Kenyan investors to partially finance US-backed toll road for Sh472 billion

Local private investors will have the opportunity to participate in the financing of the $3.6 billion (Sh472.9 billion) Mombasa to Nairobi expressway after the Kenya National Highways Authority (Kenha) and US private equity Everstrong Capital LLC will sign an agreement to begin construction of the toll road.

The construction of the toll road, called Usahihi Expressway, is one of the agreements signed during President William Ruto’s three-day visit to the United States and is seen as rivaling the Mombasa – Nairobi Standard Gauge Railway (SGR), built in China.

“The project is expected to attract investments totaling $3.6 billion from international investors, development agencies, pension funds and an exceptionally large number of Kenyan private investors,” Everstrong said in a statement.

The public-private partnership (PPP) project will be carried out for a period of between three and four years, with financing led by “US development institutions and significant investments from private sector investors and Kenyan pension funds” Everstrong added.

Once completed, Everstrong and its partners will collect tolls for 30 years, when they are expected to have recouped their investments.

Earlier this year, the Treasury revealed that the Public Private Partnership (PPP) Committee had granted stage one approval to the Mombasa-Nairobi expressway.

The construction of the 475-kilometer high-speed highway had been proposed by the administration of retired President Uhuru Kenyatta and was to be carried out by Bechtel, an American construction company.

Construction of the highway was due to begin in 2018, as the United States sought to build a transportation network to rival the SGR, one of the largest Chinese investments in Africa.

The highway, which would have four lanes and 19 junctions, was expected to significantly reduce travel time between the port city of Mombasa and the capital, Nairobi, from 10 to four and a half hours.

However, the project was canceled after Kenya and the contractor failed to agree on the financing model to adopt.

Bechtel would later return to the negotiating table with revised rates, after partnering with Everstrong, a US private equity firm.

Previous reports indicated that Bechtel and the Kenyan government disagreed on how to finance the then-$2 billion highway, causing it to be delayed.

Everstrong said at the recent AmCham summit that both sides have since agreed on the financing model.

Under the current financing structure, the firm said, project financing would also come from local companies, including banks, insurance companies and pension funds.

Initially, construction of the Mombasa-Nairobi Expressway would be carried out with funding from American and British sources and was expected to significantly reduce travel time between the port city of Mombasa and Nairobi.

However, the deal did not move forward after a dispute over how construction of the project would be financed. The American company rejected Kenya’s offer to commission it to build the road and recover its investment by charging drivers tolls, a 2021 report published by the Parliamentary Budget Office (PBO) shows.

In addition to Bechtel, the other company that initially showed interest in the project is the Korean Overseas Infrastructure and Development Corporation (KIND), which also submitted a pre-feasibility study report for the development of the highway based on the PPP model.

As financiers turn to PPPs to finance infrastructure projects in Africa, China appears to have taken pole position in this space.

Chinese investors have already built and are currently managing the Nairobi Expressway.

The Chinese are also said to be looking to expand the Mau Summit to a four-lane expressway.

The Government recently announced that it had terminated construction of the Nairobi-Nakuru-Mau Summit Toll Highway, which had been awarded to a consortium of French contractors.

Apart from the highway, Kenya also achieved important agreements during President Ruto’s visit. The United States designated Kenya as a major non-NATO ally, making it the first country in sub-Saharan Africa to receive that designation. Kenya now joins 18 other countries designated as non-NATO allies, including Israel, Brazil and the Philippines.

The United States has also committed $250 million in new investments in Kenya through the International Development Finance Corporation (DFC), including $180 million for a major affordable housing project. This will take DFC’s portfolio in Kenya to over $1 billion.

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