A committee of Parliament has questioned a Sh10.35 billion cash surplus declared by the National Treasury from the Road Annuity Fund and deposited into the Consolidated Fund despite widespread projects abandoned by contractors due to non-funding.
The National Assembly’s Special Funds Accounts Committee (SFAC) established that the billions of shillings that Parliament allocates to the Annuity Fund annually have been idle at the Central Bank of Kenya and returned to the Consolidated Fund at the end of the financial year.
The Road Annuity Fund was established under the Public Finance Management (Roads Annuity Fund) Regulations, 2015 to provide capital to meet the national government’s annuity payment obligations for development and maintenance of roads.
The Annuity programme is a variant of public public-private partnership model whereby private contractors design, build, and maintain the roads for a predetermined period. The contractor and the government will each meet agreed portions of the total construction cost. The government will then repay the contractor its portion (for which the contractor will typically have sought financing from commercial banks) in equal instalments (annuity) over a set period from the time a road is completed.
Disclosures, however, show that billions of shillings apportioned to the annuity projects were returned to the Treasury in the year to June 2023 despite contractors abandoning road projects across the country due to lack of funds.
The fund, which is drawn from Sh3 per litre of fuel sold, was set up as an alternative road financing plan to ease pressure on the exchequer.
Roads Principal Secretary Joseph Mbugua told the committee that the Annuity Fund regulations allow the Cabinet Secretary for the National Treasury to declare surpluses from the fund.
“In line with procedure, the Sh10,350,000,000 consequently became an additional budget under the normal development budget,” Mr Mbugua said.
“The Cabinet Secretary declared surplus from the Annuity Fund into the Consolidated Fund of Sh10.35 billion (Sh8.45 billion and Sh1.9 billion).”
Mr Mbugua said the expenditure of Sh8.45 billion was approved under Article 233 of the Constitution for the construction of ongoing projects.
Auditor General Nancy Gathungu questioned the under-expenditure of the Road Annuity Fund during the financial year 2022/23.
She said the statement of comparison of budget and actual amounts reflects the final expenditure budget and actual on a comparable basis of Sh7.681 billion and Sh3,634,477,075 or 47 percent of the budget.
“The underperformance affected the planned activities of the Fund and may have impacted negatively on service delivery to the public,” Ms Gathungu said.
Appearing before the committee chaired by Migori Women Representative Fatuma Mohammed, Mr Mbugua said that in line with the Annuity Fund regulations, the outflows from the fund are approved by the Roads Annuity Oversight Committee.
He said the Annuity Oversight Committee approved an expenditure budget of Sh7,681,000,000 against which an expenditure of Sh4,046,522,925 was incurred in the year under review.
“There was therefore no over-expenditure against the approved budget. During the financial year, a surplus of Sh10.35 billion from the Annuity Fund was declared by the Cabinet Secretary, National Treasury.” Mr Mbugua said.
“The surplus was used for payment of road projects approved by Parliament in the Supplementary Estimates for 2022/23.”
Ms Mohammed demanded to know why the Ministry of Roads has excess money that is returned to the Treasury yet contractors have not been paid for works done.
“It is strange that we have money lying idle when we have stalled projects. Why would the Treasury borrow when we have idle money?” Ms Mohammed asked.
“You are accumulating a lot of money under the Annuity Fund when contractors are billing you interests and penalties for delayed payments.”
“Public Private Projects are not easy, unlike the Engineering, Procurement, and Construction (EPC) projects. We have challenges in procurement of PPP projects hence money has been lying in our accounts at the CBK,” the PS said.
“We realised that the annuity projects are very expensive. We have now decided to only retain Sh4 billion annually to cater for ongoing projects while the rest is declared as surplus to the Treasury.”
