By Daniel Mutegi Giti
Many arguments have been advanced on the merits and de-merits of constructing the JKIA-Westland’s express way and the KNH private hospital. From the Urban management point of view, it is a strategic move to help us address traffic congestion, which has been estimated to cost the country Kenya Sh18 billion yearly, according to the World Bank, and also develop a world class hospital to address the cost of overseas medical treatments for Kenyans. This will solve other associated challenges in Nairobi Metropolitan region, one of the largest urban conurbations in East and Central Africa. Constructing the express way and the private hospital at KNH will lend a hand in other efforts to make our city a pleasant place to be. This will increase the economic growth of the city and hence a creation of employment opportunities for our people.
The opposition to the construction of the express way and the KNH private hospital is because of the prevailing high debts levels, which have been accumulated in the development process. To come out of the debt hole, we have to look for sustainable and affordable ways of funding our key development projects like the roads and the expansion of healthcare. The good thing is that Kenya is highly attractive to both public and private financing options, that is why the private entities are comfortable coming on board to fund such projects.
The 2014 African Development Bank report on Kenya showed the country has a thriving private sector which can be tapped in the development process, if we can address the funding arrangements (means of paying for developed assets). It is under this scenario that the express way and the private hospital at KNH has been proposed to be developed through Public Private Partnership (PPP) as a result of developed legal, regulatory and institutional arrangements for conducing PPPs in Kenya.
The express way and KNH private hospital will be developed through User pays PPPs model, which means users will solely pay for the project finance, and hence it will not increase our debts in any way. The PPP model is more off-balance sheet financing method, meaning that the debts are not reflected in our books but those of the private borrower. User pays PPPs is one of the two broad ways through which a PPP infrastructure are financed and developed, the other one being Government pay PPP, where the government or the public sector would be obliged to pay the private entity for developing the express way.
Under the user pay PPP model, the revenue generated from the asset are used to pay the developer of their investments and interests accruing thereof. The revenue generated are tapped into paying the financing obligations with a caveat that the facility must be in good condition, well maintained and available to users. This essentially means that the payments to the developers will be based on the volumes of the usage and the service availability levels – which includes whether traffic lights are functioning as per specification, stalled vehicles are removed on time, there are no potholes or damaged sections which stay in that condition longer than agreed upon among other service delivery levels.
The country has to make a trade-off between going the PPP way or remaining in congested urban areas, or of living with the challenge of patients having to look for treatment in far-off of countries.
The users have the option of either using the express way or resorting to the traditional road to JKIA. The patrons of the private hospital at KNH will use the services and pay for the same, which will be used to pay the developer for the agreed period of years. The private developer will be motivated to ensure high calibre services and improved conditions, which will attract more customers and hence bigger volumes, which translated to more money. Both the facilities have their alternatives in the Mombasa road and the public KNH and hence users have a choice to make here. This is in line with PPP scenarios where the users must always be presented with options in cases where a user pays PPP is agreed as the project delivery strategy.
PPPs by their very nature are driven by three major underpinnings: First is the increased access to affordable financing in cases where budgetary constraints face a country like is the scenario in Kenya. It makes public assets and facilities be developed without recourse to the public resource bases and hence expanding development even with austerity measures. Secondly, PPPs are motivated by adoption of technology and innovation, which are central in service delivery.
Under the model, a public entity will concentrate on the output specifications and standards which motivates the private entity to come up with designs and programmes to address these concerns while making the asset function properly for a long time. Since the asset is in the hands of the private players for a long period, they work to minimise the maintenance and operational costs through the whole of life concept. Thirdly PPPs bring about effectiveness and efficiency in project development, which comes through debt equity ratios in the financing arrangements.
A well-structured, planned and procured PPP project like the JKIA-Westland’s express way, and KNH private hospital makes the facilities more attractive and generate more volumes of business. The country has to make a trade-off between going the PPP way or remaining in congested urban areas, or of living with the challenge of patients having to look for treatment in far-off of countries. (
— Writer is a PhD candidate in urban management at the University of Nairobi
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