Talks could see road builders repay bank loans in 15 years

Road construction on Kisauni road in Mombasa on October 17, 2014. Talks will be opened with commercial banks to extend loan repayment tenure for road contractors to about 15 years from about seven years that banks prefer. PHOTO | KEVIN ODIT |   NATION MEDIA GROUP

In Summary

• Renegotiations on the extension of payment period for roads comes as the government strives to construct 10,000Kms of roads in the next 10 years.
• However, in a show of support of local roads contractors, the government has committed to sign agreements directly with banks to ensure the contractors access money to build roads.
• A total of 10,000Kms of roads are to be constructed in the country in the next 10 years at an estimated cost of Sh300 billion. Eighty per cent of the roads will be in rural areas.

By JOSHUA MASINDE
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Talks will be opened with commercial banks to extend loan repayment tenure for road contractors to about 15 years from about seven years that banks prefer.

Renegotiations on the extension of payment period for roads comes as the government strives to construct 10,000Kms of roads in the next 10 years.

According to the Kenya National Highways Authority (Kenha) general manager, Mr Samuel Omer, the fresh push by the government is in bid to match the financing with the length of the project in order to avoid straining the Treasury in repaying loans advanced to contractors under the new infrastructure building model.

“The length of time that banks will lend you money is within seven years. But, infrastructure projects are long-term as they take between 15 years and 20 years. We want to address that mismatch,” Mr Omer, who was speaking at an infrastructure meeting convened by the Institute of Engineers of Kenya in Nairobi on Friday, said.

Lack of long-term financing by local banks was cited as one of the key reasons why majority of local contractors failed to make it to shortlist of contractors to undertake major infrastructure projects that have mostly been awarded to Chinese firms.

GOVERNMENT COMMITTED
However, in a show of support of local roads contractors, the government has committed to sign agreements directly with banks to ensure the contractors access money to build roads.

Earlier this year, the government adopted an annuity model in road construction. Upon completion, the government pays the contractors periodically through banks. The contractors will also maintain the roads for a set period.

Under annuity, the government is to negotiate uniform lending rates on loans from banks while the contractors will design, build and maintain the roads.

A total of 10,000Kms of roads are to be constructed in the country in the next 10 years at an estimated cost of Sh300 billion. Eighty per cent of the roads will be in rural areas.

To tap into annuity financing, Savannah Cement is positioning itself to supply construction materials to prequalified road contractors.

CONTRACTORS SHORTLISTED

The cement maker developed a construction material product known as Hydraulic Road Binder to be used in stabilisation of soils and gravels in road construction projects.

“As a key materials supplier, Savannah Cement acknowledges that existing infrastructure funding gaps can be drastically reduced by eliminating inefficiencies and adoption of appropriate technologies and financing strategies such as the annuity programme,” Savannah Cement managing director, Mr Ronald Ndegwa said.

So far, 49 road construction contractors have been shortlisted in the development of the first phase of 2,000Kms of roads that are set to cost Sh90 billion.

A further 3,000Kms of roads will cost Sh102 billion with the remaining 5,000Kms to cost Sh103 billion. Construction work for the first phase is expected to start in February 2015.