Kenya is now in negotiations with International Finance Corporation (IFC) for a line of credit of US$1.5bn to finance road construction in the country
Kenya is looking to raise close to US$5.5bn to complete the construction of 10,000 km of roads. The refusal of local banks to lend the money to the contractors after the failed annuity financing model had forced the government to make this move.
“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,” the principal secretary in charge of infrastructure, John Mosonik said.
The proposed credit of US$1.5bn from IFC will help to finance part of the construction of 4,000 km of urban roads. In addition, it will also be used to fund 6,000 km of rural roads earmarked for funding from state coffers.
Kenya expects to spend close to US$3.4bn on construction of rural roads and $2.1bn on construction of urban roads. 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$1mn per kilometre.
If the new deal with IFC works out well, the government said contractors will be able to access US$1bn directly from the institution. A further US$500mn will be channelled through a consortium of six selected commercial banks.
The repayment will be made through the Road Annuity Fund that was formed in 2014 to hold all funds for road construction, including fuel levies and toll charges, with a seed capital of US$5mn, which has risen to US$95mn this year. Discussions are in progress for the African Development Bank to guarantee these risks.
