A demand for multi-billion-shilling service fees over 13 years prompted the Kenyan government to cancel a deal with a consortium of French contractors for the construction of the Nairobi-Nakuru-Mau Summit Toll Road.
Treasury disclosures show the payouts to the contractors would have been financed by additional borrowings, which was deemed untenable by the government given the tight public finances.
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 highway between Rironi and Mau Summit to become a four-lane dual carriage and the strengthening of 57.8km of the between Rironi and Naivasha. It also involved the operation and maintenance of 12.43km of the highway between Gitaru and Rironi.
The deal was, however, cancelled last year, with the State going back to the drawing board for a new plan for the key infrastructure project.
The controversial clause on service fees is singled out as “the straw that broke the camel’s back”, leading to the termination of the contract.
Although the project revenue projections indicated a net surplus in revenues on attainment of the concession period, the Kenyan government was obligated to make service payments to the project company in the initial 13 years of the venture, after which the toll revenues were expected to break even with the project costs.
“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 without specifying the value of service fees.
“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.”
People familiar with the contract said the service fees would run into billions of shillings.
In the deal structured with the French contractors, the Kenya National Highways Authority (KeNHA) also retained demand and revenue risk associated with collections on the 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.
President William Ruto and other senior State officials in July 2024 presented the Mau Summit Highway project to Chinese investors following the fallout with the French partners.
“We are ready to expedite discussions and conclude on details on the proposed projects for implementation,” he said during a high-level meeting with Wang Yi, the Member of the Political Bureau of the Communist Party Office of China Central Committee and Director of the Office of Central Committee for Foreign Affairs.
The highway is part of the Northern Corridor, which is one of the busiest and most important transport routes in East and Central Africa.
The corridor provides a gateway through Kenya to the landlocked economies of Uganda, Rwanda, Burundi, Southern Sudan, and Eastern Democratic Republic of Congo.
The Nairobi-Mau Summit highway serves as a transportation link for approximately six million Kenyans.
A study by KeNHA indicated that the vehicular traffic on the highway averaged 14,450 vehicles per day in 2017 or 5.3 million per year. Traffic is projected to increase by seven percent from 2017 to 2025, then by six percent until 2035, and by five percent until 2045 to reach an average number of vehicles per day of 60,000.
Besides the Nairobi-Nakuru-Mau Summit project, the State is also planning to build a major road between Nairobi and Mombasa through a public-private partnership (PPP) arrangement. The PPP committee has already granted the first stage approval for the planned 473-kilometre Nairobi-Mombasa Expressway, paving the way for the advancement of the project into the development phase.
The Treasury said the project is expected to cost about $3.6 billion (Sh465.99 billion) and is tipped to clear heavy congestion and slow speeds between the two cities.
The multi-billion shilling Nairobi-Mombasa Expressway project had earlier attracted interest from firms, including Korean Overseas Infrastructure and Development Corporation and American firm Bechtel Executive in partnership with American firm Everstrong Capital.
Bechtel had in 2018 been selected by the government but the agreement did not progress following a struggle 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 forced the government to borrow billions of shillings a path the Treasury resisted.