Will the proposed 473 kilometer Mombasa Express Highway become a reality?
The ball is now in the court of the American Private Equity firm- Everstrong Capital LLC- who signed the deal with the government during President William Ruto’s high profile visit to the United States.
It is important to note that, contrary to popular belief, the American government itself will not put its own money into building the road.
The signed party is a private outfit with a mandate to raise billions of dollars from international investors including from our own local institutional investors with an appetite for this huge project.
I will just start celebrating at the point Everstrong Capital will announce that they have reached the conjuncture described in Private Equity lingo as ‘financial closure’.
Everstrong Capital is not very well known in Kenya. One of the major deals closed was the acquisition of the Athi River-based 80MW heavy fuel oil power plant, Gulf Energy, in 2018.
The fund also bought a majority stake in an entity known as Seal Towers Ltd that owns mobile phone towers and base stations.
Clearly, raising hundreds of billions to finance the construction of the Mombasa Expressway, will be a steep hill for Everstrong Capital LLC.
We must not forget another American company, BNT Construction and Engineering Company, known by the acronym Bechtel, unsuccessfully tried to deliver the same project. One of the largest construction companies in America, Bechtel has not been able to get the financial arrows on this big project in a row.
The company signed a government-to-government (G2G) agreement back in July 2015. They then signed a commercial agreement with the Kenya National Highways Authority (KeNHA) in 2017. But the National Treasury and the company could not agree on the financing. proposal which America has on the table.
The National Treasury insisted that Betchel raise funds and use its own money to build the road under a PPP rule known as build operate and transfer and where the concessionaire recovers its investment and margins by charging tolls to users.
America insists on the conventional route where the government provides balance sheets to guarantee loans from export credit institutions, development finance institutions, and European export-import banks.
America presented a financial proposal with financing mainly from US and UK export credit agencies, including US Exim, OPIC and UKEF from the UK.
As it turned out, the project did not reach financial closure because the government refused to issue sovereign guarantees or other arrangements that could lead to major contingent liabilities.
The government insists on arrangements similar to those made in the funding structure for the Nairobi Express project where the Chinese contractor- China Roads and Bridges- financed the construction of the road from its own money and the funding was structured in such a way. way to keep contingent liability in government to a minimum.
Unlike the Chinese, Americans are very mean with their money. Even entities such as OPIC and IDFC will provide guarantees only when essential American goods and services are provided under specific contracts.
Indeed, the guarantee was created primarily to protect American companies in the event that the borrowing country is unable to pay American companies for the goods and services they provide.
Whether Everstrong Capital will succeed where one of America’s largest construction companies cannot is an open question.
Let’s face it, we haven’t done well with big infrastructure concessions. At a ceremony in Paris in 2020, former president Kenyatta witnessed the signing of a commercial contract with a French construction conglomerate company, Vinci Highways, to build for us a highway that pays for you between Mau Summit in Nakuru and Nairobi.
Estimated to have a capital of about Sh160 billion, at the time it was said to be the largest PPP road concession in Africa.
A French company will build the road with its own finances, take ownership control of the highway, charge users tolls to recoup the investment, and finally return ownership to the state after thirty years.
As it turned out, the French company could not achieve financial closure. The project was abandoned.
The writer is a former managing editor of The EastAfrican.
