The World Bank plans to issue a partial guarantee to the multibillion-shilling Nairobi-Nakuru-Mau Summit toll road project, a massive reassurance for would-be investors.
A bank guarantee promises that if the company carrying out the project defaults on any of its loans, the bank will cover the costs or losses. This guarantee clause increases the confidence of the vendors who need to give large amounts of their products or services, usually on credit, to complete their part of the project.
Investors will recoup their money through tolling as users will pay to use the road for 30 years, making it Kenya’s second major toll road after the Nairobi Expressway.
The World Bank says its sister organisation, the International Development Association (IDA), will partially guarantee the risk of the $1.5 billion (Sh184 billion) public-private partnership (PPP) project.
The International Finance Corporation (IFC), which is the World Bank’s private sector lending arm, is an investor in the project.
The project will see the existing 175-kilometre A8 road from Rironi to Mau Summit upgraded to a four-lane carriageway and the 57.8 km two-lane A8 South, from Rironi to Naivasha, repaired and maintained for 30 years.
“Planned new bank lending includes a possible IDA partial risk project guarantee on the $1.5 billion Nairobi-Nakuru-Mau Summit Toll Road (P165545, FY23) with IFC participating as an investor, and potential MIGA (Multilateral Investment Guarantee Agency) support as a guarantor,” said World Bank.
The African Development Bank is another major investor in the project; in July it approved a $150 million (Sh18.4 billion) loan for the project. The loan was approved to Rift Valley Highways Limited – a special purpose vehicle incorporated in Kenya and wholly owned by French construction firm VINCI group and Meridiam Infrastructure Africa Fund.
Rift Valley Highways entered into a PPP concession agreement with the Kenya National Highways Authority in September 2020 to design, build, finance, operate and maintain the two highways for 30 years before transferring them to the government.
The proposed partial risk guarantee comes at a time the IFC is scaling up its long-term investments in Kenya. The lender is among the largest financiers to local banks through low-cost long-term loans that they then lend to their customers.
IFC, which had by June invested a total of $4.1 billion (Sh497 billion) in Kenyan companies, this year acquired a 6.71 per cent stake in Equity Group, making it the second largest shareholder in the lender. The deal was valued at Sh14 billion.
The World Bank says it will continue to invest in local firms and PPP projects in the major sectors of the economy, including transport, energy, housing and financial sectors.
“On the financing side, the WBG will also continue to support Kenya’s efforts to deepen capital markets and mobilize longer-term financing through IFC investments and MIGA guarantees in the financial sector, and technical support in the insurance sector, and leveraging green and climate finance,” said the lender.
