Tuesday, 23 December 2014

Monday, December 22, 2014 Mega projects finally take off after delays

A sample of the Standard Gauge Railway. FILE PHOTO | KEVIN ODIT 
A sample of the Standard Gauge Railway. After dithering in the first year in office, the Jubilee government has finally started implementing big projects. FILE PHOTO | KEVIN ODIT |  NATION MEDIA GROUP
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After dithering in the first year in office, the Jubilee government has finally started implementing big projects.
Among the projects that have started is the standard gauge railway. The year has closed with the start of compensation for way-leave in parts of Coast.
About Sh8 billion has been set aside to be given to people who will be displaced. The new railway is expected to reach Nairobi by 2016.
Upgrade of Jomo Kenyatta International Airport and airstrips in the country is ongoing. The plan is aimed at providing wider space to travellers.
As the year comes to an end, the government has been scouting for contractors to undertake public-private partnership in tarmacking 10,000 kilometres of roads.
“The projects have potential benefits to the economy but most of these are not immediate for they will be felt in three to five years when they are completed,” said Mr Gitau Githogo, an economist.
It is expected that the start of the road projects will further increase borrowing from commercial banks. However, the projects will create jobs across the country.
The alternative funding sources are expected to provide Sh260 billion for the construction of the first 2,000 kilometres spread across the country.
The ambitious infrastructure project, that is expected to create about 137,000 jobs in three years, was mooted in August.
The roads project will be implemented through annuity financing. This means contractors will access loans guaranteed by the government from banks, enabling them to design, construct and maintain the roads.
The government is also expected to continue undertaking massive road construction works across the country.
Among the key projects that the government is expected to undertake is the expansion of Outer-Ring Road whose funds have been provided by the World Bank. The other is the double-decker road running from JKIA to Westlands and the expansion of Ngong Road.
Public-private model
Lappset project that seeks to connect Kenya with South Sudan and Ethiopia is expected to start from several fronts through public-private model. The construction of Lamu port is, however, crucial among these projects.
“When the projects kick off, there will be more money in circulation bringing the possibility of increased inflation. On the good side there will be mass employment,” said Mr John Mutua, programme officer incharge of budget at the Institute of Economic Affairs.
Components of Lappset project are Lamu port, roads, crude oil pipeline, electricity network, two airports at Manda in Lamu and in Isiolo. Others are an oil refinery and three resort cities.
The government hopes that private investors will participate in building these facilities through public-private partnerships.
Building of Konza ICT city that was launched by former President Mwai Kibaki, is expected to commence soon. This month, Deputy President William Ruto launched the first phase of the city with a promise to create 17,000 direct jobs.
Galana/Kulalu irrigation project is expected to realise the first crop harvest from the 10,000 acres in February 2015.
The government is expected to upscale the project from next year and progressively cover the one million acres set aside under the plan.
The Sh400 billion irrigation scheme has faced funding delays. However, an Israeli firm, Agri Green signed a contract with the government to build the “model farm” at a cost of $651 million (Sh55.3 billion).
When completed, the project is projected to have 500,000 acres of land under maize production, 200,000 acres under sugar cane farming, 150,000 acres for beef and game animals, 50,000 acres under horticulture, 50,000 acres for dairy farming and the remaining 50,000 acres for growing fruits.
The Ministry of Agriculture has said that many investors have shown interest in taking up part of the land for cultivation.
The government signed a deal with Toyota Tsusho Corporation of Japan for construction of Sh103 billion fertiliser plant in Eldoret, in September. The construction is expected to start next year, with the first stock of NPK fertiliser expected to roll out from the plant in 2016.
In preparation for a rise in spending on infrastructure, the government increased the ceiling of borrowing from Sh1.2 trillion to 2.5 trillion last month.
Implementation of these projects is expected to put pressure on the shilling with increased import of equipment and other key inputs.
“The importation of equipment for construction will increase demand for forex which will pile pressure on the shilling, potentially weakening it,” Mr Mutua said.
The government has already secured $750 million from International Monetary Fund to cushion the economy against shocks that may come as a result of increased demand for dollars as construction materials are imported.
National Treasury Cabinet secretary, Mr Henry Rotich, said the expansion of the debt ceiling would provide headroom for expanded external borrowing to finance the Sh327 billion standard gauge railway, 10,000 kilometre road annuity programme, the 5,000MW electricity plan and fund projects under Lappset.
He said the government would seek massive financing to meet the cost of the country’s infrastructure development in the second medium term plan 2013-2017. The government raised more than Sh160 billion in its maiden Eurobond during the year.
“The National Treasury on behalf of the government seeks to tap the recently issued sovereign bond for an amount not exceeding $750 million to finance ongoing development projects.
Further, the disbursements of the SGR loans are expected to accelerate having satisfied the conditions precedent to disbursements and thereby paving the way for implementation of the project,” Mr Rotich said.
Debt ceiling
He said the funds, together with upcoming disbursements of cash for other projects will drive the quantum of external debt beyond the current Sh1.2 trillion ceiling.
The minister said debt ceiling for external debt had been raised from $10 billion (Sh800 billion) to $14 billion (Sh1.2 trillion).
By September 30, the government had disbursed outstanding nominal external debt stock at Sh1.045 trillion against the set statutory ceiling of Sh1.2 trillion.
This implies that the government had only Sh155 billion, an amount that would have starved projects of funds.

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