Business Daily

By George Omondi

March 4th, 2012

Investors are waiting for details on how the Sh1.5 trillion infrastructure project linking Lamu to South Sudan and Ethiopia will be financed following the launch of the first phase last week.

Presidents Mwai Kibaki and Salva Kiir of South Sudan and Ethiopia PM Meles Zenawi led the ground breaking for the Lamu port, which is being financed by the government.

The port is part of the Lamu-South Sudan-Ethiopia Transport (LAPSSET) corridor project, which also include a railway line, an oil pipeline, a refinery, airports, resort cities and a highway.

For a project of this magnitude, it is only when the public knows what the governments have promised in the contracts that they can judge the official seriousness and its viability,” said Mr John Mutua, a public policy analyst at the Institute of Economic Affairs.

In the build-up to the Friday ceremony, the government had indicated that it could only raise up to Sh6.9 billion of the project’s Sh1.5 trillion bill from its current budget. “Otherwise, involvement of top government officials is a good indicator that they want to see this capital intensive project off the ground and possibly, through to conclusion,” he said.

On Friday, Kenya and Ethiopia had signed an agreement in order to meet the power needs of the transport corridor.

“This day will go down in history as one of the defining moments, when we made a major stride to connect our people to the many socio-economic opportunities that lie ahead,” President Kibaki said.

How Kenya intends to finance its part of the transport corridor project, though under official wrap, has generated a lot of interest in the past four years.

The government initially signed a deal with Qatari government in 2008 to build the seaport but slowly backed out after part of the agreement was leaked to public. The contentious aspect of the deal involved allowing the Arab state to grow food crops in the Tana Delta.

In between, the government appeared to be warming up to Chinese firms for a build-operate-and transfer (BOT) arrangement to fund its part of the project. This was after their government funded the feasibility study on the project. However, intense pressure from multi-lateral lenders has pushed government officials to indicate its willingness to subject the multi-billion project to competitive bidding.

On Friday, Chinese Embassy officials declined to discuss involvement in the Lamu project saying the government was yet to give them full feedback.

“Right now, I can say we don’t want to make any comment about LAPSSET project,” said Mr Shifan Wu, chief public relations officer at China’s embassy.

Last December, the cabinet approved the Public Private Partnership (PPP) Bill, indicating that such capital intensive infrastructure projects would in future be handed to private firms on terms such as BOTs.

Analysts believe that the legal framework (PPP) will act as a magnet for private capital, allowing local and international firms with financial muscle to initially own and run such high profile assets.

While it was also not immediately clear how Ethiopia intended to finance its side of the corridor, South Sudan, which signed an agreement with Kenya to build an oil pipeline connecting the two states is believed to be scouting for multinationals to engage under BOT terms.