The government is looking to raise close to Sh550 billion to complete construction of 10,000 km of roads.
“The annuity financing model was a new concept and banks were unwilling to lend because they felt there were more risks involved. We had very high financing costs so we paused to look at other alternatives including external borrowing,” Infrastructure principal secretary John Mosonik said.
A third of the proposed credit of Sh150 billion will be extended to six local banks for onward lending to local contractors at an interest rate of 12 or 13 per cent. The balance will be disbursed to the contractors by the IFC.
It is, however, unclear whether or not the banks have agreed with the government on the interest rates.
The annuity financing plan will see local contractors building roads using their own resources and later recovering the money from the government.
A contractor is expected to design, build and maintain a road for up to 10 years before handing it over to the government. The plan is aimed to improve efficiency among road builders and to ensure availability of funds to prevent time and cost overruns that have been the order of the day in the past.
The government is racing to construction 4,000 km of urban roads and 6,000 km of rural roads at a cost of Sh25 million for every kilometre of rural road and Sh50 million to Sh80 million per kilometre of urban road.