SECTIONS

New rules and legal changes will greatly boost the roads sector

 

Ongoing construction of Kenol- Sagana - Marwa highway. [Mose Sammy, Standard]

The Kenya Roads Board Act was amended in 2019 and gave express powers for the Board to borrow through leveraging on the Roads Maintenance Levy Fund. The intention of allowing the Board to borrow was to localise the road infrastructure funding gap challenges at the parent ministry in charge of roads as they are better placed to handle such.

In 2021, Kenya Roads Board (KRB) suffered a setback after the National Treasury put a stop to the floating of a Sh150 billion infrastructure bond. There were fears that the bond would have breached the terms of engagement with International Monetary Fund.

The proceeds of the bond were to finance the completion of road projects. The road sector has been grappling with huge infrastructure deficits which calls for innovative ways to bridge the funding gap currently standing at approximately Sh600 billion.

Currently, the Board fully depends on collections from Roads Maintenance Levy Fund (RMLF) charged at Sh18 per litre of petrol and diesel and transit tolls to maintain over 164,000km of the road network.

Monies collected from fuel levy are not sufficient to meet the needs of the network and with rising fuel prices and impact of the shift to electric vehicles, the fund is not expected to expand further. 

A study by African Development Bank indicates that African countries need to improve their regulatory frameworks in order to ensure the successful launch of African infrastructure project bonds.

The report further says many of the ingredients for infrastructure project bond issuance are present, but governments need to do more to make it attractive for sponsors to tap local markets. Additionally, governments can play a greater role in supporting stable economic conditions, developing local capital markets and strengthening institutions.

Back home, the issuance of the infrastructure bond was delayed by legislators who cited lack of a legal and regulatory framework. The amendment of the Finance Act 2022 could not have come at a better time. The Act has introduced a number of changes that aim at raising additional revenues as well as aligning the tax legislation to government development priorities.

This new development allows the Board to grow its funds even as it explores other financing options for infrastructural development.

The amendment to the Kenya Roads Board Act, 1999 through the Finance Act, 2022 provides for allocation of 50 per cent of the Fund to maintenance and 50 per cent towards securing additional funds through options such as bonds to bridge the funding gap in the road sector.

This means that 50 per cent may be set aside by the Board as security for borrowing funds necessary to finance maintenance, development and rehabilitation of roads. Previously, the Act had not provided for funds to be set aside for purposes of obtaining additional funding for roads. Further to this development, the National Assembly has approved the rules cited as Kenya Roads Board (General) Rules, 2022.

The object of these rules shall be to facilitate and enforce the co-ordination of road maintenance, rehabilitation and development and ensure accountability, efficiency, transparency and effective application and utilisation of the KRB Fund.

The rules have detailed the duties of the Board and the road agencies as well asother requirements such as the submission and revision of Annual Roads Programme, Road Inventory and Condition Survey, Disbursement Programme, Sanctions and Penalties.

Others include release and withholding of funds, environmental and social management, contract project file, technical, financial and performance audits, penalties for failure to comply and audit action plans by road agencies. The rules will ensure seamless execution of works and accountability to both parties.

For example, it is expected that a year before the commencement of the financial year, the Board shall notify each road agency of the funds that are likely to be available for road maintenance, rehabilitation and development as well as priorities in the allocation of funds and criteria to be applied.

Further, at the commencement of each financial year, the Board shall develop a disbursement programme that is guided by the projected cash flow, public roadsprogramme and budget of the fund.

The rules also allow the Board, with the approval of the Cabinet Secretary for Transport and Infrastructure to impose sanctions specified in the Act if a road agency fails to comply with the provisions of the rules. The two developments (Amendment of KRB Act and KRB General Rules 2022) are great strides in the road sector that will boost both financing options and operations for both the Board and the road agencies.

The Board is optimistic that if half of the RMLF is set aside to secure additional funds, it may raise at least Sh150 billion through floating of bonds. This means that even the road agencies will receive more funding which will eventually progress the road infrastructure in the country.

We invite members of the public to read the Gazetted Kenya Roads Board (General) Rules 2022 to get a sense of future outlook in the roads sector. The KRB General Rules, 2022 can be accessed at at www.krb.go.ke/downloads.