The National Social Security Fund (NSSF) wants to buy about half of a Chinese-backed consortium bidding to build a new highway linking Nairobi and Mau Summit for up to Sh25 billion.
The fund has formed a consortium with China Road and Bridge Corporation (CRBC) to build the 175-kilometre highway under a private-public partnership and expects recoup its investments from toll charges.
The 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, two sources familiar with the matter said.
The highway is estimated to cost Sh170 billion and will be funded by the equity injection and debt worth Sh120 billion or 70 percent of the project, said one of the sources.
It marks the first time the NSSF will put money in a mega infrastructure project as it seeks to diversify its earnings from Treasury bills and bonds—where over half of its nearly Sh600 billion assets sits.
CRBC has been a major player in Kenya’s infrastructure projects over the past 15 years, notably in railways and road construction, including the Nairobi’s expressway and the standard gauge railway (SGR) that were funded by Chinese loans.
Besides the NSSF consortium, 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.
Kenya terminated a 1.3-billion euro (Sh190 billion) deal for the highway with a consortium led by France’s Vinci SA in favour of a Chinese contractor.
On paper, Kenya’s decision to end the contract came after government authorities had sought to revisit the terms of the agreement, which the Kenya National Highways Authority (KeNHA) said put the risk from insufficient traffic demand on the government.
David Koros, the NSSF managing trustee, declined to discuss the financial details of the roads project, saying the project promises to offer better returns compared to government paper.
“The allure of these relatively higher, stable returns is a key motivation behind NSSF’s move into the PPP deal,” Mr Koros told the Business Daily in an interview.
“By investing in the highway project, NSSF aims to earn a robust long-term yield that outpaces typical Treasury securities, ultimately boosting returns for pension contributors while fitting with the fund’s risk appetite.”
The regulator allows pension schemes to allocate a maximum 10 percent of their assets in private equity akin to the NSSF consortium.
This restriction means that the NSSF and the civil servants pension scheme are the only entities that can deploy over Sh20 billion on private equity deals.
Kenyans have saved over Sh250 billion in the NSSF since the start of higher deductions in February 2023, allowing the fund to close multi-billion shilling deals.
Members are paying a maximum of Sh4,320 monthly depending on their pay from a flat rate of Sh200.
China and Kenya announced they had upgraded ties to a “new level” during President Ruto’s first state visit to Beijing as head of state.
Africa is a key focus of China’s ambitious Belt and Road Initiative (BRI) launched in 2013 to extend the Asian nation’s geopolitical and economic influence through global infrastructure development.
Kenya has been a key BRI recipient, with Nairobi having taken a slew of loans from China to finance infrastructure construction projects that have made China the Kenya’s biggest bilateral lender.
The flipping of the latest roads deal to a Chinese contractor looks set to upset France, which brokered the deal in Paris in 2020 during a visit by then-president Uhuru Kenyatta.
The consortium led by France’s Vinci SA Highway had inked the Sh190 billion deal, but construction 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 Kenyan government recently agreed to pay the French contractors Sh6.2 billion as compensation for the termination of the mega road project, adding to the taxpayers’ burden of paying for cancelled projects.
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 William Ruto’s visit to China at the end of April.
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.
The Treasury said the high proposed toll fees were a put-off in the 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.
The former director-general of the Public Private Partnership (PPP) department at the Treasury, Chris Kirigua, revealed that motorists were 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.
“KeNHA requested a restructuring of the contract ... but the proposal was considered unbankable thus creating a stalemate,” the agency said.
