How government plans to use Sh7 per litre of fuel levy to settle Sh175bn in unpaid contractor dues
How government plans to use Sh7 per litre of fuel levy to settle Sh175bn in unpaid contractor dues
The government has announced it will use a portion of the Road Maintenance Levy Fund to raise Sh175 billion through bond issuance to settle unpaid contractor dues that have halted numerous road projects.
Roads and Transport Cabinet Secretary Davis Chirchir revealed that the government plans to securitise Sh7 of the Sh25 collected per litre of fuel under the levy to raise the required funds.
The move comes as the country’s road construction efforts have stalled, with hundreds of projects abandoned due to unpaid contractor dues.
Chirchir explained that the government would begin clearing the outstanding bills in full, starting this month.
“In every county, there are five, six or 10 roads which are stranded. The only way out was for the government to quickly put together about Sh175 billion, which is approximately what the contractors are collectively owed,” Chirchir said.
Under the Road Maintenance Levy Fund, the government collects Sh25 per litre of fuel to fund road maintenance. The government, through the Kenya Roads Board, will now take Sh7 of the Sh25 and securitise it.
This means the funds will be structured into a financial instrument that investors, primarily institutional lenders, can invest in, providing immediate cash flow to settle the pending bills.
“So what we have done with the approval of parliament, giving us the additional Sh7 on the road maintenance levy fund on top of the current Sh18 in July last year, was to take a bold decision to securitise the Sh7 to raise about Sh175 billion, through a bond issuance,” Chirchir added.
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He further emphasised the broader economic impact of settling unpaid road contractor dues, stating that the move would significantly benefit various sectors.
“To a very good extent, this is healing GDP to construction, it is sorting out the construction industry in terms of paying our suppliers of material employment, sorting out the banks who do not know what to do with the contractors because they are not able to pay and they are holding a certificate from government and so on,” Chirchir explained.
The CS added that resolving the outstanding payments would not only stabilise the road construction industry but also address challenges faced by suppliers, employees and financial institutions tied to the sector.
However, the government has yet to issue the bond. In the interim, Chirchir said the government secured a loan facility to make an initial payment of 40 percent of the pending bills owed to contractors. Within 120 days, the government intends to issue the bond and use the proceeds to settle both the loan facility and the remaining bills.
The government plans to raise 80 percent of the Sh175 billion bond from the international market and 20 percent locally.
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