State Axes Annuity Road Programme Over High Costs

Kenya will adopt the Engineering, Procurement, and Construction (EPC) model for road building, driven by the cost challenges of the annuity programme, a senior government official has said.

Roads Principal Secretary Joseph Mbugua stated that the government has abandoned the annuity model in favour of the traditional EPC (Engineer/Procure/Construct) approach, citing concerns over inflated costs.

Mr Mbugua, who appeared before Members of Parliament on 17 April 2025, said roads previously planned under the scrapped annuity programme will now be financed through the national budget. He described the annuity model as an expensive method for road delivery.

“The projects have been too expensive, and analysis showed they were not delivering value for money due to high annuity costs,” Mr Mbugua said.

“Authorities have decided not to implement any more annuity projects, given the high costs compared to those financed by the exchequer or through competitive bidding.”

Of the 10,000 kilometres originally planned under the programme, only three roads—totalling 172 kilometres and costing Sh30 billion—were completed, funded by local banks and the government.

When the programme was first introduced, pilot projects were undertaken in Isiolo, Meru, and Nyeri counties. The Modogashe–Wajir Road was also targeted under the framework.

Following the shift back to the EPC model, the Ilasit–Njukini Road — connecting Kajiado and Taita Taveta counties — is now under construction through EPC contracting. Construction of the long-delayed road began in March 2025.

An EPC is a contracting agreement in which contractors handle detailed design, procure building materials, and construct a complete facility for the client.

This differs from annuity financing, where the government negotiated uniform loans with banks while contractors designed, built, and maintained roads for eight years.

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The Treasury was to provide 30% of the funding, with the remainder repaid in equal instalments (annuity) over eight years once a road was completed.

The government proposed a uniform interest rate of 12–13% for the loans, but commercial banks rejected this, insisting on rates aligned with prevailing market conditions.

The road annuity programme later proved to be slow and complex, as it involved multiple parties — financiers, legal teams, and contractors — all of whom had to agree on every aspect.

Moreover, several local contractors were struggling to get funding because banks did not find their balance sheets and creditworthiness quite appealing.

As a result of these challenges, only the Ngong–Kiserian–Isinya and Kajiado–Imaroro roads were fully completed using the road annuity model.

The final cost of the roads escalated to Sh28 billion, a substantial increase from the initial estimate of Sh10 billion, as previously reported by a senior ministry official.

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