Will Mombasa expressway take shape?

Whether Everstrong Capital will succeed where one of America’s largest construction companies couldn’t remain an open-ended question.

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Will the proposed 473-kilometre Mombasa Express Highway become a reality this time around?

The ball is now in the court of the American Private Equity firm- Everstrong Capital LLC- which signed a deal with the government during President William Ruto’s recent high-profile visit to the United States.

It is important to note that, contrary to popular belief, the American government itself will not be putting in its own money on construction of the road.

The party we have signed a deal with is a totally private outfit whose mandate is to raise billions of dollars from international investors including from our own local institutional investors with the appetite for this massive project.

I will only start celebrating at the point Everstrong Capital will have announced that they have reached conjuncture described in Private Equity lingo as ‘financial closure’.

Everstrong Capital is not very well-known in Kenya. One of the major deals they closed was an acquisition in the Athi River- based 80MW heavy fuel oil power plant, Gulf Energy, in 2018.

The fund also purchased a majority stake in an entity known as Seal Towers Ltd that owns mobile telephone towers and base stations.
Clearly, raising the hundreds of billions to fund construction of the Mombasa Expressway, will be a steep hill to climb for Everstrong Capital LLC.

We must not forget another American company, BNT Construction and Engineering Company, popularly known by the acronym Bechtel, unsuccessfully tried to deliver the very same project. One of the largest construction companies in America, Bechtel could not get financial darts in this massive project in a row.

The company signed a government-to-government (G2G) deal way back in July 2015. Then they signed a commercial agreement with the Kenya National Highways Authority (KeNHA) in 2017. But the National Treasury and the company could not agree on the financing proposal which the Americans have on the table.

The National Treasury insisted on an arrangement whereby Betchel fundraises and uses its own money to build the road under a PPP arrangement known as build operate and transfer and where the concessionaire recovers its investment and margin by charging toll fees to users.

The Americans insisted on the conventional route whereby the government lends its balance sheet to guarantee borrowings from export credit agencies, development financial institutions, and European export-import banks.

The Americans presented a financial proposal whereby financing was to come mainly from US and United Kingdom export credit agencies, including US Exim, OPIC and UKEF of the United Kingdom.

As it turned out, the project did not reach financial closure because the government flatly refused to issue sovereign guarantees or any other arrangement likely to cause to take up major contingent liabilities.

The government insisted on an arrangement similar to what was followed in the structuring of the financing for the Nairobi Express project where the Chinese contractor- China Roads and Bridges- fully funded construction of the road from its own money and the financing was structured in such a way as to keep the contingent liabilities on the government completely minimal.

Unlike the Chinese, the Americans are very mean with their money. Even entities such as OPIC and IDFC will only step in to give guarantees only when significant American goods and services are to be supplied under a given contract.

Indeed, the guarantees are made principally to protect American companies just in case the borrower country is unable to pay the American companies for goods and services supplied.

Whether Everstrong Capital will succeed where one of America’s largest construction companies couldn’t remain an open-ended question.

Let’s face it, we have not done so well with big infrastructure concessions. At a ceremony in Paris in 2020, former president Kenyatta witnessed the signing of a commercial contract with the French construction conglomerate company, Vinci Highways, to build for us the largest pay- as- you- drive highway between Mau Summit in Nakuru and Nairobi.

Estimated to have a capital outlay of Sh160 billion, it was at that time touted to be the largest PPP road concession in Africa.

The French firm was to build the road with its own finances, take ownership control of the highway, charge users toll fees to recover its investment, and finally revert ownership to the state after a period of thirty years.

As it turned out, the French company was unable to reach financial closure. The project was abandoned.

The writer is a former managing editor of The EastAfrican.

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