SUNDAY JUNE 19 2016
Road construction workers put final touches on a section of the 10 kilometre tarmac road in Maralal town on January 19, 2016. Outering Road will cost Sh11.2 billion. PHOTO | JOHNSTON KETI | NATION MEDIA GROUP
How the deal signed between Kenya and China for the construction of 16.5 kilometres western bypass road that ended up costing Sh17.3 billion has again put the government on the spot on its appetite for Chinese infrastructure loans, which experts say are overpriced.
The signing of the deal on Monday came just a month after the World Bank and International Monetary Fund (IMF) warned the country against its huge uptake of Chinese loans as they risk choking the economy with a huge repayment burden.
At this price, it means each kilometre of the four-lane road that will connect the southern bypass at Gitaru and the northern bypass at Ruaka will cost Sh1 billion, putting the project as one of the most expensive to be undertaken by the government.
The government, which has come under pressure over claims of inflation in the project, argues that the variation in cost is because of the depreciation of the shilling.
“You need to look at the cost per kilometre in US dollars and not the Kenya Shilling,” Transport Principal Secretary Irungu Nyakera told Sunday Nation.
He argued: “When we were seeking financing for Thika superhighway, the Shilling was exchanging at Sh70 to the dollar and now it is at over Sh100.”
“At Sh36 billion, when calculated at the exchange rate at that time, it means Thika road cost $10.25 million per kilometre while similar pricing for the western bypass shows it will cost $10 million per km,” he said.
But even using the Principal Secretary’s calculation, Thika Road has 12 lanes while the western bypass will only have four, meaning its cost is triple the superhighway, which was mainly funded by the Africa Development Bank (AfDB).
Outering Road, also funded by the Tunis-based AfDB, will cost Sh11.2 billion. However, if you consider that it will have eight lanes on most sections it means its cost per kilometre will be Sh0.14 billion.
HUGE DEBT
The variation in cost increases further if you compare the new road with the 39km eastern and 31km northern bypasses which despite being funded by the Chinese Exim Bank just like the Western bypass, were both constructed at Sh8.5 billion, raising more questions.
While the new bypass is expected to ease the pressure of traffic in the City Centre, the Sh17 billion that the government will be loaned for the new road brings to Sh600 billion, the amount of money Kenya has borrowed from China in the last three months.
In April, Treasury Cabinet Secretary Henry Rotich borrowed Sh61 billion from the Asian giant to help plug a budget deficit while in March the ministry of Transport signed a Sh549 billion loan for construction of the Naivasha-Malaba section of the standard gauge railway.
This is on top of the Sh262 billion that Kenya owed China at the end of last year, meaning it overtook Japan as Kenya’s largest creditor.
“As much as infrastructure is important in order to drive economic growth, Chinese loans are easier to get but non-concessional, which makes them expensive to repay in the long run as they are issued at market rates,” Dr Samuel Nyandemo, an economist at the University of Nairobi, observed.
“I think we need to look for a better partner or improve on our negotiation skills with China because their rates are too expensive. It is not acceptable economically for a country to spend a huge percentage of its revenue on repayment of debt and recurrent expenditure because it will make us sink more into debt,” he added.
Kenya’s current debt accounts for 49 per cent of total Gross Domestic Product.
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