Kenya now seeks IFC support for road construction
Kenya is now in negotiations with International Finance Corporation (IFC ) for a line of credit of $1.5 billion. The credit is aimed at financing road construction in Kenya.
The road in question is part of the construction of 4,000km of urban roads. In addition, it will be used to fund 6,000 kilometres of rural roads earmarked for funding from state coffers.
Nevertheless, government plans to raise $5.5 billion to be able to complete 10,000km of road construction in Kenya. This follows a move by local banks to decline a request to lend the money to the contractors.
The lenders failed to agree with the government on the interest rate to be levied on the loans.
Kenya will spend close to$3.4 billion on construction of rural roads, and a further $2.1 billion on construction of urban roads.
As a matter of fact,the total cost of building rural roads is approximated at US$$300,000 to US$400,000 per kilometre. Urban roads cost between US$700,000) and US$1 million per kilometre.
But the government was counting on the annuity financing model to build a total of 10,000 kilometres of low cost roads by 2017 to fulfil their pre-election promise.
However, if the new deal with IFC works out well, the government said contractors would be able to access $1 billion directly from the institution. Again, a further $500 million will be channeled through a consortium of six selected commercial banks.
Road Annuity Fund
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 in progress for the African development Bank to iron out these risks.
The Road Annuity Fund was set up to hold all funds for road construction, including fuel levies and toll charges.
Mr Mosonik added that if the new arrangement is successful, the roads should be completed by 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.