Kenya facing eight-year Sh3.4tr financing gap

October 5, 2012
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This gap is created by the government’s need to spend Sh5.1 trillion ($60 billion) on infrastructure/XINHUA-File
NAIROBI, Kenya, Oct 5 – The country faces an infrastructure financing gap of Sh3.4 trillion ($40 billion) over the next eight years, with energy, roads, railways and ICT commanding a significant chunk.

This gap is created by the government’s need to spend Sh5.1 trillion ($60 billion) on infrastructure, against available funds of Sh2.1 trillion ($25 billion) to be used between now and 2020.

Allocations in the 2012/2013 fiscal year for infrastructure stand at Sh267 billion, which is less than nine percent of the country’s GDP rather than the ideal level of 15 percent of GDP.

“The government and the private sector can get involved in delivering the public services that have traditionally been a government responsibility,” said Stanley Kamau, the Director of Public Private Partnerships (PPP) in the Ministry of Finance.

Speaking during the Strathmore Business School Alumni Seminar on Public Private Competitiveness on Friday, Kamau said the opportunities for PPPs to develop the country are endless from housing for the public sector to private prisons.

Parliament is currently debating the PPP Bill that seeks to set in place a reform agenda for PPPs, establish a PPP Secretariat at the Treasury as well as PPP nodes in contracting authorities.

“The benefits for the private sector in the Bill are risk mitigation mechanisms through various guarantees, and a fund to be developed that will support projects that are economically viable but not financially viable without government support,” Kamau explained.

The World Bank has committed Sh3.4 billion ($40 million) in financial support to go to priority projects in the roads and energy sectors in Kenya.

A project like the commuter rail transport system from the Jomo Kenyatta International Airport (JKIA) to Nairobi’s Central Business District, will be done by the public sector (Kenya Railways) laying the tracks and the private sector handling operational maintenance.

Other PPPs currently in the works include JKIA expansion, second container terminal in Mombasa, the Mombasa Convention Center, the Olkaria geothermal project, Kisumu Port and housing for security forces.

Also addressing the seminar, Thomas Ross, Senior Associate Dean at the Sauder School of Business in Canada said the private sector brings efficiency and innovation to PPPs which government often lacks.

However, he added that though the PPP model is an attractive option for most developing countries keen on building infrastructure, it is not void of challenges.

“PPPs on large infrastructure projects tend to involve contracts with private parties that may extend for 40, 50 or 99 years. So you have to have a contract that protects public interest and one that contemplates changes,” Ross explained.

As a result he added that the public sector needs skilled agencies that can properly define the public need, the financial limits of government and run a transparent PPP process.

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