The projects are accumulating pending bills, increasing in variation costs and could expose Kenya to legal compensation claims by the contractors if cancelled.
The Treasury told the IMF that it had concluded a stocktaking of projects and associated commitments as part of the reforms under the multibillion shilling deal with the fund.
The government, however, did not disclose whether the contractors were demanding compensation to quit the stalled projects.
The Government is negotiating with contractors to allow it cancel 437 stalled projects, started during the Mwai Kibaki and Uhuru Kenyatta regimes, setting the stage for compensation claims by suppliers.
The International Monetary Fund (IMF) has revealed the government is negotiating contractual terms with the suppliers of the projects and hopes to cancel them by March next year as Kenya seeks to contain expenditure in the wake of a cash crunch due to the Covid-19 pandemic.
The government was forced to review all State projects following revelations that hundreds of development projects worth Sh9 trillion had stalled.
The projects are accumulating pending bills, increasing in variation costs and could expose Kenya to legal compensation claims by the contractors if cancelled.
The Treasury told the IMF that it had concluded a stocktaking of projects and associated commitments as part of the reforms under the multibillion shilling deal with the fund and identified projects to be cancelled.
The government, however, did not disclose whether the contractors were demanding compensation to quit the stalled projects.
“Based on this extended exercise, we have identified 437 stalled or underperforming projects that should be cancelled. The stalled projects have not received budget funding for several years but have nevertheless remained in the portfolio of projects,” Treasury told the IMF.
“A Cabinet decision to terminate these projects is expected by March 2022, as there are contractual issues to be addressed prior to executing that decision,” the Treasury said.
Kenya has a bad history with contractors who fight to get government tenders but end up delivering hot air, only to hold the government at ransom should it cancel the tender. This has seen the government increasingly turn East, handing Chinese contractors legacy contracts at the expense of local contractors.
GROWTH POLICY
It also comes at a time the government has increasingly been coming under pressure not to initiate any new projects before completing old ones.
Two decades of debt-funded infrastructure growth policy have seen officials rush to initiate hundreds of projects beyond what the country can afford egged by connected tenderprenuers seeking to secure multibillion shilling deals with the State.
Kenya has borrowed a cumulative Sh7.7 trillion to date, most since the Jubilee government took power in 2013, and launched ambitious infrastructure projects.
The World Bank and the IMF have asked the government to cancel some of the stalled projects in exchange for multibillion shilling loans to plug revenue shortfalls.
The Kenya Public Expenditure Review published by the World Bank, showed Kenya had 4,000 ongoing projects many of which are significantly delayed, incomplete or stalled.
The Bretton Woods institution says that 522 projects worth Sh1 trillion ($10 billion) are completely dormant and should be considered for cancellation to save on costs.
The Bretton Woods institution said that 40 percent of the projects became white elephants during the transition to devolution system with 195 irrigation projects initiated in the second term of President Mwai Kibaki not being allocated funds by county governments.
About 53 projects are dormant because of diverse factors, including litigation, wayleave challenges, acquisition of land, and funding suspension by the donors. Other reasons for staling projects have been imposition of budget ceilings by the Treasury keen on taming expenditure.
The Northern corridor, Kenya’s strategic transit route with a mix of rail, road, pipeline, ports, and inland water ways, makes up 72 percent of the value of dormant projects where 22 white elephants require Sh798 billion to get to completion.
Other projects that have stalled include the water, irrigation, and environment sectors which have the highest number of dormant projects, totalling 216 whose cost is equivalent to Sh26.7bn of the cost of all the stalled projects.
DELAYED PAYMENTS
These sectors are followed by the security sector with 99 stalled projects, and the infrastructure sector with 89.
The huge number of stalled projects, which comes with delayed payments to contractors, is a major contributor to the cash crunch in the private sector that has precipitated job losses and reduced cash in people’s pockets
Many of the public projects lack a cost-benefit analysis as well as standardised appraisal and selection plans, effectively failing to match expenditure to available financial resources and producing white elephant projects.
Cancelling projects, however, comes with a cost of litigation as contractors are likely to sue the government and claim billions of shillings in damages.
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