Why State removed US firm from road project
A fall out over the financing model of the proposed Nairobi-Mombasa Expressway has forced the government to replace the US contractor Bechtel Engineering with a Korean company.
Korean Overseas Infrastructure and Urban Development Corporation Africa (KIND), last week presented a feasibility study of the project to government officials. The government had proposed a toll fee business model where Bechtel would source for finding and then recoup it through toll fees.
Bechtel Corp declined the offer by the Kenya government to build a 473-kilometre highway and recoup its project costs through toll fees. Parliamentary Budget Office (PBO) said that Bechtel had insisted on a contract model where the government pays for the construction of the $2.7billion (Sh318.25 billion Mombasa-Nairobi expressway.
Important trade route
The quick switch of contractors is a show of determination by the Uhuru administration to leave a mark on the country’s most important trade route despite being at the very end of its tenure.
It also underscores Kenya’s financial situation given its high public debt which has since pushed the country to adopt public-private partnership to reduce pressure on the country’s balance sheet.
The construction of SGR along the same corridor brought Kenya’s borrowing capacity to a near halt, chalking up its cash flow in debt service.
“This limits the number of roads that can be undertaken by the model in Kenya to a few sections of the main transport corridors,” the PBO report said.
The American firm, however, argued that the public private partnership model would inflate the cost of the project to Sh1.6 trillion since it would involve borrowing and interest payments which Bechtel did not want to get involved in.
“Our approach will always set out to minimise building costs and pursue the fiscally responsible option,” it said. “We are committed to providing the best possible value for money for the Kenyan people,” Bechtel Corp spokesperson Aileen Easton was quoted saying by Engineering News Record.
American and European companies continue to miss out on Africa’s mega projects as they lack access to cheap capital compared to their state backed East Asian counterparts.
The replacement of the US firm coincides with an announcement by President Joe Biden of a G7 project to rival China’s formidable Belt and Road Initiative by raising some $600 billion for global infrastructure programmes in poor countries.
“Together with G7 partners, we aim to mobilise $600 billion by 2027 in global infrastructure investments,” the White House said shortly ahead of a speech by Biden unveiling the proposal.
Unlike China’s huge BRI initiative, the proposed G7 funding would come largely from private investors.