President Uhuru Kenyatta with Deputy President William Ruto (2nd right)
& Mombasa Governor Hassan Joho (right) at the launch of the standard
gauge railway line in Changamwe, Mombasa County, on November 28, 2013.
PHOTO | FILE
NATION MEDIA GROUP
Kenya is a railway nation. The birth of
the polity known as Kenya can be directly traced to the construction of
the Mombasa-Uganda Railway by the Imperial British East Africa Company
over a century ago.
It is, therefore, timely that as
the country celebrates a half century of independence, it is animated
with discussions of another railway.
The standard gauge railway project (SGR) has always been touted as a socio-economic game-changer.
Credible
analysis from a number of institutions including the World Bank, the
African Development Bank and the Economist Intelligence Unit are all
unanimous that Kenya can reap an economic dividend of between 1-2 per
cent in GDP growth by fixing the Northern Transit Transport Corridor, of
which the railway is the single most important component.
Few
can dispute the imperative of the railway. Some, though, have loudly
raised questions as to the scope, design, financing and implementation
of the project.
The public debate on the SGR project
brings to the fore the complex nature of huge infrastructure projects
and the strain they put on policy-makers and implementing agencies.
For
public bodies implementing a significant infrastructure project such as
the SGR, two factors demand special consideration – resource constraint
and the value for money imperative.
First is the
resource constraint problem. Simply put, the country needs to acquire an
expensive asset, yet it doesn’t have the money to invest in it right
now.
The estimated costs of the SGR at Sh327 billion
cannot be accommodated within the national budget without cutting
funding to other essential services even if it is spread over many
years.
In such a case, borrowing becomes the most
viable option. Given that the sums to be borrowed are substantial, the
giver of the loan must be sufficiently persuaded to put money in such a
project.
International lenders, whether multilateral
financial institutions, commercial banks or individual governments have
different lending conditions based on their risk assessment.
Some
institutions and governments are more risk-averse than others. Others
have slower and more elaborate lending procedures. Clearly, lending
conditions can substantially delay even a financially sound project.
Meanwhile, there are other lenders who have shown more flexibility and
high tolerance for risk in project financing.
For
project implementers, therefore, while there may be a number of possible
financiers, the choice is restricted to finding a financing source with
the capability, and willingness to accommodate a risk of a massive sum
of over Sh327 billion to a single project in a single country.
This
is not as easy as many would like to believe. Indeed, given the risk
profile of countries in sub-Saharan Africa, many projects have never
left the conceptual stage because of this hurdle alone.
The
second problem revolves around the question of value for money. The
popular view is that public entities get best value by conducting a
competitive open procurement process.
While this may
be true for routine procurement of widely available goods and services,
such procurement process does not always yield value for money.
That
is why our Public Procurement and Disposal Act 2005 prescribes six
alternative procurement procedures to the standard open tender.
One
of the circumstances in which the law permits a procurement entity to
use alternative procedures is where financing arrangements in the form
of donor funds are meant for project implementation.
Getting value for money simply means getting the best possible deal in the circumstance of a given project.
Technically,
one will consider the risk profile of a project, the available
financing, its complexity, and the time available or desirable to
implement the project.
It is by considering these and
other factors as a whole that procuring entities decide on procedures
and whether to use options such as design, procurement and construction
(commonly referred to as EPC contracts), or add a financing component.
It
appears the proposed SGR contractor has agreed to arrange financing,
conduct design, construct the rail tracks, stations and depots and
supply and install facilities and rolling stock for the line, all at a
cost of Sh327 billion.
I suspect that if one was to
undertake a sober analysis of the project based on the technical
considerations of risk profiling, its unique circumstances due to the
huge capital costs and the potential socio-economic benefits it has for
the country, it may very well turn out to be great value for money.
Mr Odhiambo is an advocate and partner, Kiptinness & Odhiambo Associates, Nairobi.
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