KCB allocates Sh40bn as banks step in to fund road construction

Two local banks have stepped in to finance the government’s plan to construct 10,000 kilometres of roads over the next five years.

At a meeting held on Friday at the Kenyatta International Convention Centre and chaired by Deputy President William Ruto, Kenya Commercial Bank (KCB) and Co-operative Bank agreed to finance the infrastructure project that requires nearly Sh300 billion to complete.

KCB Chief Executive Officer Joshua Oigara said his bank would allocate Sh40 billion with Co-operative Bank of Kenya committing Sh8 billion.

“We as the banking sector are committed to support this initiative to expand the road network in our country,” Mr Oigara said.

“We welcome the government’s initiative to allow the private sector play a role in the road constructions and we will support the programme to its success.”

Mr Ruto’s meeting with the lenders came on the backdrop of reports that the local lenders were shying away from funding the programme under the Public Private Partnership due to ambiguity of the scheme and repayment terms.

“The challenge we are facing is that the participation of our local financial sector has not been promising and we are trying to see how we can bring it on board so that we can discuss what the challenges are,” Public-Private Partnership Unit Director Stanley Kamau said on Tuesday.

Under the model, contractors will access loans guaranteed by the National Treasury enabling them to design, construct and maintain the roads.

The National Treasury will then repay the loans in equal instalments (annuity) over eight years, starting from the time a given road is completed.

The banks are expected to lend up to Sh178 billion to finance the entire 10,000 kilometres of road expected to be completed in 2017.

PUSH UP COST

Banks participating in the State’s annuity financing programme are expected to rake in Sh9.1 billion every year as interest on loans.

Projections also indicate that interest payment would push up the cost of developing a 10,000-kilometre road network to Sh351.2 billion by the time the last annuity payment is made in 2024.

With the huge funding gap after KCB and Co-op bank’s pledges, other financiers are expected to join in to close the deficit that had threatened Kenya’s most ambitious infrastructural project since independence.

So far, the government has allocated Sh500 million to start of the project launched last year.

At the moment, Kenya has Sh180 billion a year infrastructure funding gap, with Sh40 billion attributed to road construction.

In the annuity plan, 20 per cent of the roads are expected to be highways as the government looks to spend Sh25 million for every kilometre of rural roads and between Sh50 million and Sh80 million per kilometre of urban and trunk roads.

The project is being undertaken jointly by all roads agencies — Kenya Urban Roads Authority, Kenya National Highways Authority and Kenya Rural Roads Authority.

The Treasury on Friday gazetted regulations that would operationalise a special fund to finance the road project.

The first 650 kilometres of the roads project is set to start next week after tenders are awarded next week on Friday.