Strabag’s €740m Kenyan toll road deal collapses

The World Bank said this week that it would not provide financing for a Kenyan toll road project in which Strabag and Israeli developer Shikun & Binui were equal partners. Following the World Bank’s decision, the Kenyan government said it ‘will now explore alternative ways for executing the project’.

The World Bank has opted against financing a toll road in Nairobi, causing the Kenyan government to back away from the €740 million public-private partnership it awarded to a Strabag consortium in December 2009.

Austrian developer Strabag and Israeli construction company Shikun & Binui each had a 50 percent share in the consortium, which won a contract to renovate and expand about 45 kilometres of the Nairobi Bypass and operate a 106 kilometre road under 30-year concessions. Construction costs were estimated at €475 million.

The project, as envisaged through the consortium, has regrettably collapsed

Franklin Bett

A draft concession agreement was drawn up in November 2009, with the World Bank and the African Development Bank as lenders to the Strabag-Shikun consortium. A Strabag spokesperson told Infrastructure Investor at the time that the World Bank would guarantee toll collection and political risk.

End of the road for Nairobi
Bybass PPP

But “after completing a detailed review and due diligence on the project and its sponsors”, the World Bank said in a statement, “the World Bank found that the systems and approach to compliance procedures would not be commensurate with the circumstances of this project and the governance risks facing this sector”. As a result, the World Bank decided against financing the project.

The World Bank said it would consider financing the Strabag consortium if it “agreed to expand its integrity compliance procedures and training programs to cover the company more completely”.

A spokesperson for Strabag said the company is still “very willing” to work with the World Bank. The two organisations are still discussing how they could alter the project structure to make it amenable to the World Bank, according to the spokesperson.

For now, though, the Kenyan government seems to have given up on the project, which had been in development for nearly a decade.

“The project, as envisaged through the consortium, has regrettably collapsed,” Franklin Bett, Kenyan Minister for Roads said in a statement.  “Consequently, the Government will now explore alternative ways for executing the project, which may involve restructuring and re-design”.

The Strabag spokesperson said support from the Kenyan government is a “prerequisite” to any World Bank financing. A decision on whether the government will continue to support the deal is expected this month, according to the spokesperson.