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Kenya seeks $1.5 billion in highway funding from China

Kenya and two Chinese firms will begin construction on a $1.5billion highway expansion in East Africa this Friday. This marks Beijing's return after years of absence to major infrastructure developments.

The partners will finance the project in two phases using a combination of debt and equity. This model is becoming more popular after China's traditional loan model raised concerns about borrowers' debt loads.

Kefa SEDA, Director General of Public-Private Partnerships at Kenya's Finance Ministry told the official launch that "we don't have the room to borrow more money."

The project will upgrade a vital transport corridor connecting Kenya's port city of Mombasa to its western region, as well as neighbouring states such Uganda and other landlocked countries.

As China repositions in Africa, Kenya strikes a deal

China, which had pumped billions into infrastructure projects in Africa, cut its lending around 2019, as concerns grew about the sustainability of debt in countries such as Kenya.

Beijing, in its efforts to reposition the country on the continent, pledged $50 billion over three years as credit and investment.

Kenya cancelled a deal earlier this year with a French consortium, Vinci SA, for the expansion of highways.

The new agreement, announced in April during the state visit of Kenyan President William Ruto to Beijing.

Kenya is one of Washington's closest African ally. The rapprochement of Nairobi and Beijing angered U.S. president Donald Trump. Ruto then defended the strategy publicly, stating that Kenya had to increase exports to markets such as China.

A 28-Year Toll Concession and a Debt, Equity Mix

The Kenya National Highways Authority announced that the first phase of the project, which will cost $863m, will see China Road and Bridge Corporation partnering with Kenya's State Pension Fund NSSF in order to convert two existing stretches from a single lane highway of 139km (86 miles) into dual carriage roads of four and six lanes.

The second phase will see Shandong Hi-Speed Road and Bridge International (a subsidiary of China’s Shandong Hi-Speed Group) convert a 94-kilometer stretch of single-lane highway to a six-lane road at a cost $678.56 millions.

KENHA stated that both total cost estimates include finance costs.

The two parts of the project are divided into debt deals and equity deals. NSSF will provide 45% of equity funding for the phase in which it is involved.

Seda stated that the borrowing could be from Chinese commercial banks and state entities such as Export-Import Bank of China.

The companies have until 2027 to finish construction, followed by a concession of 28 years to collect tolls in order to recover their investment and earn a return. (Reporting and editing by Karin Strohecker, Joe Bavier, and Duncan Miriri)

(source: Reuters)