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US firm races for pension billions for Nairobi-Mombasa Expressway
The Nairobi Expressway Mlolongo Toll Station. US firm has begun raising funds for the construction of the planned 440-kilometre Nairobi-Mombasa Expressway.
US infrastructure investment manager Everstrong Capital has kicked off a race to raise capital from local pension funds for the construction of the planned 440-kilometre Nairobi-Mombasa Expressway.
In a new development, Everstrong Capital has struck a deal with CPF Capital & Advisory—a subsidiary of CPF Financial Services which manages pension funds—in a bid to raise billions of shillings from retirement benefits assets.
As part of the deal, CPF Capital & Advisory will offer transaction advisory and placement services for the planned fundraiser for the Usahihi Expressway Project—a four-lane dual carriageway linking Nairobi and Mombasa, which is targeted to clear heavy congestion and slow speeds between the two cities.
Data by the Retirement Benefits Authority (RBA) showed that the retirement benefits assets under management stood at Sh1.97 trillion as of June 30, 2024—an indication of the financing potential of the cash-rich pension funds.
Fund managers and approved issuers held the majority of the assets amounting to Sh1.88 trillion. The assets under management included Sh348.70 billion of National Social Security Fund cash, which was managed by six external fund managers.
Everstrong Capital in May 2024 said it had signed a $3.6 billion (Sh465.12 billion) agreement with the Kenya National Highways (KeNHA) Authority to build the Nairobi-Mombasa Expressway.
"The project anticipates attracting investments totalling $3.6 billion, sourced from international investors, development agencies, pension funds, and an exceptionally large number of Kenyan private investors," Everstrong said in a statement in May 2024, which coincided with President William Ruto’s State visit to the US.
The Usahihi Expressway Project had earlier attracted interest by firms, including Korean Overseas Infrastructure and Development Corporation (KIND) and American firm Bechtel Executive in partnership with a US Capital Investment Company Everstrong Capital.
Bechtel had in 2018 been tapped by the government but the agreement did not progress following a tussle on how the project construction would be financed.
A report published by the Parliamentary Budget Office (PBO) in 2021 indicated that the US firm rejected Kenya’s offer to have it construct the road and recover its costs from charging motorists toll fees.
The PBO, which advises lawmakers on the economy and budget, said Bechtel had settled on a model where the State pays it for building the road instead of recovering its money through user fees.
This would have compelled the Kenyan government to borrow billions of shillings—a position that doesn’t bode well for the economy that already faces immense debt repayment pressure.
Sources at KenHA said that Bechtel also demanded a virgin land corridor for the project—a request that the State was uncomfortable with since it would require costly acquisition of land.
Besides the Nairobi-Mombasa Expressway project, Kenya is also targeting to build a dual-carriage road between the capital and Mau Summit on the PPP model.
The Kenyan government had initially signed a deal with a consortium of French contractors to build the Nairobi-Nakuru-Mau Summit Toll Road but later terminated the agreement on concerns about the multi-billion-shilling service fees that were demanded by the Europeans over 13 years.
The consortium, made up of Vinci Highways SAS, Meridian Infrastructure Africa Fund, and Vinci Concessions SAS, was primed to build the Sh150 billion road and recoup its investments in 30 years by charging toll fees.
The project had three components including the widening of 175 kilometres of the A8 highway between Rironi and Mau Summit to become a four-lane dual carriage; the strengthening of 57.8km of the A8-south highway between Rironi and Naivasha and the operation and maintenance of 12.43km of the highway between Gitaru and Rironi.
The Treasury however revealed that Kenya pulled out of the deal because of a punitive clause on service fees that would have forced it to borrow funds.
“To finance the service payments for the initial 13 years, the Government of Kenya planned to obtain credit with the expectation that the toll revenue collected over the concession period would be used to amortise the debt,” the Treasury said.
“However, with the prevailing tightening of the country’s fiscal space, it was considered prudent to avoid taking additional financial risk exposure through a credit facility for the project. Consequently, the contracting authority initiated a voluntary project termination process on the account of affordability and fiscal sustainability concerns,” it added.
In the deal structured with the French contractors, KeNHA also retained demand and revenue risk associated with toll collections on the Nairobi-Nakuru-Mau Summit Toll Road project—meaning that the State would cover for revenue shortfalls if there were fewer users than expected.
The strategy was that the State would utilise surplus revenues accruing from toll collections to fund additional road infrastructure developments.