US company lobbies Kenya for $3bn road contract

American contractor Bechtel eyes deal for the construction of the Kenya’s first expressway. PHOTO FILE | NATION 

In Summary

• American contractor Bechtel has told the Kenyan Treasury that $3 billion Nairobi-Mombasa expressway will over 25 years generate nearly twice the money spent on the project.
• Motorists are expected to cruise uninterrupted on the highway at speeds of up to 120km per hour, halving travel time to four hours.
• Users will, however, pay toll charges for the luxury of cruising through the route that is currently characterised by heavy congestion and slow speeds.

By BUSINESS DAILY
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The Ksh300 billion ($3 billion) Nairobi-Mombasa expressway, whose construction is set to begin in July will over 25 years generate nearly twice the money spent on the project, the American contractor
Bechtel has told the Kenyan Treasury.

Bechtel executives made public the firm’s estimate last week when they met Treasury officials to fine-tune the financing of the 473-kiometre road — the region’s first high-speed motorway that is expected to halve travel time between the two major cities.

“The financing model was reviewed on March 13, 2018 with National Treasury, and shows a net cash positive position of $5.7 billion (Ksh570 billion) for the Government of Kenya over 25 years under the Bechtel government-to-government model,” the contractor says in an executive note seen by the Business Daily.

Motorists are expected to cruise uninterrupted on the highway at speeds of up to 120km per hour, halving travel time to four hours.

Users will, however, pay toll charges for the luxury of cruising through the route that is currently characterised by heavy congestion and slow speeds.

“The Bechtel model will require the Government of Kenya to record debt obligations on the government’s books,” Bechtel says in what is set to further grow Kenya’s mountain of debt, whose rapid build-up has triggered warnings from international agencies like the IMF.

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Bechtel says in the document that Kenya will next month appoint a lead arranger for the loan agreement with the US Export-Import Bank and the Overseas Private Investment Corporation (OPIC).

Treasury secretary Henry Rotich did not respond to questions on the matter.

US vs China financing

The contract has effectively ended the long freeze in US financing of Nairobi’s big infrastructure projects currently under the stranglehold of China.

Signing of loan agreement for the $3 billion project, whose cost excludes land acquisition, is expected in June and ground breaking a month later. The project will require 5,000 workers on site and is expected to take three years.

Early works will start from Nairobi’s Mombasa Road to Konza Techno-City through Sultan Hamud.

The road will have interchanges to connect to the standard gauge railway and existing roads, along with 76 overpasses and 21 underpasses.

Besides creating jobs, suppliers of constructions materials are set to emerge as big winners.

Early estimates indicate the project will consume 100,000 tonnes of cement and 40,000 tonnes of steel.

“The project can start construction in July 2018, with the first useable section of the expressway to be delivered in early 2020, and an additional 50 km opening every six months thereafter.

This sectional approach provides useable sections which can be tolled during construction.”

The new dual carriageway will have two lanes on either sides and will run parallel to the current Nairobi-Mombasa Road.

The project contract was signed last August and was single-sourced to the American firm, keeping with the tradition of state-to-state financing deals that favour companies from the financing country.

EPC model

Bechtel is expected to execute the entire project, including preparation of road designs, sourcing of equipment and materials as well as actual construction under the engineering, procurement and construction (EPC) contract.

The American contractor, which recently set up its regional offices in Nairobi, is lobbying Kenyan authorities to choose the EPC model, arguing that the alternative public private partnership (PPP) would cost five times more at $15 billion (Ksh1.5 trillion) and take much longer to complete.

Bechtel warns that should Kenya opt for the alternative route, it will find itself in a negative cash flow territory and the State would be left with the burden of paying out $5.4 billion (Ksh540 billion) over 25 years.

“This clearly shows that the Bechtel model is significantly more advantageous in financial terms,” says the contractor.

The Kenya National Highways Authority (KeNHA) director-general, Peter Mundinia, on Monday said construction would take the EPC model but operations, maintenance and tolling would be done under PPP.

“The Government of Kenya has several options available to bring in the private sector. By securitising or privatising the asset, the government can reduce its contributions during construction, and/or retire the debt obligations. The government could do this as early as end of 2021, or wait until 2023/2024 when the project is almost complete,” Bechtel says in the document.

“The longer the government waits to securitise or privatise the revenue, the better return on the asset the government is likely to achieve.”