High bids put brakes on 10,000km road project

What you need to know:

  • Dr Matiang’i said contractors are asking Sh300 million for a kilometre of road, a charge that the government was unwilling to pay.
  • The government expects 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 10,000 kilometre road programme is already behind schedule and the government is unlikely to meet the 2015 deadline when it expects to tarmac 2,000 kilometres.

The fate of an ambitious plan to construct 10,000 kilometres of road by 2017 remains unclear after the government failed to agree with contractors over the cost.

Acting Transport Cabinet Secretary James Macharia has said the government will be reviewing the whole project in the next two weeks. The review will decide on whether to carry on or drop the project.

Speaking during the Board of Registration of Architects and Quantity Surveyors summit last week, acting Lands and Housing Cabinet Secretary Fred Matiang’i said contractors had inflated the cost of building roads.

Dr Matiang’i said contractors are asking Sh300 million for a kilometre of road, a charge that the government was unwilling to pay.

“Some of the things our contractors tell us will baffle you. Sh300 million for a kilometre of road? If you compare the situation across East Africa, it is between Sh20 million and Sh25 million. Why would it cost more in Kenya?” Dr Matiang’i said.

The government expects to spend Sh25 million for every kilometre of rural roads and between Sh50 million and Sh80 million per kilometre of urban and trunk roads.

In July, President Uhuru Kenyatta said that the government will not accept expensive bids for the roads.

NOT SUSTAINABLE

“As Kenyans we must accept that we cannot continue doing things the way we used to do them traditionally. I was looking at some of the quotations we received and I’m surprised by some of them. The roads do not have to cost as much as you tell us,” the President told contractors during the Kenya-Japan conference on infrastructure.

Mr Macharia said the concept was designed within certain parameters with the costs expected to come down. This implies that at Sh300 million per kilometre, the project will neither be sustainable nor feasible.

“We will be meeting in the next two weeks to try and see whether we can bring down the cost, but if it remains so high then it means it is not viable,” Mr Macharia told Smart Company by phone.

This comes even as banks reportedly turned down a government proposal for a uniform interest rate of between 12 and 13 per cent to be charged on loans issued to the road contractors.

The lenders cited rising inflation as well as interest rates following Central Bank’s move to increase its policy rate to 11.5 per cent from 8.5 per cent.
The banks want to handle each client independently. The average lending rate at the moment is 15.26 per cent.

The 10,000 kilometre road programme is already behind schedule and the government is unlikely to meet the 2015 deadline when it expects to tarmac 2,000 kilometres.

The delay is likely to affect the roll-out of the second phase where the government plans to construct 3,000 kilometres in 2015/2016 made up of 80 per cent small roads, and 20 per cent highways.

The remaining 5,000 kilometres, 80 per cent of which will be small roads and 20 per cent highways, are to be completed in the 2016/2017 financial year.

BUDGET LIMITATIONS

The national government wanted to procure long-term contracts for the design, financing, construction and maintenance of identified roads in partnership with private contractors, who would be paid on completing the works.

Under this financing model, the banks are expected to lend up to Sh260 billion to the contractors to build roads across the country.
The President said the government was looking for innovative ways to finance infrastructure outside budgetary limitations.

The repayment is to be done through a special fund — Road Annuity Fund — which was created in 2014 with a seed capital of Sh500 million. The fund is expected to hold all revenues mobilised for road construction such as fuel levies and toll charges.