Kenya is banking on private investors to finance a number of ambitious infrastructure projects in the next five years. A Public-Private Partnership (PPP) Unit has been created at the Treasury to source financing for the projects.

The PPP Unit’s director, Stanley Kamau, said it will be floating tenders to attract private money to fund key projects, among them the proposed Lamu Port South Sudan Ethiopia Transport (Lapsset) corridor, as well as roads, power plants and university hostels.

The government has approved 56 projects for the PPP initiative, while eight more are awaiting Cabinet approval before they are opened up to investors.

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“We are receiving a lot of interest from private sector players in some of these projects. We hope to put most of them on the market by the end of this year. Some, for coal and geothermal, have already been tendered,” said Mr Kamau.

The African Development Bank (AfDB) says that, even though 27 per cent of Kenya’s budget has been allocated to transport, energy, water and sanitation, and environment-related projects in the past five years, the country’s infrastructure needs are still far from being adequately addressed.

AfDB says that, of the country’s 160,886km road network, only 7 per cent is paved, putting the total length of paved roads per 10,000 inhabitants in Kenya at 2.19km, which is less than the EAC member countries’ average of 2.53km.

Again, despite the massive investments in power, fewer than 20 per cent of Kenyans are connected to the national grid.

The government is struggling to maintain its infrastructure upgrading and expansion programme amid spending pressures occasioned by devolution and growing wage demands from the country’s public sector.

The budget is further constrained by the relatively high debt-to-GDP ratio which stands at about 52 per cent. This is well above the IMF recommended threshold of 50 per cent for countries at Kenya’s development level.

“There has been a significant increase in large infrastructure projects for most of East Africa. Due to the huge capital investment, there is a need for private financing. The government by itself cannot come up with the large-scale investment that is needed in our ports, rail and pipeline projects,” said Mark Smith, head of capital projects at Deloitte East Africa.

Over the next five years, the country intends to spend over $40 billion — or three times its annual budget — in building new infrastructure and upgrading existing facilities, with investment in energy and transport expected to take up the bulk of the projected spending.

The government estimates that the country has an annual infrastructure financing gap of $4 billion and growing. In the next 40 months, the Energy Ministry estimates the country will need at least $18 billion to generate 5,000MW to meet projected demand. 

KenGen plans to invest $4.5 billion in building and expanding power plants in the next five years, while Kenya Power says it will spend $2 billion on expanding distribution lines.

To sweeten the deal for private investors in the sector, the government has signed undertakings guaranteeing a market for the power developed by these investors.

AfDB will also provide risk guarantees. For example, the Bank has offered a partial risk guarantee for the 300MW Turkana wind power project, estimated to cost about $730 million.

Mr Kamau said the government would make Lapsset attractive to the private sector by pushing through core investments around which other projects would be anchored.

“Private money will be triggered by the government doing the first investments like building the first berths at the Lamu Port and the road from Lamu to Isiolo. This is something the government is keen to do,” Mr Kamau said.

Tender for first three berths

The government has already awarded a tender for the construction of the first three berths at the port.

Treasury Cabinet Secretary Henry Rotich said last week that part of the estimated $1.5 billion the government is seeking through its sovereign Eurobond, expected before the end of this month, will go into funding the Lapsset projects.

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Lapsset, which involves the construction of a series of roads connecting Ethiopia, Uganda and South Sudan to the proposed Lamu Port, will also help open up northern Kenya.

However, the Lapsset project is facing a challenge of dwindling interest among its international partners.

Ethiopia is currently developing a rail network linking it with the port of Djibouti, which it sees as the primary entry and exit port for its imports and exports, meaning it is focusing on this project rather than on Lapsset.

South Sudan, for its part, while clearly in need of another port to reduce dependence on Sudan, is embroiled in civil war. The two scenarios have left Kenya with the pressure of securing initial funding for the $23 billion dollar project. 

By Peterson Thiong’o and Mwaura Kimani