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Kenya looks to private investors to finance transport infrastructure

Kenya’s transport networks are expected to see a number of significant upgrades in the coming years as a spate of multibillion dollar projects break ground, with the private sector’s involvement set to expand following the passage in 2013 of the Public-Private Partnership (PPP) Act.
In November the government issued a list of 47 approved “priority” PPP projects, including a significant number in the transport sector, ranging from airports and seaports to highways and railroads.Among the list was the Lamu Port project, part of the larger Lamu Port and Lamu-Southern Sudan-Ethiopia Transport Corridor (LAPSSET). The $26bn development includes a seaport and airport in the northern coastal city of Lamu, as well as improved connections to regional commerce centres in Ethiopia and South Sudan. The private sector is expected to finance 70% of the development’s cost.
Graphic courtesy of International Monetary Fund
Speaking to OBG, LAPSSET Chairman Francis Kirimi Muthaura discussed the project’s broader implications. “The purpose of LAPSSET is to provide northern Kenya with access to international markets. Through the corridor, counties far from Nairobi will now have the infrastructure to support the export of their key products,” he said.Construction of the transport corridor, which would run across Kenya’s sparsely populated north and include highway, railway and pipeline infrastructure, is already under way in some areas. Work on the new 20-berth seaport in Lamu was due to begin in early 2014, but the project has experienced delays, in part due to a temporary shortage of funds, according to local press reports.Nairobi-Mombasa railway
Kenya has a PPP unit in the National Treasury, responsible for overseeing the coordination of PPP projects, and in recent years, the country has seen a number of reforms aimed at increasing participation by the private sector in public infrastructure projects. Among the more prominent initiatives in addition to the 2013 PPP legislation included the passage of an institutional PPP framework in 2009, a governmental PPP policy statement in 2011, and a World Bank-funded Infrastructure Finance and PPP project in 2012.However, while PPPs are set to be an important form of financing infrastructure upgrades, the government has sought alternatives. A $5.2bn standard-gauge railway between Nairobi and the southern port city of Mombasa is being financed in large part by the Export-Import Bank of China, which is set to provide 85% of project funding. Chinese state-owned China Road and Bridge Corporation began construction on the line in late 2013.

On completion of the Nairobi-Mombasa segment, which is expected in 2017, travel time between the two cities will be reduced from 15 to four hours. Future extensions are planned for Uganda, with branch lines to the Democratic Republic of Congo, Rwanda, Burundi and South Sudan.

The railway is part of a larger push to improve efficiency at the Port of Mombasa. While the port is considered to be one of the best in East Africa, the roads on which most exporters rely to reach it are in need of an upgrade.

Nairobi area infrastructure
Reducing congestion in and around Nairobi has been another priority, led by a bid to launch Kenya’s first urban railway system, Nairobi Commuter Rail (NCR).

The project involves the rehabilitation of around 160 km of the existing rail system within Nairobi, as well as the construction of a new line to the Jomo Kenyatta International Airport.

The commuter rail project has been in the works since 2009 but has experienced delays. As of late 2013, four of 26 stations planned were operational.

According to the priority list of PPP projects, the government is seeking a partner to rehabilitate 100 km of the existing Nairobi railway under a PPP model. This would involve replacing existing track, signaling systems, stations and rolling stock.

Efforts to boost rail ridership have complemented upgrades to Nairobi’s roads. The Nairobi Southern Bypass, currently under construction, and the Nairobi-Thika Road, completed in 2012, will help reduce downtown traffic, as well as improve the movement of cargo throughout Kenya, by diverting vehicles away from Nairobi’s city center.

The Kenya National Highways Authority plans to outsource the management of both roadways to private contractors under separate long-term operation and maintenance concessions, with contracts currently in the early stages of a bidding process. The concession arrangements will be funded via newly established toll stations along both roadways.

The Nairobi Outer Ring Road, which serves as a major arterial road for the city’s north and east districts, will also be improved. The African Development Bank is set to finance 89.8% of the $130m improvement project via a $115.9m loan, while a further $5m will be made available as a grant.

Source: Oxford Business Group

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