Kenya has cancelled plans to build 10,000 kilometres of roads through commercial bank loans due to concerns over the cost of the projects, according to a senior government official.
The government will now fund these mostly rural road projects through budget financing after scrapping the road annuity model adopted in 2015. This development was confirmed by Roads Principal Secretary Joseph Mbugua while appearing before a section of lawmakers on Thursday, April 17.
As per Mbugua, the previous model led to the construction of only three roads measuring 172 kilometres at a cost of Ksh29.9 billion ($230.9 million) backed by two local banks and the government.
“The projects have been too expensive and analysis showed that they were not returning value for money given the verdict on the high annuity costs,” Mbugua stated.
“Authorities have decided not to implement any other annuity projects due to the high costs compared with others financed by the exchequer or through competitive bidding,” he added.
When the program was first rolled out, pilot projects were undertaken in counties like Isiolo, Meru, and Nyeri. The highly contentious Modogashe–Wajir Road was also targeted under the framework.
Kenya established the fund in 2015 through a levy of three shillings on every litre of gasoline and diesel sold. Under the plan, contractors teamed up with lenders to build and run roads under a 10-year concession and be reimbursed at a premium.
Kenya’s financing gap for road maintenance over the next five years is estimated at Ksh315 billion ($2.43 billion), according to the Kenya Roads Board. The economy, at high risk of debt distress, was counting on private capital to build and maintain roads to cut reliance on borrowing, improve infrastructure, and accelerate economic growth.
The move came at a time after Parliament raised concerns over the return of over Ksh10 billion shillings to the Consolidated Fund after they went unused in the roads fund. This was especially when road projects across the country remained incomplete due to a lack of payments to contractors.
Auditor General Nancy Gathungu had in the past flagged concerns over the under-utilisation of the Fund.
In her report for the 2022/23 financial year, she noted that out of a final expenditure budget of Ksh7.681 billion, only Ksh3.634 billion was spent, representing 47 per cent absorption.
“The underperformance affected the planned activities of the Fund and may have hurt service delivery to the public,” Gathungu stated.
