The Multilateral Investment Guarantee Agency of the World Bank Group (MIGA) has guaranteed an equity investment by an additional investor to help upgrade Kenya’s national roads network.
MIGA’s guarantees now cover $37.5 million in equity investments from a company acquired by the new investor, AIIF4 Seed Partnership GP, a fund managed by African Infrastructure Investment Managers (AIIM), which will own 74 percent equity in the project. MIGA is also guaranteeing $135.3 million in loans from Stanbic Bank Kenya Limited, a subsidiary of Standard Bank of South Africa, and $13.3 million in equity investments from existing investor Mota-Engil Africa of Portugal, for a total of $186.1 million in guarantees.
The 10-year guarantees provide protection from the risk of transfer restriction, expropriation, war and civil disturbance, and breach of contract for the equity investments, and expropriation, war and civil disturbance, and breach of contract for the loans. The project encompasses the financing, design, rehabilitation, upgrade, and maintenance of road sections in central and western Kenya.
Roads are the primary mode of transport in Kenya, but only a limited portion are paved and in good condition. Because most of the network consists of gravel and earth roads, the government of Kenya has prioritized the improvement of the country’s road network through selected public-private partnership programs. Under the Annuity Program, the road network is divided into lots for which concessions are awarded to private investors.
The Annuity Program represents a new model of private sector participation, which was created as an alternative financing mechanism to alleviate pressure on the government’s budget and bridge the financing gap in the roads sector. It is anticipated that under the Annuity Program, the government will be able to upgrade up to 10,000 km of Kenyan roads and to attract an estimated total private investment of up to $2.8 billion. The projects for Lots 15 and 18 are being financed with a 75:25 debt-to-equity ratio, with Stanbic Bank providing loans in Kenya shillings.
“MIGA’s guarantees are enabling private lenders and equity investors to offer Kenya financial support to improve important segments of its road network,” said Hiroshi Matano, MIGA Executive Vice President. “Upgrading the national road network will benefit rural communities and strengthen resilience to climate change.”
After completion of the road improvements, Kenyan residents will enjoy shorter travel times and be able to drive faster and bypass densely populated areas. Reduced vehicle operating costs and greater fuel efficiency will also benefit Kenyan drivers. Just as important, the road improvements will contribute to flood resilience because of improved road drainage.
“We look forward to partnering with MIGA, Mota-Engil, Stanbic Bank, and the government of Kenya on this expansive project, which will contribute to a number of the United Nations Sustainable Development Goals,” said Ed Stumpf, Investment Director at AIIM. “This includes SDG 9 (building resilient infrastructure, promoting inclusive and sustainable industrialization, and fostering innovation) as the roads will be essential to growing Kenya’s urban centers and enabling the transportation of logistics at scale, and SDG 8 (decent work and economic growth), with the project employing up to 400 staff at its peak construction phase.”
Residents of 10 counties in Kenya will benefit from improvements to Lots 15 and 18. Lot 15 is in the central part of Kenya, while Lot 18 is in the western part of the country. Approximately 44.9 kilometers of roads in Lot 15 in central Kenya and 35.1 kilometers in Lot 18 in the west will be upgraded from gravel to asphalt standards. Two companies were created to manage the concessions, Infraconnect Fifteen Kenya Limited (Lot 15) and Infraconnect Eighteen Kenya Limited (Lot 18).
“Our partnership with Mota-Engil, AIIM, MIGA, and the government of Kenya in this landmark public-private partnership transaction will upgrade roads to connect local communities, stimulate trade, lower the cost of transport and generate local jobs,” said Jonathan Muga, Head, Infrastructure, P&I Sector, Stanbic Bank.