Kenya Seeks $5.5 billion IFC Funding for Road Construction
Posted on :Tuesday , 5th July 2016
Kenya is looking for close to Ksh550 billion ($5.5 billion) to complete the construction of 10,000 kilometres of roads, after local banks refused to lend the money to the contractors after the botched annuity financing model.
The country is now negotiating for a line of credit of $1.5 billion from the International Finance Corporation (IFC), to finance part of the construction of 4,000 kilometres of urban roads; some 6,000 kilometres of rural roads are earmarked for funding from state coffers.
The lenders disagreed with the government on the rate of interest to be levied on the loans.
Kenya will spend about Ksh340 billion($3.4 billion) on rural roads, and Ksh210 billion ($2.1 billion) on urban roads.
The cost of constructing rural roads is estimated at Ksh30 million ($300,000) to Ksh40 million ($400,000) per kilometre. Urban roads cost between Ksh70 million ($700,000) and Ksh100 million ($1 million) per kilometre.
The Jubilee government was relying on the annuity financing model to deliver 10,000 kilometres of cheap roads by 2017 to fulfil their pre-election promise.
If the new arrangement with IFC works out, the government said contractors would be able to access $1 billion directly from the institution, and $500 million will be channelled through a consortium of six commercial banks.
The repayment will be done through the Road Annuity Fund that was formed in 2014 with a seed capital of Ksh500 million ($5 million), with the amount rising to Ksh9.5 billion ($95 million) this year.
Discussions are underway for the African development Bank to guarantee these risks.
The Road Annuity Fund was created to hold all revenues for road construction, including fuel levies and toll charges.
"The annuity financing model was a new concept and banks were unwilling to lend because they felt there were more risks involved. We had very high financing costs so we paused to look at other alternatives including external borrowing," John Mosonik, the Principal Secretary in charge of Infrastructure, told The EastAfrican.
Mr Mosonik said if the new plan is successful, the roads should be completed in 2020, three years after the promised timeline.In the 2016/2017 budget, Treasury Cabinet Secretary Henry Rotich increased the Road Maintenance Levy on fuel from Ksh12 ($0.11) to Ksh18 ($0.17) per litre.
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