of these projects, especially where they are funded using foreign-denominated loans, has tended to rise whenever the exchange rate has fluctuated, hurting consumers.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.