Funding crisis slows down road projects

• Minutes of a meeting involving the Ministry of Roads and the Roads and Civil Engineering Contractors Association (RACECA) last month show the latter as saying that the government owes contractors at least Sh20 billion in outstanding payments
• At the time of the meeting, the Kenya National Highway Authority (KENHA) owed contractors Sh12 billion while the Kenya Rural Roads Authority (KERRA) and the Kenya Urban Roads Authority (KURA) owed Sh6.8 billion and 400 million respectively
• Recently, the Ministry of Roads said that it was planning to spend Sh2 trillion expanding Kenya’s road network over the next 15 years

The government is defaulting on payments to road contractors, a situation that is threatening to put the brakes on Kenya’s ambitious infrastructure development plan.

Minutes of a meeting involving three roads authorities, the Ministry of Roads and the Roads and Civil Engineering Contractors Association (RACECA) last month show the latter as saying that the government owes contractors at least Sh20 billion in outstanding payments.

“A number of projects have either slowed down on progress or stopped. There is an urgent need to formulate a way out of the current financial crisis facing road projects in the country,” RACECA is quoted as arguing in the minutes of the August 22, 2012 meeting seen by the Sunday Nation.

RACECA chairman S. K Gehlot said 60-70 per cent of ongoing contracts are experiencing default in payment.

He claimed that contractors were losing a lot of money in heavy penalties to creditors and some banks had started to label them as ‘risky clients’. He urged the government to provide annuities on ongoing contracts and guarantees to the banks.

However, Ministry of Roads PS Michael Kamau dismissed the proposal, saying that the government cannot take steps that would lead to fiscal commitment due to budget limitations.

He warned the roads authorities that they would have to get themselves out of the mess by focusing on realistic financial measures including reducing the number of projects to manageable levels.

“Every authority will have to bite the bullet and work out an exit strategy out of the current funding crisis noting that scaling down of ongoing contracts may be necessary,” read the minutes.

At the time of the meeting, the Kenya National Highway Authority (KENHA) owed contractors Sh12 billion while the Kenya Rural Roads Authority (KERRA) and the Kenya Urban Roads Authority (KURA) owed Sh6.8 billion and 400 million respectively. (Read: Sh2 trillion roads Kenya’s top asset)

KeNHA director general Meshack Kidenda confirmed that the meeting took place and that the authority owed contractors Sh12 billion at the time. He attributed the situation to a slow payment structure imposed on the roads authorities.

“Because of the payment process, at any given time we will be owing contractors...but owing is different from defaulting. Only when the process of obtaining cash is too slow do we default,” he said.

He added that the negotiations with contractors would continue until the matter is resolved and declined to comment any further on the matter.

When contacted by the Sunday Nation, an official at KURA denied that the authority owes contractors any money.

“We do not owe anyone money. Everyone who has completed their work has been paid,” said KURA corporate affairs manager, Mr John Cheboi.

Efforts to get comments from RACECA, Ministry of Roads PS and KERRA were unsuccessful.

Roads projects have been allocated Sh34 billion in Treasury’s budget. Sh2 billion was released by the exchequer last month for the projects.

Mr Kamau said that no money would be on offer to the roads sector except the amount already set aside in the 2012/2013 budget estimates. He further warned that there will be no dramatic increase in the roads budget in coming years as Kenya expects only 10 per cent annual increment to be realised over the next three years.

The directors general of the three authorities were directed to provide contractors with estimates of cash flow per project for the next three years. They will also author reports to the PS reviewing all ongoing projects and making recommendations on cost-cutting measures.