After the Kenya Roads Board Act was modified in 2019, the Board was given explicit authority to borrow money and use the Roads Maintenance Levy Fund as collateral. The purpose of allowing the Board to borrow was to localize the issues around the financing gap for road infrastructure at the parent ministry responsible for roads as they are better equipped to tackle such concerns.
The Kenya Roads Board (KRB) suffered a setback in 2021 when the National Treasury halted the issuance of a Sh150 billion infrastructure bond. There were concerns that the bond would violate the terms of the International Monetary Fund’s engagement.
The bond’s proceeds were to be used to fund the completion of road projects. The road sector has been dealing with massive infrastructure deficits, necessitating creative solutions to close the funding gap, which currently stands at around Sh600 billion.
To maintain the over 164,000km road network, the Board currently relies entirely on revenue from the Roads Maintenance Levy Fund (RMLF), which is charged at Sh18 per litre of petrol and diesel, as well as transit tolls.
The funds collected from the fuel levy are insufficient to meet the network’s needs, and with rising fuel prices and the impact of the shift to electric vehicles, the fund is unlikely to grow further.
According to an African Development Bank study, African countries must improve their regulatory frameworks to ensure the successful launch of African infrastructure project bonds.
According to the report, many of the ingredients for infrastructure project bond issuance are there, but governments must do more to entice sponsors to enter local markets. Governments can also play a bigger role in promoting stable economic conditions, establishing local capital markets, and fortifying institutions.
Back home, legislators cited a lack of a legal and regulatory framework as a reason for delaying the issuance of the infrastructure bond. The Finance Act 2022 revision could not have come at a better time. The Act includes a variety of amendments aimed at increasing revenue and aligning tax legislation with government development aims.
With this new development, the Board is able to increase its financial resources even while it looks into other financing possibilities for infrastructure improvement.
In order to close the financial deficit in the road sector, the Finance Act of 2022 amends the Kenya Roads Board Act of 1999 to allocate 50% of the Fund to maintenance and 50% to options such bonds for raising extra revenues.
This indicates that 50% may be set aside by the Board as collateral for loans required to finance road development, maintenance, and rehabilitation projects. Prior to this time, the Act did not specify how much money should be set aside to pursue extra funding for roads. In addition to this accomplishment, the Kenya Roads Board (General) Rules, 2022 regulations have been adopted by the National Assembly.
The regulations also give the Board the authority to apply the Act’s stated punishments on a road agency if it disobeys its requirements, with the Cabinet Secretary for Transport and Infrastructure’s consent. The two developments—the KRB Act Amendment and the KRB General Rules 2022—are significant advancements in the road industry that will improve the Board’s and the road agencies’ operational and finance choices.
The Board is optimistic that it would be able to generate at least Sh150 billion through the issuance of bonds if half of the RMLF is set aside to find additional funding. This implies that even the road authorities will get more money, which will eventually advance the nation’s road system.