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Why minister ignored advice to cut Nairobi Expressway toll fees
The Nairobi Expressway Mlolongo Toll Station. Motorists had hoped for lower rates to be announced from July 1, 2024 in line with macro-economic changes.
The government has ignored an advisory from the Kenya National Highways Authority (KeNHA) to cut toll charges on the Nairobi Expressway following a drop in inflation and strengthening of the shilling against the dollar.
The highways authority, which regulates the expressway operations, reckons that the strengthening of the shilling and lower inflation should trigger a drop in the toll charges that were reviewed upwards on January 1, 2024.
The law gives the Cabinet Secretary for Roads and Transport the powers to adjust the toll rates downwards if inflation falls and the shilling strengthens as part of the public-private partnership (PPP) that the country inked with the Chinese contractor-- Moja Expressway, a subsidiary of China Road and Bridge Construction (CRBC).
But the Transport and Roads ministry reckons that it is premature to lower the toll charges on account of the macro-economic indicators, boosting the earnings of the Chinese firm that owns the road.
The current toll charges were based on inflation at 6.85 percent and the shilling at Sh143.75 against the dollar.
The shilling has remained little changed against the dollar since May as Kenya’s settlement of the Eurobond that matured in June calmed investors, pushing the local unit to Sh129.64 from Sh157.32 at the start of last year.
Inflation stood at 3.3 percent last month compared to 6.9 percent in January last year, keeping the cost of living measure within the State’s target range of 2.5 percent to 7.5 percent.
Roads Principal Secretary Joseph Mbugua said the ministry was still assessing the stability of the macroeconomic indicators, including the exchange rate.
“It’s not like a petrol station where you can change prices overnight,” Mr Mbugua said.
“Even before we escalated the prices, we took some time. We need to see some stability so that you don’t have too many haphazard reviews. We will look at it for some time then come up with an average reduction.”
The shilling was volatile in 2023, oscillating between Sh123 and Sh156 to dollar, an instability that prompted the increase in the toll charges in January last year.
It has calmed to trade at a range of Sh128.46 and Sh130.74 since April, leading KeNHA to recommend a cut on the toll.
After the adjustment of toll fees in January last year, motorists driving saloon cars from Mlolongo to Westlands, Nairobi saw their user fees increase by 38.9 percent to Sh500 from the rate of Sh360 that had been set in April 2022.
Driving the same vehicle from Westlands to Jomo Kenyatta International Airport (JKIA) costs Sh410, an increase of more than a third from Sh300. The toll for the distance between Museum Hill and the JKIA.
Motorists had hoped for lower rates to be announced from July 1, 2024 in line with macro-economic changes.
The reluctance to reduce the toll rates has parallels with the rocket-and-feather pricing where upstream changes are adjusted upwards at rocket speed while the lower prices come down at the pace of a feather.
The State opened a window allowing a Chinese company to adjust the Nairobi Expressway toll charges annually based on inflation in fees that will be paid in dollars.
The inaugural toll charges were based on the dollar trading at Sh103.79 and reviewed based on inflation and the rate of Kenya shilling to the dollar.
This technically means that the toll charges are dollar-based and will cushion the Chinese operator from exchange rate losses. It has since reviewed the rates upwards twice.
The Chinese firm is expected to earn an estimated Sh106.8 billion profit for the 27 years it will own the double-decker road.
The Nairobi Expressway remains in losses despite increased usage, indicating the finance costs from debt used to build the road ate into revenues. More than 70,000 cars use the highway daily.
It reported revenues of Sh4.6 billion for the financial year to June against costs of Sh5.8 billion, translating to a loss of Sh1.2 billion, official data shows.
The Treasury has, however, described the Expressway as a success in easing the flow of traffic and property appreciation.
“Since the commencement of its operations in May 2022, the project has significantly eased the flow of traffic in the city. This has increased accessibility to local businesses in addition to creating more business opportunities and expanding the geographical markets,” the Treasury said in a report.
“Additionally, the value of land along the Expressway and in neighbouring counties like Machakos has appreciated, with tremendous growth in real estate and industrial development being witnessed.”
The expressway involves a four-lane and six-lane dual carriageway within the existing median of Mombasa Road/Uhuru Highway/Waiyaki Way and 11 interchanges or exits and entry routes that act as toll ramps.
The toll charges are forecast to generate Sh302.5 billion in revenues, offering the Chinese firm an annual profit of Sh3.9 billion.
At Sh3.9 billion, CRBC’s forecast annual earnings from the double-decker road dwarfs the profits of the majority of firms listed on the Nairobi Securities Exchange (NSE) — underlining the outsized cash the expressway will generate over the 27 years.
Toll fees were introduced in the late 1980s but were scrapped in the mid-1990s in favour of the roads maintenance levy currently charged at Sh25 per litre of petrol and diesel.
The return of toll fees is the result of using private investments in public infrastructure to build roads, energy plants and housing, with investors recouping their cash from charging user fees like tolls.
Kenya is seeking to maintain the pace of spending on new infrastructure with funding from private backers while reducing borrowings and budget deficits.
The government is planning more highways to be constructed through the PPP arrangement, with investors recouping their investments.
