The Treasury is eyeing a $4.2 billion (Sh540 billion) bonds for expansion of the standard gauge railway (SGR) and Jomo Kenyatta International Airport (JKIA), less than a year after it cancelled a deal with India's Adani Group.
A Treasury brief seen by the Business Daily shows that it plans to raise $3 billion (Sh387 billion) for the extension of the SGR line from Naivasha to Malaba and $1.2 billion (Sh154.8 billion) for the expansion of the main airport through a securitised bond.
Kenya is seeking new ways to finance infrastructure projects due to sharply rising debt, with a focus on the public-private partnerships (PPPs) and securitisation, where bonds are backed by income-generating assets.
Under the SGR extension plan, Kenya will use Sh39 billion from the rail development levy, a 1.5 percent tax applied to all imported goods, to back the bond.
Some Sh18.5 billion from the air passenger service levy, a fee $50 (Sh6, 450) for international journey tickets and Sh600 for domestic, will be used to back the bond set for the expansion of JKIA.
Kenya had earlier invited international development lenders to finance the JKIA expansion after the botched concession deal with Adani Group, after its founder was indicted in the United States.
The government had informed development agencies of an opportunity to build the airport, borrowing on its balance sheet.
The Japan International Co operation Agency, China Exim, KFW, the European Investment Bank and the African Development Bank had been contacted.
The new JKIA upgrade, including runway at the airport and a new terminal building, marks a departure from the previous plan, which would have seen Adani carry out the expansion and then hand a 30-year lease to operate the airport.
Read: Kenya eyes Sh70bn Adani-type deals to finance infrastructure gap
That plan was scrapped last year when US authorities indicted Gautam Adani and several executives, alleging they paid bribes to secure Indian power contracts and misled US investors.
The Adani Group has rejected the allegations as "baseless" and said it was cooperating with legal processes.
On SGR, Kenya had flirted with securing funding from the United Arab Emirates (UAE) for completing a regional railway after China initially showed a lack of commitment amid Beijing's reduced infrastructure support.
It later revived a push for Chinese funding during President William Ruto's visit to China in April.
Kenya agreed on a deal with China where each of the two governments would provide 30 percent of the money needed for the project, with the remaining 40 percent being provided by a joint venture of Chinese and Kenyan banks.
China's muted response to Kenya's request for a loan to fully cover the extension looks set to save taxpayers from a further increase in the debt that Nairobi owes Beijing.
Loan repayments to China currently account for the biggest portion of the billions of shillings that Kenya is paying in foreign debt.
The railway connecting the port of Mombasa with landlocked neighbours, as part of China's Belt and Road Initiative, ended in Naivasha in 2019, 468 kilometres short of the border with Uganda, after a funding hitch.
The private sector component in the extended SGR will ease the accumulation of Chinese debt amid concerns in Beijing about whether the track would yield adequate revenues to refinance loans tapped for the project.
The first phase of the SGR, linking Mombasa and Nairobi, was completed in 2017 at $3.8 billion (Sh490.92 billion).
This included civil works, stations, and rolling stock, largely financed through a 90 percent loan -- about $3.23 billion -- from the China Exim Bank, with the Kenyan government covering the remaining 10 percent.
Between 2014 and 2017, the government allocated Sh106 billion to procure the initial batch of locomotives and wagons.
Exim Bank also financed Phase 2A of the SGR, a 120-kilometre line from Nairobi to Naivasha, which was completed in October 2019 at $1.5 billion (Sh193.78 billion).
The line terminates in Suswa, disrupting plans to efficiently move cargo to landlocked neighbours of Uganda, Rwanda, Burundi, and the Democratic Republic of Congo.
To finance its mega infrastructure projects amid limited fiscal space and debt ceiling tightening, Kenya is increasingly turning to PPPs, including tolling for roads, and securitised bonds.
Under securitisation, projected future revenue streams are packaged into marketable securities that are sold to investors.
The government in securitisation taps capital from private bondholders at an agreed rate of return and is secured by projected cash flows from an existing fund or levy.
In the latest development, the government has securitised the Sh22.7 billion per annum collections through the Sports, Arts and Social Development Fund in floating the 15-year Linzi Asset Backed Bond, whose proceeds of Sh44.8 billion are being used to build the Talanta Sports Complex.
The Kenya Roads Board (KRB) is seeking to allocate Sh12 of the Sh25 per litre road maintenance Levy Fund (RMLF) to compensate investors who will buy the two multi-billion shilling bonds.
Kenya increased the fuel levy from Sh18 to Sh25 per litre of fuel in July last year, with the extra Sh7 generated from a litre of diesel and petrol being used to pay investors for the Sh175 billion bond, which will cater for the pending bills.
Another Sh5 a litre from the levy will cover a second bond of Sh125 billion that will cater for current and future contractors' bills.
Pricing of the bond is yet to be settled, with one section pushing for a yield or return of 150.0 basis points (1.5 percentage points) above the prevailing 91-day Treasury bill, pricing the bond at 8.42 percent at present rates.
The KRB bond marks the Kenya Kwanza's government revival of its long-standing campaign pledge of securitisation as a way of clearing the country's troubling pending bills headache.