The Sh380bn road gamble US is pushing Kenyans to take
When American construction and engineering giant Bechtel International Inc opened its regional offices in Nairobi a year ago, pundits pointed out that the new administration of Donald Trump seemed determined to edge out China from the business of big projects in Kenya.
They were right, because Bechtel was soon invited to the party. On the table was the multi-billion-shilling, 466-kilometre, six-lane Mombasa-Nairobi expressway, and it excited the Americans. They had every reason to because just a few years earlier, in 2013, they had missed out on the Sh327 billion Standard Gauge Railway to the Chinese.
Since then, Bechtel has been playing its cards well, lobbying through commercial diplomacy and a dash of financial hugger-mugger to see the deal through.
On Sunday, President Uhuru Kenyatta will be in White House for a tête-à-tête with President Trump. Such invitations are rare, although the two presidents met informally during last year’s G7 Summit in Italy, and later as they watched a performance by the La Scala Philharmonic Orchestra in Italy’s ancient Greek theatre. They also met in Canada during this year’s G7 Summit, in June.
On this week’s visit, both Washington and Nairobi say “President Trump and President Kenyatta will explore ways to bolster trade and investment”. However, in the last few months, US trade delegations have wooed Nairobi, and the number one item has been Bechtel’s contract.
Projected to cost $3.8 billion (Sh380 billion), the Mombasa-Nairobi expressway will push Kenya’s public debt to new heights — Nairobi is already sinking in debt, which crossed the Sh5 trillion mark for the first time in June this year, from a low of Sh500 billion in 1999.
Whether such an expensive road is value for money, especially so soon after sinking Sh320 billion in a railway, is an ongoing discussion, even within government circles. What is not being discussed in State boardrooms, however, is why the government is not floating an international tender for such a gigantic project.
Ahead of President Kenyatta’s visit to the White House, Mr Ray Washburne, president of the Overseas Private Investment Corporation (OPIC), the US agency that is seeking to spearhead the financing of this project, was in Nairobi as part of a whirlwind tour of Africa intended to have US companies compete with the Chinese in the continent.
“The Chinese are in with ports and railroads and highways… things that we need to be in as a competitor,” Mr Washburne had said during his stop in South Africa. In Nairobi, he singled out Bechtel as one of the US firms willing to undertake big projects in Africa.
“The American private sector has the ability to play a huge role in this growth by bringing critical investment, value, and American business practices,” Mr Washburne said.
President Kenyatta’s tour is coming at a time when the US has passed the bipartisan Better Utilisation of Investments Leading to Development (Build) Act, which will replace OPIC and challenge the Chinese position with the establishment of an International Development Finance Corporation (IDFC).
“The proposed IDFC will be OPIC on steroids,” the Financial Times recently wrote. “It will enhance global competitiveness (and) support US firms seeking opportunities in frontier markets.”
Although President Trump’s administration has been critical of China’s $126 billion Belt and Road investment initiative, which he says is saddling African countries with crushing debts, insiders say the Bechtel project is a little expensive.
The government hired PricewaterhouseCoopers (PwC) in November 2016 as the transaction adviser, and soon afterwards convened a meeting — christened Kenya Public-Private-Partnerships Roads Investor Conference (KPRIC) — at Safari Park Hotel in Nairobi to discuss the project.
All was not rosy at the initial stages of the project as PwC advised that the entire project should cost Sh230 billion. Those at the conference included Cabinet secretaries James Macharia (Transport and Infrastructure) and Henry Rotich (National Treasury).
However, the new direct sourcing proposal by Bechtel estimates the project to cost Sh450 billion, which means Kenyans will pay an estimated Sh1 billion per kilometre from Mombasa to Nairobi.
Critics of the project are quietly wondering why the government is considering building a new road — complete with billions of shillings set aside to compensate land owners — rather than expand the current highway.
Insiders told the Nation that supporters of the project argue that a new road is faster to build and the works won’t interfere with the traffic. Also, they say, in case of the future tolling of the highway, the old road can be used as a free alternative.
Five months ago, Mr Macharia told a parliamentary committee that the ministry prefers a Private-Public-Partnership (PPP) for construction of the expressway, and last month he denied that Bechtel had been given the contract after he was challenged by Mr Simba Arati, a member of Parliament’s Implementation Committee.
“The construction of the Nairobi-Mombasa Highway has not been tendered to anybody,” said Mr Macharia. “My ministry has no knowledge of an agreement with Bechtel. There is talk of single-sourcing of this tender to the Americans, which I know nothing about.” This denial by a high-ranking Cabinet Secretary is indicative of possible ongoing tussles within the government over the project. Curiously, on August 5, 2017, three days to last year’s General Election, Bechtel president Craig Albert announced that he had secured a deal to build the expressway following an agreement with Kenya National Highways Authority.
KeNHA’s director-general Peter Mundinia had said that the signing of the contract was to pave the way for mobilisation of financing from export credit agencies in the United States.
But Bechtel does not want to enter into a PPP with Kenya as this would force it to raise funds from the financial markets. Instead, the US firm, which has always attracted political heavyweights on its board, wants Kenya to enter into a loan agreement with the US Export-Import (Exim) Bank and the Overseas Private Investment Corporation (OPIC) for, with these, its profits are guaranteed. Bechtel says the PPP model preferred by the government will cost taxpayers more.
For the last two months, Bechtel has been engaging with Treasury officials, including Mr Rotich, as it continues to lobby Kenyan authorities to choose its preferred financing model. If the deal goes through, the government will pay the contractor by borrowing from specific US agencies.
American lobbyists and delegations have been visiting Kenya to sell the project. On June 29, for instance, Undersecretary Gil Kaplan led a US delegation that included Bechtel officials to State House in Nairobi. The agenda included the expressway. President Kenyatta and the US delegation resolved to continue discussions, and it is not clear whether the final contract will be inked during his visit to White House.
Whichever way, Kenya is in a difficult position: the Mombasa-Nairobi highway will be an American marvel but also costly gamble, just like the SGR.