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Rotich warns of forex risk in PPPs

Kamau Thugge
Principal Secretary Kamau Thugge. FILE PHOTO | NMG 

The National Treasury has warned of the shilling’s exposure if local banks continue to take a back seat in the financing of public private partnership (PPP) projects.

Only the KCB Group #ticker:KCB and CfC-Stanbic Bank #ticker:CFC – out of Kenya’s more than 40 banks – have shown interest in financing the PPP project since a legal framework was developed in 2013.

A total of 70 projects have been cleared for financing via PPPs, with six of them having been negotiated and contracts signed for rollout. The cleared projects cover transport, housing, energy, water and health sectors. Others are in agriculture, manufacturing, education and tourism.

Since the project revenues are to be earned in shillings, the Treasury foresees a short term risk where overreliance on foreign lenders and hard currencies initially raises the cost of debt dramatically.

“Government is keen on managing its exposure to foreign currency fluctuations, and to reduce the mismatch between foreign-currency denominated project finance, and local currency-denominated project revenue streams,” Principal Secretary Kamau Thugge said when the Treasury launched the PPP information portal in Nairobi on Tuesday.

“It is essential that local banks and financiers participate in PPPs to mitigate against this disparity ...and this should therefore not only act as challenge for local banks but also an opportunity to find ways of making more local currency financing available for PPP investments.”

The KCB Group is financing the Intex RAF Ltd, a firm picked to construct the Ngong-Kiserian-Isinya and Kajiado-Imaroro road under the annuity programme.

Treasury Cabinet Secretary Henry Rotich said the State was also keen on tapping the potential of Nairobi Security Exchange, pension funds and insurance firms in a bid to build a large pool of shilling-denominated project financing.

The Treasury said it expects the CfC-Stanbic close negotiation on financing two other projects before end of this year. The PPP project disclosure portal launched yesterday provides all the information that the investors and public need to know.