Kenya has abandoned its annuity roads financing model citing inflated costs and the slow pace of project approvals despite support from the World Bank.
Transport Secretary James Macharia said contractors frustrated the programme, which the Jubilee administration had initially said would add an additional 10,000 kilometres of medium-grade urban and rural roads during its first term which ends on August 8.
“The annuity programme was very slow because it involved many parties like financiers, legal teams and contractors who had to agree on every aspect,” Mr Macharia said last week.
“The 10,000km of low volume seal roads will now be funded through the national budget.”
Under the annuity model, private contractors were expected to design, build and maintain the public roads within three years using their own funds.
The State had set unit costs for construction of roads between Sh40 million to Sh100 million per kilometre depending on scope of works.
A payment modality would then be agreed upon between the National Treasury, contractor and the participating commercial banks. Under the model, the Treasury was supposed to reimburse the banks at a uniform rate over an agreed period of time.
At some point, the World Bank pledged to disburse Sh150 billion to participating commercial banks for onward lending to contractors at no more than six per cent interest rates.
“A number of contractors were struggling to get funding because commercial banks did not find their balance sheets and credit worthiness quite appealing,” Mr Macharia said, adding that contractors with access to financing were inflating their costs.
“I remember one contractor was charging Sh1 billion per kilometre,” he said.
Mr Macharia has previously given conflicting updates on the programme, sometimes saying it was already in use and threatening to abandon it altogether on different occasions.