Kenya was forced to pay Sh6.2 billion without MPs’ approval to a consortium of French contractors, whose mega highway expansion project deal was cancelled. The payment was made to avert legal suits after the consortium protested handing the deal to Chinese contractors.
The compensation to the consortium, comprising Vinci Highways SAS, Meridian Infrastructure Africa Fund, and Vinci Concessions SAS, was made under an emergency payment and required belated approval from Parliament.
The Treasury say it pursued an out-of-court settlement to avoid a costly and protracted suit at the London Court of the London Court of International Arbitration.
Kenya was also fretful that the French would block attempts to transfer the Sh190 billion expansion of the Nairobi-Nakuru-Mau Summit Toll Road to Chinese contractors and mar President William Ruto’s visit to Beijing on April 24.
Kenya terminated the highway expansion deal with the French consortium, citing, among other things, high toll fees. The highway deal was one of the projects that Dr Ruto sought to close on his first visit to China as president.
Treasury Cabinet Secretary John Mbadi said on Tuesday that he opted to use powers granted to him under Article 223 of the constitution to withdraw the billions and settle the penalty ahead of Parliament’s approval.
“This was a negotiated settlement out of court because we had the option of going to London for arbitration and it would have been more costly for us in terms of legal fees and you can’t really predict the court’s outcome,” Mr Mbadi told the Business Daily.
“In the process, we would have also spent so much time to the extent that the road was not going to be handed over back to the government in time.”
Two Chinese contractors have since bid to construct the road under the so-called public-private partnership (PPP) in a review that looks set to upset France, which brokered the deal in Paris in 2020 during a visit by then-president Uhuru Kenyatta.
The National Social Security Fund (NSSF) formed a consortium with China Road and Bridge Corporation (CRBC) to build the 175-kilometer highway under PPP and will recoup its investments from toll charges.
A rival Chinese firm --Shandong Hi-Speed Road & Bridge Group Co—has also placed a bid for the road, which will turn the single-lane road into a multilane highway linking Nairobi to Mau Summit through Nakuru.
The Treasury says the evaluation of the two proposals will be prompt, as the government hopes to break ground on the project by August.
“We want to launch this road project as fast as possible. The President plans to launch it around July, latest August,” CS Mbadi added.
NSSF is seeking to pay between Sh20 billion and Sh25 billion for half of the consortium, with the Chinese construction giant taking the remaining 50 percent stake.
The two bidders will terminate the road at Mau Summit as the State seeks additional funding to push the highway to the border town of Malaba through Eldoret.
“The two proposals are both to terminate the road in Mau Summit, but the government intends to take the road to Eldoret and Malaba,” said Kefa Seda, the Director General of the Public-Private Partnerships (PPP) Directorate at the National Treasury.
“Both proponents are tapping into private finance combination of both debt and equity. Equity is basically from the balance sheet, while debt is syndicated from various institutions.”
The consortium led by France’s Vinci SA Highway had inked the Sh190 billion deal, but construction for the project had not yet begun.
The termination of the project, which was to be funded from various sources like the Vinci Group, loans from the African Development Bank (AfDB), and guarantees from the World Bank, risked exposing Kenya to litigation and a diplomatic spat with France that backed its firms for the deal.
The push to have the Chinese contractor settle the Sh6.2 billion compensation bill and inherit works done by the French contractor, like the feasibility fees, was dropped during President Ruto’s April visit to China.
The three French firms, which won the tender procured by KeNHA in 2018, indicated they were ready to break ground on the project, having obtained the financial backing of the AfDB and the World Bank’s International Finance Corporation (IFC).
The consortium was expected to recoup its investments in 30 years by charging toll fees on the road.
Treasury said the high proposed toll fees were a put-off in the Nairobi-Nakuru-Mau Summit road project, which was aimed at decongesting the main artery from Nairobi to Western Kenya and the neighbouring countries of Uganda, Rwanda and the Democratic Republic of the Congo.
Motorists were going to pay $6 (Sh774.77) to drive 175km in a small car and close to $50 (Sh6,456) for a truck to go the same distance under the French deal.
“KeNHA requested a restructuring of the contract ... but the proposal was considered unbankable, thus creating a stalemate,” the agency said.
