Gov't to start settling road pending bills over the next one month

Cabinet Secretary for Roads and Transport Davis Chirchir now says that the government will be clearing these bills in full, starting this month.

He says this will be done through the securitization of a portion of the road maintenance Levy Fund. 

 The only way out was for the government to quickly put together about Ksh.175 billion, which is approximately what the contractors are collectively owed.

 "So what we have done with the approval of parliament, giving us the additional Ksh.7 on the road maintenance levy fund on top of the current Ksh.18 in July last year, was to take a bold decision to securitize the Ksh.7 to raise about Ksh.175 billion, through a bond issuance," said Chirchir.

 The government collects about Ksh.25 per litre of fuel, for the maintenance of roads, under the Road Maintenance Levy Fund. 

What the government has done, through the Kenya Roads Board is taking Ksh.7 of the Ksh.25 and securitizing it. This means, that the funds will be structured into a financial instrument that investors, primarily institutional lenders, can invest in, and avail immediate cash flow for settlement of these pending bills.

 "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 basically 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 and so forth," added the CS.

But the government is yet to float the bond. To make the initial payment of 40 percent of all pending bills owed to road contractors, it has taken out a loan facility. 

Within 120 days, the government will then issue the bond and use the proceeds to offset both the loan facility and the remainder of the pending bills.

"So the way we have structured the facility is we are saying let's have a first aid 600 million dollars today, when we go to the market we’ll do a bond of 600 million, which will therein have the 600 million which we have already taken and then pay off whoever had given us the facility," added Chirchir.

The government is hoping to raise 80 percent of the Ksh.175 billion bond fron the international market and only 20 percent locally.