The Nairobi Expressway, Kenya’s flagship Public-Private Partnership (PPP) project under China’s Belt and Road Initiative, has posted a KSh 1.2 billion loss in the financial year ending June 30, 2024. The loss highlights the challenges of achieving profitability for a project designed to revolutionize transportation between Jomo Kenyatta International Airport (JKIA) and Nairobi’s Central Business District (CBD).
Financial Performance Overview
The expressway, managed by Moja Expressway a subsidiary of China Roads and Bridges Construction (CRBC) earned KSh 4.6 billion in revenue during the period. However, operational costs amounted to KSh 5.8 billion, creating a significant deficit. Despite its strategic importance in reducing travel time from two hours to just 20 minutes, the expressway has struggled to meet its financial targets.
Other PPP projects have shown more promising outcomes. For instance, the 35MW Sosian Menengai geothermal power plant recorded a KSh 2.3 billion profit, and road annuity programs posted KSh 350 million profits each. These contrasting results underscore the unique challenges faced by the Nairobi Expressway.
Traffic Volume and Revenue Challenges
The expressway averages 11,000 vehicles daily, but this falls short of the projections outlined in the project’s financing model. Management attributes the underperformance to several factors, including the slow growth of traffic and economic constraints that discourage motorists from using the tolled road.
Moreover, toll fees are collected in Kenyan shillings, while the project’s financing is in US dollars. Currency fluctuations and high-interest rates have compounded the financial strain, with the Kenyan shilling currently trading at about KSh 130 to the dollar. This exchange rate disparity results in up to 38% revenue loss during conversion, significantly impacting the project’s profitability.
Toll Rate Adjustments and Operational Costs
The agreement between CRBC and the Kenya National Highways Authority (KeNHA) allows for annual toll rate adjustments. However, government reluctance to approve further increases due to economic conditions has forced the operator to absorb additional costs. Moja Expressway last adjusted the toll rates in January 2024, but management argues that inflation and operational costs have risen since then.
“We bear the loss again and again… toll rates are a way to sustain the project and give the investor confidence,” a Moja Expressway official noted, highlighting the balancing act between incentivizing motorists and maintaining financial viability.
Future Prospects
The expressway’s financial struggles underline the inherent risks of PPP projects, especially those reliant on variable revenue streams like toll collections. Management remains optimistic that traffic volumes will eventually grow to meet targets, but external factors like fluctuating exchange rates and economic pressures could delay this recovery.
As a 30-year concession project, the Nairobi Expressway still has significant time to achieve profitability. However, the current losses may prompt re-evaluation of the project’s operational model, financing structure, and tolling strategy. Enhancing public awareness of the expressway’s benefits and addressing economic barriers could help boost usage and revenue in the long term.
For now, the expressway stands as a critical infrastructure project with untapped potential, awaiting the traffic growth needed to fulfill its promise as a transformative gateway to Nairobi’s CBD.
