DIAGNOSTICS

On

GOVERNANCE AND POLITICAL ECONOMY CONSTRAINTS

For

Kenya Country Assistance Strategy:

INFRASTRUCTURE :UPDATED VERSION(ROADS and PORTS)

DRAFT REPORT

July 2011

The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the World Bank.

"Roads connect food, goods, markets, people, families, communities and lives. They connect politicians, civil servants, the police and the military, the judiciary, and governments. But

roads also lead from heaven to hell, as the ugly heads of greed and envy often seize the material opportunities for graft and corruption in the development, maintenance, and operations of roads." Manolito Madrasto – Former Secretary General, International

Federation of Asian and Western Pacific Contractors' Association

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Abbreviations and Acronyms

APRP Annual Public Roads ProgrammeARWPs Annual Roads Work ProgrammesBOT Build Operate and TransferCDF Constituency Development FundCEO Chief Executive OfficerCFCs Container Freight Stations CPA Comprehensive Peace AgreementCPG Coast Parliamentary GroupDIR Detailed Implementation ReviewDRC Democratic Republic of CongoERS Economic Recovery Strategy for Wealth and Employment Creation

2003-2007FY Financial YearGBHL Grain Bulk Handling LimitedGoK Government of KenyaGPE Governance and Political EconomyICT Information Communication TechnologyIFC International Finance CorporationIT Information TechnologyJBICKACC

Japan Bank for International CooperationKenya Anti Corruption Authority

KADU Kenya African Democratic UnionKANU Kenya African National UnionKBS Kenya Bureau of Standards Kshs Kenya ShillingsKEPHIS Kenya Plant Health Inspectorate ServicesKESLO Kenya Southern Sudan Liaison OfficeKNHA Kenya National Highways AuthorityKPA Kenya Ports AuthorityKPTC Kenya Posts and Telecommunications CorporationKRA Kenya Revenue Authority KRB Kenya Roads BoardKRRA Kenya Rural Roads AuthorityKURA Kenya Urban Roads AuthorityKWATOS Kilindini Waterfront Operating SystemKWS Kenya Wildlife ServicesLPG Liquid Petroleum GasMPs Members of ParliamentNARC National Rainbow CoalitionNCA National Construction AuthorityNCTTCA Transit Transport Coordination Authority of the Northern CorridorODM Orange Democratic MovementPAC Public Accounts CommitteePNU Party of National UnityPPP Public Private Partnerships

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PSP Private Sector ParticipationRMF Road Maintenance and FinancingRMFL Road Maintenance Fuel LevyRMI Road Maintenance InitiativeSSATP Sub-Saharan Africa Transport ProgramTEU Twenty Foot Equivalent UnitTTCA Transit Transport Coordination AuthorityVAT Value Added TaxWB World Bank

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Diagnostics on Governance and Political Economy Constraints for Kenya Country Assistance Strategy

INFRASTRUCTURE (Roads and Ports) SECTOR

Table of Contents

Abbreviations and Acronyms................................................................................................................3Table of Contents........................................................................................................................................ 5

EXECUTIVE SUMMARY.......................................................................................................................................71.0 What this is about................................................................................................................................11

1.1 What are Roads and Ports?...................................................................................................12111.2 Investing in Transport Infrastructure.............................................................................13121.3 Importance of Roads and Ports..........................................................................................13121.4 Are Roads and Ports Enough?.............................................................................................13121.5 What is new?...............................................................................................................................1413

2.0 The Problem..................................................................................................................................... 15143.0 Governance and Political Economy Framework..............................................................18164.0 Country-Level GPE Drivers........................................................................................................1917

4.1 History of State Formation in Kenya................................................................................19174.2 Electoral Outcomes: How Do They Affect Reforms?..................................................20184.3 Business Interest and Political Capture..........................................................................20184.4 Geopolitical Dynamics............................................................................................................ 20184.5 Relevance of the Social and Political Context...............................................................21194.6 The Situation Now....................................................................................................................2119

5.0 ROADS................................................................................................................................................. 23205.1 Background..................................................................................................................................23205.2 Political Economy of Reforms in Kenya’s Roads Sub-Sector.................................28245.3 Resistance to Reforms.............................................................................................................32275.4 Criteria for Prioritizing Maintenance...............................................................................33275.5 Implementation Challenges..................................................................................................35295.7 Management of Devolved Funds........................................................................................38325.8 Economic and Political Constraints Facing Roads Sub-Sector Reforms...........38325.9 Efficiency versus Equitable Distribution........................................................................40345.10 Poor Supervision of Rehabilitation and Maintenance Works...............................40345.11 Slow Pace in Effecting Axle Load Control.......................................................................41355.12 Inadequate Railway Transport...........................................................................................42355.13 Poor Environment and Lack of Proper Framework for Private Sector Participation.............................................................................................................................................. 42355.14 Some Final Thoughts...............................................................................................................4436

6.0 PORTS..................................................................................................................................................46396.1 Introduction................................................................................................................................ 46396.2 Overview of Recent Performance of Mombasa Port..................................................4740

6.2.1 A Review of Port Operational Efficiency...............................................................49426.2.2 Port Dwell Time...............................................................................................................50436.2.3 Capacity and Efficiency Constraints........................................................................5346

6.3 Source of Pressure for Efficiency Improvements at Mombasa Port 2003-20075447

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6.4 An Assessment of Mombasa Port Reforms....................................................................56496.4.1 Review of Mombasa Ports’ Privatization Efforts...............................................58516.4.2 Resistance to Privatization Reforms.......................................................................59526.4.3 Resistance and Other Constraints to Port Management Reforms.............61546.4.4 Modernization of the Port Facilities and Equipment......................................63566.4.5 Proposed Lamu Port......................................................................................................67586.4.6 Demonstration of Benefits for Privatization.......................................................6860

6.5 Factors Shaping Coastal Politics and Social-Economic and Political Perspectives6961

6.5.1 Sources of Influence of the Coastal Political Elite.............................................71636.5.2 Business Interest Groups, Political Patronage and Pressure, Special Business Elites and Political Patronage....................................................................................7264

7.0 Impact of the New Constitution on the Mandates of Existing Transport Institutions 74 7.1 Capacity Limitations in Devolved Units 7678.0 Concluding Remarks.....................................................................................................................7867

87.1 Key observations.......................................................................................................................796887.2 Recommendations....................................................................................................................6980

REFERENCES........................................................................................................................................ 8570Annex 1 Kenya’s Road Network...................................................................................................8873Annex 2: Risk Mitigation Action Plan in Kenya’s Road Sector........................................8974Annex 3: Excerpts from the Parliamentary Hansard of June 26th 2007....................9277Annex 4: Overall Funding of the KRB Fund in FY 2007/2008 in Kenya Shillings..9782Annex 5: Construction of Roads...................................................................................................9883Annex 6: Rehabilitation of Roads.................................................................................................9984Annex: 7 Reports of Parliamentary Committees on Implementation of Road Projects.................................................................................................................................................................. 10085Annex: 8 Roads Project Implementation Issues.................................................................10489Annex 9: Container Throughput 1980-2006.....................................................................115100Acknowledgements...................................................................................................................... 116101

FiguresFigure a Kenya: Governance Indicators - Comparison with Regional Average 15Figure 1: The GPE Framework Depicting Layers of Analyses 16Figure 2: Share of KRB Fund by Road and Agency 26Figure 3: Kenya, 1996-2008: Aggregate Indicators: Voice and Accountability 31Figure 4: Kenya, 1996-2008: Aggregate Indicators: Political Stability and Absence

of Violence34

Figure 5: National Roads Sub-Sector Organizational Framework 38

TablesTable 1: Traffic Handled at Mombasa Port 2002-2008 38Table 2: Gateway Container Handling and General Cargo Costs for Ports in Africa

and the World 40

Table 3: Dwell Time in Days Per Country and Destination for Road 42Table 4: Port Handling Productivity at Mombasa Container Terminal 42Table 5: Import Container Dwell Time 43Table 6: Country Port Reform Index 47

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BoxBox 1: Definition of Road Works 26

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Diagnostics on Governance and Political Economy Constraints for Kenya Country Assistance Strategy

INFRASTRUCTURE (Roads and Ports) SECTOR

Final Updated [Revised] Draft

EXECUTIVE SUMMARY

[1.] This is updated version of the original report completed in March 2010 is based on a governance and political economy analysis of reforms in Kenya’s infrastructure sector. The study focuses on two sub-sectors, roads and ports. It is intended to contribute toward the formulation of the next Country Assistance Strategy (CAS) for Kenya.

1.[2.] Kenya faces significant infrastructure constraints that must be urgently addressed in order to promote the development of an effective and productive roads and ports sector, capable of contributing to the economic growth of the country. The governance and political economy analysis contained in this report shows that policy reforms in Kenya’s roads and ports sub-sectors have yet to fully gain traction.

2.[3.] A number of policy reforms conceived under the Road Management and Financing Initiative have been introduced in the roads sub-sector resulting in significant improvement of the network during the last seven years.

[4.] In both ports and roads sub-sectors, after years of poor performance arising from bad governance structures, endemic corruption, and mismanagement of resources and under- investment in critical areas, there are signs that modernization of facilities at the port of Mombasa and road construction in various parts of the country are bearing fruit in terms of capacity enhancement and efficient delivery of services.

3.[5.] However, a number of governance and political economy challenges still stand in the way of deeper reforms; chief among them being the resistance by Coastal politicians and prominent business elites to privatization of port facilities. In the roads sub-sector, the major policy failures include insufficient maintenance, substantial corruption in procurement and insufficient investment. There are however, strong signs that important measures are being taken to address some of the issues, such as privatization and automation of weighbridges.

4.[6.] Specifically, slow progress in implementing reforms has been on account of the following: The institutions and processes in which reforms are embedded have at times not

been aligned with the interests and thus preferences of key decision makers leading to perverse incentives and opposition to reforms. In the Mombasa port case for example, Coastal politicians exercise great influence because they are pivotal in the battle between the larger political interests in the country. A better integration of political economy context can reduce political risks associated with port reforms.

Success of reforms in the roads and ports sub-sectors is linked to the broader governance reforms. Currently, the reality in Kenya is that there is: (1) uncertainty about the outcome of on-going constitutional reform;, (2) uncertainty about the

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outcome of the next general elections, and (3) following from 1a and 2b, indecision on the part of key actors on the next course of action. To the extent that the governance and political economy context matters (i.e., as a constraint to development objectives), the next CAS should pay close attention to the governance and political economy drivers highlighted in this report.

For example, there is evidence to show that reforms in the infrastructure sector coincided with improvement in voice and accountability in Kenya. The vast literature in this area suggests that the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media has positive impact on implementation of reforms. The implication here is that the Bank should advance its support for deeper democratization by building on the momentum generated during previous CAS; gauged, for example by the role that the Kenyan civil society continues to play in exposing sleaze and demanding accountability from politicians and public servants.

Limited technical and managerial capacity has also constrained the reform process. Implementing management reforms in the form of merit appointments of professionals has been tried and experience shows it can lead to a relatively quick turn around in the management of state corporations. But, the evidence also shows that success only comes if such appointments are accompanied by space to make decisions and implement reforms professionally, unencumbered by political interference. Changing the rules of the political game as happened after the NARC government took over power, leading to the hiring of a competent CEO to run Kilindini port in Mombasa, resulted in improved operational and financial performance at the port enabling the port to finance its modernization and expansion program directly from its revenues as well as through credit made possible because of the improved financial position. But, as the experience again shows, where reforms threaten local and regional interests, resistance to reforms, if not restrained say by a public interest oversight body, can slow down implementation and/ or reverse any gains that might have been made.

The Mombasa port case shows that regional, economic and political self interests can hold central government initiated reforms at ransom. The coalition government’s hold on power depends on support from regional political and business elites. So far, various attempts have been made to increase private sector participation (PSP) in the delivery of port services through forms of private-public partnership (PPP) arrangements. Based on the liberal democratic model, it can be argued that this is one way of increasing efficiency and investments. However, a key element of port reform must be the creation of a mechanism to protect genuine public interest and make certain the objectives of reform are met. This requires a delicate political balancing act especially where ‘public interest’ is narrowly defined in regional and/ or nationalistic terms. It calls for coordination among various branches of government and consultation with diverse port interests. It certainly also calls for sensitivity to collateral consequences and effects of port reforms on public interests in land use, job creation, and economic stimulation.

5.[7.] Reforms in the roads sub-sector have seen revenue levels generated through fuel levy increase from Kshs.7.8 billion in the 2001-2002 Financial Year to over Kshs.19.8

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billion in 2008-2009. Most of these funds have been invested in improving the road network. But with approximately 40 percent of this investment lost to corruption, fundamental questions must be asked about the levels and quality of service enjoyed by road users. Usually, the government sets the quality and quantity of service required. Compliance with the quality and quantity specifications at the agreed price should theoretically yield the value for money that the government intended to achieve when it, for example procures the services of a contractor. However, a number of policy failures point to multiple inefficiencies (i.e., technical and X).1

6.[8.] According to a Kenya Anti-Corruption Commission Report (2007), corruption in road projects thrives due to weaknesses and loopholes that exist in the entire project cycle from the planning and design, to the tendering and implementation process. Cases of poor project planning and implementation, poor service delivery, inefficiencies, breach of procedures, soliciting for bribes, questionable dealings, outright theft, fraud and other corruption related activities are all too common in roads projects (various Public Accounts Committee Reports).

7.[9.] Following previous audits by the Bank, significant reforms measures have been instituted to try to reign in on performance, including: (i) detection of mismanagement, (ii) participation and downward accountability and communication, (iii) payment procedures, (iv) financial and technical audits, (v) staffing and mainstreaming of activities, and (vi) institutional aspects. These measures presuppose a democratically elected government that is effective and advances vital public goods such as the rule of law. But evidence in Kenya points to the contrary.

[10.] Parliamentary reports in the Hansard suggest high level complicity by the executive and the judiciary in corruption cases, which tends to breed impunity. Where the quality of public service and the capacity of the civil service and its independence from political pressure are called to question, as has happened in Kenya, the standard reform menu should be diversified. SurelyIndeed, support for infrastructure reforms must be linked to broader governance reforms. Given the current governance and political economy context that is characterized by a number of uncertainties about constitutional and electoral outcomes, reforms in the infrastructure sector should focus on expanding space for change proactively by incrementally building coalitions to combat entrenched corruption networks. This can be done while supporting the emerging road agencies and sub-agencies to become established considering that they will play an increasingly important role in the roads sub-sector going forward.

[11.] The bond market is emerging as an alternative source of financing for infrastructure projects in Kenya. Considering the financing gap in the infrastructure sector and the maintenance backlog due to past underinvestment, the pace of private participation in infrastructure development is rather slow. Political economy drivers such as high political risk, nervousness about PPP arrangements and high up-front cost of project development have to be addressed before the full potential of PSP can be realized. In addition, the capacity of the government in general to provide adequate services and support is weak because of poor incentives and lack of proper coordination. In the absence of a PPP policy framework and weak institutional capacity of the government, transactions costs related to the development and implementation of projects tend to be high. The lack of well performing institutions is

1 “Technical efficiency” relates to minimum inputs and maximum outputs while “X-efficiency” implies preventing the wasteful use of inputs.

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reflected, for example, in things such as the protracted length of negotiations between public and private partners and , the lack of flexibility in risk-sharing amongst others, etc.

8.[12.] While it is clear that these constraints will have to be addressed over time, under the current conditions developing a sound policy framework for PPPs in infrastructure would be a good place to start. The imperative for a PPP policy framework arises from the understanding that PSP in PPP projects should have a clear basis in policy. A PPP policy should be able to define a set of principles that can help promote good governance in PPPs. In addition, it should be able to:

[a)] Create a fair and transparent selection process by which the Somaliland government develops partnerships;

a)[b)] Provide assurance that value for money has been obtained;

b)[c)] Support improvement in the delivery of public services and adequate training for those involved in private sector participation;

c)[d)] Put in place fair incentives to all parties and fair returns for risk takers, combined with achievement of commercial success; and

d)[e)] Guarantee sensible negotiation of disputes that assures continuation of services and prevents collapse of projects and consequent public waste.

Attaining these proposals will require time, thought and patience. Kenyans, the ultimate beneficiaries of successful reforms, have waited for more than four decades for this to happen. While it is some aspects of it are already happening, it ought to happen faster![13.] The promulgation of Kenya’s new constitution on 27th August 2010 brings new

opportunities form major restructuring of the country’s governance structures there are areas that need urgent clarification, in the forthcoming detailed legislation of the allocation of functions and powers between national and county governments to avoid damaging conflicts and confusion in the management of key infrastructural facilities in both roads and ports sub-sector.

9.[14.] Finally, we recommend that the Bank, taking into account the political economy dynamics discussed in this and other reviews, continues with its support for institutional and governance reforms in infrastructure, as well as in other related sectors, within the framework approved by the Board of Governors and currently agreed with the Government of Kenya. This would entail, for example support for Vision 2030 and the Integrated National Transport Policy. These blueprints provide multiple entry points for beneficial engagement with the government of Kenya. The specific recommendations are discussed in Section 7.2 of this report.

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1.0 IntroductionThis updated version is largely based on the original report which was completed in March 2010. It is about 15 months since the original report was completed. This period has witnessed major changes in Kenya’s general economic, social and political spheres as well as in the infrastructure sector specifically. One of the major changes during the period was the promulgation of Kenya’s new constitution on August 2010, a major turning point in Kenya’s governance structures.

The updating of the report is aimed at capturing these changes and highlighting their implications on governance and political economy issues relating to roads and ports/sub-sectors of Kenya’s infrastructure Sector, with special focus on commenting on the contribution these changes could have on on-going discussions on governance reforms, especially in support of the new constitution.

While an attempt is made to update facts and figures whereverw there possible in the original report the exercise focused much more on the following specific issues:

Impact of the devolved system and its influence on the roads and ports sub-sectors in general.

The specific impacts of the structures created by the new constitution on roads sub-sector existing institutions especially the Kenya National Highway Authority (KeNHA), Kenya Urban Roads Authority (KURA), the Kenya Rural Roads Authority (KRRA) and Kenya Roads Board (KRB).

Implications of recent events on the Road Maintenance Levy. Implications of the allocation of Harbours and Ports as one of the functions and

powers of county governments. As well the implications of the county government transport mandates vis a vis national government mandates.

A comment on the capacity of the county governments and implications on the development and delivery of infrastructural facilities and

Implications after the restructuring of provincial administration on governance and political economy and national government.

Impact of new governance structures on performance, accountability, transparency in the management of infrastructural facilities.

To achieve the above, the consultant: revieweSd the original report in light of the new constitution reviews and updates information and data contained in the original report, discusses implications of the new constitution to main governance issues in

the infrastructure sector and makes relevant recommendations.

1.01 What this is about

This report is to help the World Bank team understand the specific underlying governance and political economy challenges that impinge on achieving development objectives in the infrastructure (roads and ports) sector. It is also to identify options for engagement under these conditions and provide insights to potential challenges related

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to other transport and infrastructure sectors, which could be subsequently followed up with specific studies during project preparation work.

The key question addressed is: why have so many reports and recommendations into various infrastructure issues been partially implemented or not implemented in the past? We attempt to explain Kenya’s experience with implementing reforms using governance and political economy (GPE) analysis. We explore what role GPE factors (i.e., structures, institutions and actors/stakeholders ) play in shaping policies in the roads and ports sub-sectors, paying special attention to why reforms might not have gained traction and what could be done differently to overcome existing challenges and seize identified opportunities. Based on this analysis, the report recommends a menu of options to support programming, operations and strategies during under the successorto inform the Country Assistance Strategy.

The GPE framework2 used in this study entailed working through three layers: (i) identifying the problem, opportunity or vulnerability to be addressed, in each sub-sector (ii) mapping out the institutional and governance arrangements and weaknesses, and (iii) drilling down to the political economy drivers, both to identify obstacles to progressive change and to understand where ‘drives’ for positive change could emerge from to help shape reforms.3It is intended that the analyses and recommendations from the report will assist the infrastructure sector team better understand the country and sector contexts in which they operate, and that they seek to foster incremental improvements in the reform process. This revised version focuses much on the implications of the country’s new constitution on political governance and operations of the two sub-sectors.

1.1 What are Roads and Ports?Roads and ports are related. Instrumentally, they are (physical) infrastructure components. Functionally, they form part of the transport system. But in terms of management and technology, they are quite unique and tend to be treated distinctly. Yet, as Kenya’s experience demonstrates, they are interlinked. This is consistent withMany many examples around the world indicate that there are massive of inefficiencies and bottlenecks created when road and rail links are not developed at a pace adequate to handle increased port activity.

From an engineering perspective, roads may be defined as infrastructure units linking two points. But from a social science perspective, a road is an investment (means) used for travel and transporting goods and services from one location to another. In other words, while engineering answers what, social science is about what for? In the case of ports, an engineering perspective may define them as intermodal facilities at the maritime-terrestrial interface comprising breakwaters, seawalls, channels, basins, quay walls, jetties, etc., while from a political economy perspective, ports would be regarded as infrastructure connecting economies to global markets and enhancing their ability to compete for export markets and direct foreign investment by reducing costs to international trade logistics and removing physical bottlenecks for trade.2 The GPE framework used is discussed in much more details further on in the report. 3 Fritz et al 2009

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Both the engineering and the social science perspectives matter. They matter because they represent different sides of the same coin. Although this paper has the governance and political economy pitch to it, the mechanical properties of roads and ports are no less important for technical and financial reasons of planning asset management and investment. While our charge is to focus on governance and institutional reforms issues (i.e., the soft infrastructure), the report takes full cognizance of the ‘hard infrastructure’ aspects of roads and ports, including fixed capital equipment such as pavement, berths, bulk handling facilities, etc.

1.2 Investing in Transport InfrastructureThe World Bank has been involved in roads much longer than in ports in as far as its lending policy in Kenya in concerned and has since circa 1960 made substantial, in relative terms, infrastructure investments in the country. As of April 2009, the World Bank’s portfolio in Kenya consisted of 17 active operations with total commitments of over US$1.3 billion. The largest share of commitments was in transport (US$463 million). Other project sectors include energy, water, education, health, private sector development, public sector governance, and economic policy. In the fiscal year 2009 (June to July), the Bank’s Executive Board of Directors approved three projects, two of which were in infrastructure (i.e., the Northern Corridor Transport Improvement Project additional financing and the Energy Sector Recovery Project additional financing).

1.3 Importance of Roads and PortsAs part of the transport infrastructure, the main mechanism by which improvements in road and port infrastructure impacts the economy is via reduction of the costs of moving goods and services. It also impacts other factors such as speed, reliability and safety and security;, lowering the cost of assembling intermediate inputs for production thus increasing profitability of firms as well as the overall output level and income in the economy. For politicians and bureaucrats, road contracts and the port provide significant revenue streams and, therefore, control of these resources is crucial, influencing their preferences and decision-making for or against reforms.

1.4 Are Roads and Ports Enough?In the Kenyan context where significant volumes of travel and transport are off roads (on footpaths and tracks), and where the economy is partially integrated into the global markets, roads and ports can be irrelevant to large segments of the population, which begs the question, who are the winners and losers of road and port investments?

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1.5 What is new?The analysis presented here captures the dynamics between structures, institutions and actors in the roads and ports sub-sectors, and how such interaction influences the pace and direction of reforms. It captures historical legacies and links them up with the current situation pertaining in to the two sub-sectors. This narrative is then applied to map out feasible options that the Bank could adopt to enhance its strategies and operations in supporting the Kenyan government to realize intended reforms and development goals in the infrastructure sector.

The Kenyan story presented here is not much different from that of many countries. In the ports sub-sector what emerges is a struggle between a powerful political elite at the centre and relatively small but organized regional interests. This dual is played out in the context of port reforms where privatization is seen by the former as a means to expand national, regional and global opportunities for economic growth while the latter perceives it as a political and economic asset that gives them leverage to negotiate for better local and sometimes individual political stakes. The roads sub-sector, being the largest by traffic volume, attracts the attention of politicians, business class, bureaucrats and other actors as well as the imagination of the country.

If one were to randomly ask what Kenyans remember most about Moi’s presidency, they are likely to get “destroyed our roads” for an answer. Perhaps, Kibaki will be remembered for “building roads”. In the case of Kenyatta, a story is told of a famous engineer-contractor in Rift Valley who was awarded a government contract to build a road to pavement level. He carried out a small fraction of the project and ate misappropriated the rest of the money. Because of his age, Kenyatta was driven on the short section with tarmac and was advised that the rest was just the same. The President commissioned the phantom project and the rest is history! – TRUE STORY.

What is fresh about this analysis is the conclusion that attention to the political economy of development decisions can add value to development advice lowering the cost of policy failures.

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2.0 The Problem

There are significant distortions in the provision of roads and ports infrastructure in Kenya, imposing large costs on the economy. While progress has been made in providing a basic network of primary and secondary roads, for example, large underserved areas beyond the existing improved road network represent a significant, but untapped source of economic development. Spatial inequalities notwithstanding, the roads sub-sector accounts for close to 94 percent of the movement of cargo by surface transport handled through the port of Mombasa, placing a disproportionate strain on road infrastructure. Due to neglect and lack of proper maintenance, a substantial part of the road network has over time deteriorated to deplorable conditions requiring substantial investments to rehabilitate it. Any further decline inslide of the economic value of this strategic national asset compromises Kenya’s medium and long-term development objectives. The current total annual budget for the roads sub-sector of Kshs 71 billion, while an overall improvement from the previous years, is still not nearly enough to improve on the quality of roads as well as expand coverage and capacity of the network. The sector continues to exhibit high level of dependence on government and donor resources without sufficiently delivering value for money.

In the ports sub-sector, Mombasa, which serves large parts of the landlocked countries of Uganda, Rwanda, Burundi and eastern Democratic Republic of Congo, currently operates way over capacity. In spite of Mombasa boasting of having one of the largest dry dock facilities along the East African coastline, the level of investment by the government, as both owner and operator on upgrading and modernization of port facilities has not kept pace with rising domestic and regional demand. This, coupled with a dysfunctional rail system, introduces significant challengesdistortions in the port’s performance, affecting efficiency and cost of transport with negative impact on both domestic and international economic competitiveness. With nearly 90 percent of Kenya’s external trade moving through the port of Mombasa, the cost to the national economy in terms of forgone growth and investment is enormous. This has obvious implications. At the macroeconomic level, for example, it means that improving Kenya’s external trade competitiveness requires significant reduction of transport costs, particularly the cost of port services, and improving port efficiency at the sea/land interface. At the microeconomic level, easing the financial burden on the national budget would mean transferring part of the risk (in terms of port investments and operating costs) to the private sector through public-private sector partnership arrangements.

Given the above situation, reforming the roads and ports sub-sectors seems the natural thing to do. However, the reality has not supported this. Some reforms in the roads and ports sub-sectors have been implemented successfully, . Bbut, in other instances, reforms have largely failed because of their incompatibility with the interests and thus policy preferences of political actors, among other factors. Even granting the fact that the process of institutional reforms is complex, there is reasonable evidence indicating that governance and political economy (GPE) factors, including the incentives and interests they generate for different actors, have played an important role in determining outcomes of reforms in the two sub-sectors.

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It is illuminating evident that Kenya continues to suffer from an unsatisfactory and dysfunctional governance system characterized byincluding corruption, inappropriate allocation of resources, inefficient revenue systems, and weak delivery of vital public services. For example, in 2008 Kenya had a governance score of -0.6 (standard error 0.16) in ‘government effectiveness’, placing the country in the 32.2 percentile in world ranking. Although this is a slight improvement from the situation in 2003 (-0.76) when President Mwai Kibaki took office, it still does not address concerns about the quality of governance especially when compared to sub-Saharan African countries (Figure a).

Governance and institutional threats that include: The likelihood that the government will be destabilized by unconstitutional or violencet means, including terrorism (i.e., political stability); the extent to which agents have confidence in and abide by the rules of society, including the quality of contract enforcement and property rights, the police, and the courts, as well as the likelihood of crime and violence (i.e., rule of law); and the extent to which public power is exercised for private gain including both petty and grand forms of corruption, as well as capture of the state by elites and private interest (i.e., control of corruption)– are indicators by which Kenya performs is well below its African comparators – these are all consistent with the bane of reforms in Kenya’s infrastructure sector. The remainder of this report discusses the underlying incentives and interests that undergird this pattern of governance, illustrating how they operate in the context of decision making in the roads and ports sub-sectors. The GPE framework or approach

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used in this study is described next before proceeding to the GPE analysis of roads and ports sub-sectors respectively.

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3.0 Governance and Political Economy Framework

The GPE framework used in this study borrows from the problem-driven approach to GPE analysis4, which proposes focusing analysis on particular challenges or opportunities to assess risks and shape reforms. The approach comprises working through three layers to: (a) identify the problem, opportunity or vulnerability to be addressed;, (b) map out the institutional and governance arrangements and weaknesses;, and (c) drill down to the political economy drivers, both to identify obstacles to progressive change and to understand where a drive for positive change could emerge from. This GPE framework (Figure 1) was applied in the diagnostic of the infrastructure (roads and ports) sector, and to some extent on the country, to be able to better understand GPE drives at this level.

Figure 1: The GPE Framework depicting layers of analyses

What vulnerabilities/

challenges

Evidence of poor outcomes to which GPE weaknesses appear to contribute

E.g.: repeated failure to adopt sector reforms. Poor sector outcomes. Infrastructure indentified as constraint to growth but not effectively addressed…Corruption continues to undermine the business climate even after anti-corruption last

Institutional & governance arrangements & capacities

What are the associatedInstitutional set-up andGovernance arrangements?

Mapping of relevant branches of government, ministries, agencies, and state owned enterprises (SOEs) and their interaction. Existing laws and regulations. Policy processes (formal rules and de facto). What mechanisms intended to ensure integrity and accountability and to limit corruption exist?

Political economy drivers

Why are things this way? Why are policies or institutions arrangements not being improved?

Analysis of stakeholders, incentives, rents/ rent distribution, historical legacies, and prior experiences with reforms, social trends and forces (e.g., ethnic tensions), and how they shape current stakeholder positions and actions

Source: Adopted from Fritz el al 2009

This GPE framework is useful at the country level to provide an overview of governance and political economy drivers as a background to subsequent sector specific GPE analysis.

4 Fritz et al 2009

Pr o bl e m - dr iv e n

GP

E an aly

sis

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The macro-level country GPE assessment given below is useful in setting the stage for subsequent analysis in the sense that, structural variables (e.g. poverty, climate and geopolitical factors, population etc.), interact with institutional variables and actors/ stakeholders to influence political and public sector actions and policies and their implementation.4.0 COUNTRY-LEVEL GPE DRIVERS

Sundet et al (2009) provide a useful political economy analysis of Kenya that is set in a historical context. We summarize some of the highlights of their report to reinforce the message of this diagnostic - that politics and political economy influence whether and how reforms have happened in Kenya. We agree with the general analysis of the report that shows state-society relations in Kenya have been under strain since independence due to the widening gap between the ruling elite and the population at large.

4.1 History of State Formation in KenyaAt independence, Kenya inherited a colonial model with a strongly centralized state and a dominant executive. Kenya had been a European settler state, with plantation agriculture as the dominant occupation of the settlers. Their dominant position emerged through appropriation of land from indigenous populations. The African population remained as smallholders while a large share of the rural population became labourers for the settlers in a semi-feudal system. The unequal distribution of land, landlessness and the legal restrictions on indigenous Kenyans in some areas to own land and engage in commercial agriculture were among the major grievances in the independence struggle. Thus, when power was handed over from the colonial administration to the Kenyans in 1963, some of the key characteristics of today’s political situation were already in place: a centralized state with a powerful executive, political conflict around the issue of inequality, particularly with reference to land, and a tradition of violent confrontation between the state and popular movements in opposition.

The history of the port of Mombasa, for example, goes back to a time when dhows called at the Old Port on the north side of Mombasa Island. As trade began to boom during the 19th century work began on a railway from Mombasa to Kampala in Uganda to open up the hinterland for trade in coffee, tea, ivory and skins. As trade expanded and the interior of East Africa was opened up by the new railway, so demand grew for a fully fledged seaport with a deep water harbor. A new port was created at Kilindini Harbor in 1896 with the building of a jetty on the west side of the island. Many generations of workers and business people connect with this history and, therefore, it is not surprising thereforewhen that the debate around port reforms has tended to raise a lot of passionate resistance.

Similar arguments can be made with respect to road infrastructure investment. The pattern of human settlement and infrastructure investments that the colonial government established have remained to date and continue to influence the geography of development in Kenya. Since transport is a derived demand, those with vested interest in landed property and who historically have occupied the commanding heights, tend to influence decisions to favor their personal and class interests and thus preferences for or against reforms. Access to power and control of state machinery has been the GPE driver

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defining the pattern of land ownership and investment (particularly in road infrastructure) throughout and the pattern has remained largely the same to date. Much more significantly, inequalities have often led to political resentment being expressed along tribal lines, particularly over perceived injustices over the distribution of land ownership (ibid).With much of the total road budget controlled nationally, decision-making on resource allocation in a geographically and culturally diverse country such as Kenya can have major regional implications for inequalities in terms of quantity and quality of public roads, market access, transport cost, and therefore, the pace and level of development. Studies on socio-economic inequalities in centralized presidential systems reveals a pattern observed in Kenya with high development rates correlated with the president’s region of origin.5 Inequalities (or even perception of inequalities), especially when they have an ethnic undertone, engender political risk which can derail reforms, as was witnessed during the events following the December 2007 election. confirmed.

4.2 Electoral Outcomes: How Do They Affect Reforms?Electoral competitiveness is important for political economy since the policy choices of politicians are invariably influenced by the likelihood that those choices will lead to their success or failure in their political careers. Electoral rules on presidential elections requiring the winner to obtain not less than 25% of total votes in more than 25 out of 47 counties according to the new Kenya Constitution promulgated in August 2010 have increased the contestability of presidential elections, but are also expected to have some impact in checking the excesses of the executive by forcing political compromises. This will be either positive or negative depending on the political entrepreneurship of the actors.

The stalemate that followed the 2007 General Elections resulted in the present coalition government, which our analysis shows to be highly motivated by the 2012 elections, so much so that the key policy decisions in infrastructural facilities have been affected. Like is common in countries such as Kenya, politicians’ motives are largely driven by electoral outcomes. And given the imperfections in Kenya’s electoral markets, there is little or no incentive for electoral accountability since the ability of citizens to influence political leadership is also limited by inadequate information and low awareness of broader issues. Under such conditions self interest and impunity thrive at the expense of integrity and professionalism with reforms tending to suffer.

4.3 Business Interest and Political CaptureWeak governance institutions have served the interests of the ruling elite and strong business interests in ways that have a strong bearing on policies more generally and reforms in particular. Analysis and evidence show that interest groups with significant interest in business have been able to exert significant influence on policy, at times even resisting reforms. Reforms under the Road Management Initiative (RMI), for example, stalled as they would have entailed losses for the politically influential constituency of core political supporters. Similar evidence emerges in the case of port (privatization) reforms where government policy has been frustrated.

5 Opon, 2007

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4.4 Geopolitical DynamicsKenya’s transport infrastructure plays a pivotal role in the region as well as in the planned TransAfrica Highway network. In addition to playing a central role in the Northern Corridor that serves Uganda, Rwanda, Burundi, DRC, and Southern Sudan through the Kenyan Port of Mombasa via the Kenyan road, rail and pipeline transport systems; some sections of the country’s road network are parts of the TransAfrica Highway linking Southern, East, Central and North Africa. Some of these countries, led by Uganda – the most important user of the Northern Corridor after Kenya-, exert heavy political pressure on the Kenya Government, regarding costs, delays and other inconveniences encountered by their businessmen operating along the Northern Corridor.

4.5 Relevance of the Social and Political ContextKenya’s post-independence development ideology favored equitable growth. However, by increasingly acquiring a class character, the state came to be often regarded as an instrument mainly serving the interests of the affluent and, often, urban-based propertied class and in politically favoured parts of the country. Through the siphoning of resources from the rural to the urban economy, a lopsided, urban biased unequal development of infrastructure resulted.6 The problem of poor road services in rural areas could, therefore, be to some extent explained in the ideological or class character of the Kenyan state.7

At the level of the social structure, ethnicity has been a major mediating factor in the allocation of state resources influencing the provision of public infrastructural facilities and services. The pattern is generally seen to have persisted under Kenyatta8, Moi9 and Kibaki, a factor that is associated with existing inter-regional and intra-regional disparities in the provision of public goods and services.10 Perceptions about the nature and extent of these inequalities strongly influence the political economy of infrastructural reforms in Kenya as the Mombasa port case clearly demonstrates. The general neglect (both in national discourse and in terms of prioritization for investments) of other ports such as Kisumu, Homa Bay, Kendu Bay, Mfangano, Kotieno, Mohoru Bay, Mbita, Lamu and Kilifi underscores the political economy embedding of infrastructure reforms in Kenya.

4.6 The Situation NowConsistent with the compromised circumstances leading that led to the formation of the Coalition government in power since 2008, repeat opinion polls and reviews show general dissatisfaction with its performance. The decision by the Parliamentary Select Committeee’s on Constitutional Review and the eventual adoption of a presidential system (albeit one with more checks and balances) in the new constitution is widely interpreted as a vote of no confidence in the current arrangement where the President

6 Lipton 19887 Oyugi 19958 Leonard 19849 Barkan and Chege 198910 Kanyinga 1995 and Oyugi 1995

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and Prime Minister share executive powers. The referendum vote on a new constitution promulgated in August 2010 was essentially a quest for democracy, and is today regarded as the most important political decision Kenyans have made on the question of governance and is already fundamentally changing the political economy of the country as new laws touching on a wide range of national, social, economic and political sphere of the Kenyan people are being enacted. The importance of governance in the new constitution is unmistakable. For instance a draft bill expected to be submitted to the Cabinet shortly proposes that all contestants for political offices in the new constitution such as President, Senator, national Parliamentary as well as County Assembly Senators and governors and others will need to be vetted, cleared and issued with a certificate of compliance by the Kenya Anti-Corruption Commission (KACC) before they can be registered as candidates. (See the Standard, July 18th 2011, p.1).

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5.0 ROADS5.1 BackgroundThis is against a backdrop of rapid increase in the number of vehicles in the country. Between 2006 and 2010, the total number of newly registered road motor vehicles rising almost fourfold, from 52,817 units to 196,456 units per year respectively (see table--) and motor cycles accounting for close to 60% newly registered units in 2010. This rapid growth is attributed to rising real per capita income which increased from ksh 34,574 to ksh 36,419 between 2006 and 2010 respectively. There has been particularly sharp increase in private motor vehicles and motor cycles attributable to poor, inadequate and unreliable public transport in addition rising per capita income and a growing pool of a much better paid middle class working in both public and private sectors. A recent survey indicated that Kenya is one of the leading countries in Africa in terms of the size of the middle class. Another phenomenon is that of a rapid growth in use of auto cycles as a means of taxi transport popularly known as “boda boda” for both rural and smaller urban areas.

Table--New Registration of Road Motor Vehicles, 2006-2010Type of Vehicle

20062007200820092010

Saloon CarsStation WagonsPanel Vans, Pick-upsLorries/TrucksBuses and CoachesMini Buses/MatatuTrailersWheeled TractorsMotor and Auto CyclesThree WheelersOther Vehicles

14,28912,631

6,7213,610

8563,7141,706

9206,2501,075

50517,89324,115

9,4706,3292,0064,2522,193

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1,21316,293

1,072488

18,68624,747

8,9836,6911,2435,2062,1001,262

51,412704797

16,93027,599

7,1206,0371,0574,4832,8831,115

91,151863

2,57516,16537,553

6,9754,9241,2643,6002,3791,161

117,2661,5213,648

Total Units Registered52,81785,324

121,831161,813196,456

Road transport is today by far the most dominant mode of transport in Kenya in terms of both employment and value of output of the country’s Transport and communications sector (see Table 1). In 2010, road transport accounted for almost 56 percent of the Sector’s total output. This is followed by communications and air transport in that order.

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Table 1: The Structure of Kenya’s Transport and Communications sector, 2006-20102006 2007 2008 2009 2010

Road TransportRailways TransportWater TransportAir TransportServices Incidental to TransportPipeline TransportCommunications

205,3054,553

21,40871,30129,194

8,84668,702

233,2244,550

23,23380,25433,971

8,73686,189

273,0474,449

21,86883,01038,823

9,22293,466

285,2504,356

21,03980,51940,01611,481

100,009

331,9482,208

21,48880,93549,348

6,463101,773

Total 409,308 470,157 523,884 542,670 594,162Source: Economic Survey Various Issues

Kenya’s total road network is about 178,335 km long, representing the total road asset in the country.11 Out of this, only 11,600 km (6.4 percent) is paved (Annex 1), that is i.e., lengththe length of all roads that are surfaced with crushed stone (macadam) and hydrocarbon binder or bituminized agents, with concrete or with cobblestones.. In 1963, Kenya had paved road measuring 2000 km, which means that the country has only managed to add 9,600 km of paved roads (or 204 km per year) to its total road network. .

This is against a backdrop of rapid increase in the number of vehicles in the country. Between 2006 and 2010, the total number of newly registered road motor vehicles risingose almost fourfold, from 52,817 units to 196,456 units per year respectively (see Table2) and motor cycles accounting for close to 60% newly registered units in 2010. This rapid growth is attributed to rising real per capita income which increased from ksh 34,574 to ksh 36,419 between 2006 and 2010 respectively. There has been particularly sharp increase in private motor vehicles and motor cycles attributable to poor, inadequate and unreliable public transport in addition rising per capita income and a growing pool of a much better paid middle class working in both public and private sectors. A recent survey indicated that Kenya is one of the leading countries in Africa in terms of the size of the middle class. Another phenomenon is that of a rapid growth in use of auto cycles as a means of taxi transport popularly known as “boda boda” for both rural and smaller urban areas.

Table 2: New Registration of Road Motor Vehicles, 2006-2010Type of Vehicle 2006 2007 2008 2009 2010Saloon CarsStation WagonsPanel Vans, Pick-upsLorries/TrucksBuses and CoachesMini Buses/MatatuTrailersWheeled Tractors

14,28912,631

6,7213,610

17,89324,115

9,4706,329

18,68624,747

8,9836,691

16,93027,599

7,1206,037

16,16537,553

6,9754,924

11 This figure has recently been revised downwards by 20,000 km following a new road classification. The new estimate is 159,000 kilometers. The revision was prompted by the revision of the definition of what is classified as a ‘road’ to include only those roads whose reserve measures at least nine meters width. The previous definition included roads which have up to six meters of road reserve.

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Motor and Auto CyclesThree WheelersOther Vehicles

8563,7141,706

9206,2501,075

505

2,0064,2522,1931,213

16,2931,072

488

1,2435,2062,1001,262

51,412704797

1,0574,4832,8831,115

91,151863

2,575

1,2643,6002,3791,161

117,2661,5213,648

Total Units Registered 52,817 85,324 121,831 161,813 196,456Source: Kenya Revenue Authority (KRA)

Kenya has a relatively low road pavement ratio compared to the rest of Africa. In 1996, 24.2 percent of the total road network in Africa was paved. 12 In 2007, Egypt and Morocco had 81 percent and 62 percent respectively of their total road network paved.13Besides, a survey conducted by the International Roads Assessment Programme (iRAP) in 2008 showed that only 50 percent of paved roads in Kenya are in good condition, 30 percent in medium and 20 percent in poor conditions. In terms of delineation (or markings) the assessment showed that 30 percent of roads are not delineated adequately while 70 percent are poorly so. Barrier conditions are also generally poor with at least 25 percent of the road length having high road side severity problems.14 The situation is worse on the unpaved roads, which make up the bulk (93.5 percent) of the network, with only 14 percent in good condition. Away from urban centres the iRAP survey found that 95 percent of the 2,559km length of the road network surveyed was single carriageway, with one lane in each direction. In addition, 44 percent had no shoulder and 97 percent had no pedestrian footpath. Speeds were typically 100km/h and heavy pedestrian flow was a factor on nearly all the roads surveyed.

Further, the iRAP Report (2009) shows that within the Nairobi region, the roads inspected were larger (45 percent had two or more lanes in each direction) and speeds were lower due to congestion. Roadside severity was worse than on rural roads with at least 80 percent of roads having roadside hazards. Segregation of vehicles from pedestrians in Nairobi continues to be poor. Although 95 percent of the roads recorded high pedestrian flows, only 20 percent had pedestrian footpaths. Road conditions in Nairobi were slightly better than in rural areas where only 10 percent was rated as poor although delineation was worse with 90 percent rated poor.

Poor road conditions in Africa has been attributed to a number of factors including: (a) high risk inherent in road projects; (b) limited financial resources; (c) too few, too poor, and too technically limited local investors to undertake major investments; (d) underdeveloped capital markets; (e) over reliance on the state to provide infrastructure despite its limited resources and the poor track record of most public enterprises; (f) poor management, poor investments decisions and the bureaucratization of the decision-making process; and (g) slow economic growth, fiscal drain, poor cost recovery, and operational inefficiencies, etc.15 12 ADB 199913 International Road Federation 200914 Engineering features, such as safety barriers can be used to separate fast moving traffic from people and cushion crashes when they happen.15 ibid

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Kenya’s experience fits this characterization remarkably well. For example, road funding started dwindling in the early 1970s following the first oil crisis. 16This resulted in the government placing emphasis on the construction of feeder and minor roads. Similarly, labor based works were introduced during the 1970s partly to address declining foreign currency reserves as well as to deal with the problem of growing unemployment. The government continued with this rural-oriented road development program through the 1980s partly because it served the political interest of the Moi administration to invest where the Kenyan vote is concentrated. The rest of the road network, however, was largely neglected. As a consequence, primary, secondary and urban roads began to deteriorate due to lack of maintenance.17 This led to a vicious cycle of roads collapsing prematurely long before the end of their design life. Many of the roads built in the Rift Valley Province in the 80s and 90s suffered this fate.

The rate of deterioration of Kenyan roads was compounded by damage done by overloaded trucks and lack of enforcement of axle load control due to vested interest with close links to the presidentState House. Investing in light and heavy tracking business was then one of the fastest growing enterprises in Rift Valley, the bedrock of President Moi’s support. A functional patronage system ensured that rules of entry were lowered through easy access to credit and that there was constant business through government contracts that ensured income streams. In return, owners and operators of what were essentially small-to-medium scale transport operations served to mobilize political support and generate rent.

“Harambees” (Swahili for let us pull together) – here used as a colloquium for public fundraiser – a trademark of the Nyayo era,18 provided politicians a convenient round-the-year campaign platform. The ability to bus large number of people to and fro these fundraising cum political campaign rallies had political significance as it served to show ones political support. In conditions where vehicle numbers per capita is low (Kenya has less than 1 motor vehicles/1000 population compared to Egypt’s 81, Morocco’s 62 and Mexico’s 38.2 motor vehicles/1000 population respectively)19 and road transport is also dominant, access to means of transport is a vital political and economic asset According to the Ministry of Roads estimates, the country relies on road transport for about 97 percent of all of its transport needs (Daily Nation, December 10th, 2009)

Thus, in spite of repeated complaints by stakeholders and road users, including neighboring countries dependent on the Northern Corridor and the port of Mombasa for transit trade, the problem of the poor state of roads was not effectively addressed due to bad policy choices, corruption and a weak system of checks and balances leading to high cost of doing business. It was also not in the ruling elite’s interest to tax its political

16 A rapidly growing population was also exerting pressure on resources and Kenya faced stark choices from competing demands in infrastructure as well as in other sectors.17 “Highway Development Challenges” – Presentation by Director General, Kenya National Highways Authority at the Architectural Association of Kenya Annual Convention, November 2009.18 Moi’s years of rule are commonly referred to as the Nyayo era following his declaration that he would follow the footsteps of his predecessor, President Kenyatta. Harambees were banned by the NARC governments soon after winning power from KANU in the December 2002 Elections. 19 IFR ibid

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clientele therefore, axle load control rules, for example, were circumvented to maximize on rent extraction. In addition, . Tthe non democratic nature of the state and its institutions served to maintain the status quo.

The Road Maintenance Initiative (RMI)20 launched in the late 1980s by the United Nations Economic Commission for Africa and the World Bank Sub-Saharan Africa Transport Program (SSATP) sought to address challenges in the roads sub-sector. RMI entailed bringing roads into the market place, charging for their use on a fee-for-service basis and managing them like any other business21without addressing some of the underlying GPE issues identified above. Reforms envisaged under the RMI included: (1) securing an adequate and stable flow of funds to the roads sub-sector;, (2) involving all stakeholders (government departments, representatives of transport users, chambers of commerce, farmers’ associations and local communities) in policy making and in management of roads;, (3) securing a clear assignment of responsibilities among key departments and agencies responsible for policy formulation and implementation;, and (4) adopting sound business practices and managerial accountability.

Kenya’s roads sub-sector could have performed better and its citizens would be enjoying better quality roads today if this policy reform agenda had been zealously implemented and if expenditure on infrastructure and services had been better prioritized and targeted and more effectively managed with less corruption. However, the prevailing GPE conditions meant implementing reforms was always going to be difficult. The Interim Poverty Reduction Strategy Paper 2000–2003, for example, attributed the poor condition of Kenya’s road network to lack of periodic and routine maintenance; rampant corruption in road construction contracts; collusion between contractors and government officials leading to approval of substandard work; increased traffic volumes; overloading; El-Niño rains; and non-prioritization of roads in government expenditure, among other factors.

Also, the Examination Report into the Systems, Policies, Procedures, and Practices of the Roads Sub-Sector22 found the following systemic weaknesses and loopholes in the roads sub-sector that allow corrupt practices to thrive in the roads sub-sector: (a) weak regulatory framework; (b) poor project management practices; (c) inadequate designs prior to tendering of works; (d) malpractices in the axle load control; (e) low capacity levels of local contracting companies; (f) poor communication of policies and procedures within the whole project cycle; (g) shortage of skilled technical staff to undertake the assignments; and (h) breaches in the procurement procedures and stores management. The above findings have been corroborated in several analytical works, including forensic audits and the Department of Institutional Integrity-led Detailed Implementation Review (DIR). The DIR of selected projects (2005-2007) concluded that investments in Kenya’s road sub-sector entail substantial risks notably:

i) Collusion and bid rigging;

20 Appropriately renamed “Road Maintenance and Financing” (RMF) in the SSATP Second Development Plan 2008-201121 Pinard and Kaombwe, 200122 Kenya Anti-Corruption Commission (KACC) 2007

29

ii) Fraud and corruption in the road construction industry;iii) Truck overloading resulting from lack of enforcement of standards , low fines and

corruption;iv) Delays in value added tax (VAT) refunds, causing inflated prices in construction

bids;v) Weak due diligence on bidders. The integrity and past performance of contractors

is a key determinant of fraud and corruption risks;vi) Absence of robust cost estimates;

vii) Weak capacity to detect and deal with fraud and corruption;viii) Weak complaint handling mechanisms;

ix) Weak road management capacity; andx) Overall weak transparency and social monitoring of road construction.

In order to further mitigate the risks and enhance professional integrity in the sector, the Bank and the Government of Kenya (GoK) agreed on a Roads Sector Governance and Integrity Improvement Action Plan. The areas of concern and proposed remedial actions by GoK, the Bank and civil society are presented in Annex 3. For example, it was agreed that: (1) The overall road program and business opportunities in the roads sub-sector would be publicly disseminated; (2) a well documented system for debarment of poor performers and contractors engaged in fraudulent and corrupt practices would be established and consistently implemented through the National Construction Authority (NCA); (3) appropriate measures will be taken to enforce axle load control; (4) efforts will be increased in conducting due diligence of bidders and performance reviews will be carried out more regularly; (5) robust cost estimates will be developed and benchmarked with regional markets; (6) effective controls will be established on procurement, financial management and human resource management systems; and (7) complaints handling will be strengthened as well as planning, programming, budgeting, execution and monitoring and evaluation.

The overall finding of this study is that the implementation of the above governance and institutional reforms in the roads sub-sector has faced a number of challenges whose root cause can be traced in the governance and political economy conditions in Kenya. What follows is a GPE analysis of implementation of this policy reform agenda

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5.2 Political Economy of Reforms in Kenya’s Roads Sub-SectorIn conditions where vehicle numbers per capita is low (Kenya has less than 1 motor vehicles/1000 population compared to Egypt’s 81, Morocco’s 62 and Mexico’s 38.2 motor vehicles/1000 population respectively)23 and road transport dominant, access to means of transport is a vital political and economic asset. According to the Ministry of Roads’ estimates, the country relies on road transport for about 97 percent of all of its transport needs (Daily Nation, December 10th , 2009)

In spite of the highlighted challenges, Kenya’s road sub-sector has benefited considerably from a number of reforms implemented in the last six years as the government raised the priority of infrastructural development as a means of meeting the objectives of both the Economic Recovery Strategy for Wealth and Employment Creation 2003-2007 (ERS in short) and those of Kenya Vision 2030. ERS, for example, provided a broad overview of Kenya’s development and poverty challenges and presented a strategy based on four pillars: (i) macroeconomic stability and public sector reforms, (ii) good governance, (iii) rehabilitation and expansion of infrastructure, and (iv) human capital. These preferences reflected the composition of the National Rainbow Coalition (NARC) government that brought together conservative elements persons from the previous regime as well as more radical pro-reform elements persons most of whom had spent their political careers in opposition. Initially united in dislodging the Kenya African National Union (KANU) government from power, they now became enjoined in charting a new government and advancing reforms.

The NARC government started with defining its policy objectives contained in the Sessional Paper No. 5 of 2006 on the Management of the Roads Sub-Sector for Sustainable Economic Development. The key policy objectives in the roads sub-sector were identified as: (1) reduction of transport costs and travel time within the country and the region as a whole, (2) increasing accessibility to an improved network, (3) promoting of optimal utilization of available resources, (4) increasing financial resources for the sub-sector, (5) greater attention to preservation or maintenance of the existing road network, (6) creation of a conducive environment for increased private public sector partnership in the roads sub-sector, (7) improved road safety and providing facilities for non-motorized transport, (8) increased ownership through promotion of stakeholder participation in the sector, and (9) creation of an optimal institutional frame work for effective implementation of infrastructural development program.

Parliament ratified the Sessional Paper in 2006. This was followed by the enactment of the Kenya Roads Act in 2007, which marked the culmination of a long process going as far back as 1993 when the Road Maintenance Levy Fund (RMLF) was introduced. It took another six years before the Kenya Roads Board (KRB) was established in 1999 to manage the RMLF, and almost another decade to enact the legislation establishing the Kenya Urban Roads Authority (KURA), the Kenya National Highways Authority (KNHA), and the Kenya Rural Roads Authority (KRRA). Each Road Agencyies is supposed toshould be overseen by an independent board consisting of representatives of road users and stakeholders, with thea majority being from the private sector.a

23 IFR ibid

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Raila Odinga was appointed the Minister for Roads and Public Works in the first NARC government, a portfolio he held until Kibaki dissolved the Cabinet in 2005 following major political differences after the Referendum on the proposed new constitution. During his tenure as the Minister in-charge of roads, Raila pushed for reforms very unpopular amongst some of the country’s powerful vested interests. His background in opposition politics, the leading role he played in the electoral campaign that resulted in NARC’s victory, his interest in building credibility with the electorate as a future candidate, as well as his vocal pro-reform stance were all instrumental in shaping policy decisions the government took to reform the roads sub-sector.

While not all these objectives have been fully realized, a wide range of measures have been taken in the last seven years that have facilitated realization of some of the objectives. These include: (a) on-going investment programmes to rehabilitate the Mombasa-Malaba highway serving the Northern Corridor funded by the World Bank and other development partners, as well as the gGovernment of Kenya the construction of Thika Highway financed by ADB and GoK ; (b) on-going construction of the Eastern, Northern and Southern by-passes around Nairobi with Chinese contractors and government playing a leading role in the construction and funding of the by-passes respectively; (c) increased budgetary allocations for the roads sub-sector; (d) establishment and support of the RMLF, currently accounting for Kshs 20 billion out of the Kshs 71 billion national budget allocated for the roads sub-sector during the 2009/10 Financial Year; (e) shift of emphasis to rehabilitation and maintenance of the existing road network; (f) Parliament’s approval of the first toll road concession in December 2009; (g) increased attention to non-motorized transport facilities; (h) majority representation of private sector institutions in KRB, KNHA, KURA and KRRA; and (i) the restructuring of the Ministry of Roads so that it focuses on policy and regulatory matters with the three authorities being in charge of road construction operations.

These and other road construction activities have had a major impact on the country’s economic activities and have attracted considerable public attention and appreciation. They have triggered major economic multiplier effect especially on building and construction sectors

The establishment of KRB in July 2000 following the enactment of the Kenya Roads Board Act (1999) and the creation of the associated RMLF are generally regarded as major reforms in the sub-sector. KRB did not only created an important source of road financing mechanism, it also increased the participation of the private sector professionals in the affairs of the roads sub-sector. The creation of KRB resulted from the recommendations of the Road Sector Institutional study completed in May 1998 (see Assessment of Selected Road Funds in Africa, p.31). The study and follow-up discussions with senior government officials recognized the urgent need to create structures that would promote “long-term sustainability” of the country’s road network.

The RMLF was to drawdraws its financial resources principally from the Road Maintenance Levy and other available sources. The administrative costs of running KRB

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are financed through a dedicated portion of not more than three percent of the total revenue collectedions by the Board. The establishment of KRB, in which development partners and GoK were heavily involved, is regarded as a major reform in the country’s roads sub-sector in terms of addressing poor governance issues, which had featured prominently in the sector. Thus, the operational features and design of KRB were meant to strengthen transparency, accountability and certainty in the allocation, disbursement and management of available resources for the roads sub-sector.

In pursuit of these principles, KRB was required to inform the road agencies the amounts of funds allocation available to them at least a year before the intended disbursement;, identify the priorities of the Board with regard to fund allocation;, reveal the criteria to be used in the allocation process;, keep the public informed about its activities through regular publications of its financial statements and other matters of public interest;, and submit the accounts of the Board to the Auditor-General at least four months before the end of the financial year. These procedures were also meant to reduce the level of political interference in the allocation and disbursement of resources for greater equity.In addition to its role of generating financial resources, the Board performs a number of other key functions such as: the allocation of revenue raised;, annual programming and planning of work activities and monitoring and evaluation of the work of various road agencies who are beneficiaries of the annual allocations of the road maintenance levy.b Road agencies on their part are required to prepare and submit their Annual Roads Programmes to the Board not less than six months before the beginning of every financial year, to enable the Board review each agency’s programme before being forwarded to the Ministry of Roads and Ministry of Finance for approval. Fund allocation is was to be based on the approved work programmes of various roads agencies.

Under this arrangement, the KRB funds are shared as follows: KNHA (40 percent), KRRA (32 percent), KURA (17 percent), and Kenya Wildlife Services KWS (one percent) (Figure 2). KRB retains the difference of about 10 percent, which it allocates to road agencies on a “case-by-case” basis. There is a risk this retainer, almost Kshs. 2 billion at current KRB Fund estimates, could be open to executive manipulation (or lobbying by Members of Parliament). The clearest example of such influence is the policy directive the Minister for Finance issued during the Budget Speech for 2009/10 FY that funding for rural roads will be channeled through the Constituency Development Fund (CDF). Such horse trading partly explains why MPs are particularly disinterested in holdingkeeping the executive in check.

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Figure 2: Share of KRB Fund by Road and AgencyDisbursement

Road Agency

40% Core network (A,B,C)

KN

HA

KU

RA

32% Secondary Roads (D and below)

KR

RA

17% Rural Roads

1% National Parks/Reserve KWS

10% KRB Retainer

Source: Field Interview - KRB

However, it would be a mistake to interpret this as purely a case of the Minister of Finance seeking to make political capital. He may well be since he contested for the presidency in 2002 but lost and is expected to run again during the next election, . Bbut it could also be no more thana government policy. The current government is a coalition between ODM and PNU. The two had separate manifestos to begin with but decided to marry them into one when they entered into a coalition. IIt is known that ODM had a strong devolution agenda, which may have been assuming that aspect was taken on board in the merged manifesto. This would thus imply that the Minister’s directive was in line with then it would mean the Minister of was only implementing the policy of the Grand Coalition Ggovernment.

Whatever the true reason, the significance of the Minister’s directive cannot be underrated due to its timing coming soon after the inauguration of the three Road Authorities in September 2008. Staff of KRB expressed fear of the risks this policy shift entails especially since the CDF allocations have been abused in the past. Such fears are not unfounded. According to KRB estimates, nearly 60 percent of total disbursement is currently being put to good use (i.e., actual road works) compared to a few years ago when only 40 percent of committed funds was used for maintenance with the remainder (60 percent) lost through graft. Assuming these estimates are right and that there has been a 20 percent reduction of leakage over the last few years, 40 percent of Kshs. 20 billion which continues to be lost annually through corruption is a substantial sum that if

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efficiently utilized would make noticeable significant difference in access to better quality roads at a cost affordable by to a wide range of road users.

Future of Road Maintenance Levy FundThe creation of the Kenya Roads Board and the Roads Maintenance Levy Fund have been key institutional reforms that have made a major contribution to the improvement and expansion of national roads network in the last ten years.

Fuel Levy and the Transit toll collections are today the main sources of road maintenance funds, with Fuel Levy accounting for almost 98% of the total in the last few years (see Table 3).

Table 3: Roads Maintenance Funds, 2006/07-2010/11 (Ksh Millions)Type 2006/07 2007/08 2008/09 2009/10 2010/11Fuel Levy....Transit toll...

14,814327

17,999270

19,000357

22,180425

22,918487

Total..... 15,141 18,269 19,357 22,605 23,405Source: Republic of Kenya, Economic Survey 2011, p.246) Kenya’s transport sector is an important contributor to the country’s annual gross earnings from both domestic sales and export earnings of various transport services. As Table 4 shows passenger traffic earnings more than doubled to ksh 167.3 billion between 2006 and 2010 while freight traffic earnings rose from ksh 90.4 billion to ksh 164.6 billion during the same period. Passenger and freight traffic had combined transport earnings of ksh 332 billion in 2010.

Table 4: Earnings from Road Traffic, 2006-2010 (Ksh Million)Type 2006 2007 2008 2009 2010Passenger Traffic......Freight Traffic............

114,88090,424

126,814106,410

146,072126,975

155,909129,341

167,320164,628

Total Road Traffic Earnings 205,304 233,224 273,047 285,250 331,948Source: Republic of Kenya, Economic Survey 2011, p.246)

Continued impact of the Road Maintenance Fuel levy will be influenced by a number of factors. One of these is the allocation of the Fund resources to the 47 counties created in the new constitution. One of the issues related to this is what is the amount of the levy fund allocated to the individual county is enough to undertake a meaningful activity or is it too thinly spread to have an impact in individual counties. There are also likely to be a number of equity and political issues raised regarding the distribution of road levy resources. For instance should counties where more levy is collected such as Nairobi, Mombasa and other large towns receive the same share with counties where low amounts of levy are collected due to smaller vehicle population.

The other factor that will have adverse effects on the contribution of the Road Maintenance Fuel Levy is the recent major reduction of government taxes on petroleum products following a concerted outcry by the people and civil society activists against

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sharp increases on petroleum prices, cost of living and other economic hardships facing the average Kenyan. As a result of rising protests and associated social and political pressures, main option facing the government was to reduce government taxes on all petroleum products. Thus, the total amount of fuel levy collected during 2010/2011 is expected to sharply decline. This is likely to adversely affect available resources for road maintenance and rehabilitation.

5.3 Resistance to ReformsAddressing Parliament in 2007, Raila narrated how he found corruption rampant in the ministry when he assumed the responsibility of Minister for Roads and Public Works (see details in Annex 3). As a result, he decided to appoint two committees: one to investigate the illegal allocation of government properties, and the second one was to investigate the issue of pending bills in the Ministry. 24Although the eventual fallout of NARC allies exposed serious political divisions within the government, surprisingly this did not change the direction of reforms in the roads sub-sector. It only slowed them down, which would suggest one or more of the following:, 1) a degree of convergence of preferences with respect to the reform agenda;, 2) benefits of implementing reforms outweighhed the costs;, or 3) constituents have credible political alternatives that could hold politicians in check. This is evident from what has been achieved within a relatively short period of time in terms of development, maintenance, and rehabilitation and protection of the road network.

5.4 Criteria for Prioritizing MaintenanceThe KRB and Road Agencies have developed criteria for maintenance of priority roads. These are: (i) maintaining maintainable roads;, (ii) improving roads that provide security and connecting to administrative and social centers (such as divisional headquarters, chief’s offices, health centers and educational centers);, (iii) improving roads that connect and provide access to the higher tier of the road network (classes D and E roads);, (iv) improving roads that provide access to markets centers; , and (v) providing basic access to the rural communities (by means of spot patching and spot improvement, construction of culverts and critical crossing points). See definition of road works in the following Box 1.

The above socioeconomic criteria appliesy to secondary and rural roads (Class D and E). For the national core road network (Class A, B and C), only economic criteria/model is used to select and prioritize roads for regular and periodic maintenance, rehabilitation, spot improvement, reconstruction, upgrading/expansion and development.

24 Parliamentary Hansard of June 26th 2007

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Compliance with these rules and a transparent system of monitoring and reporting is essential to ensure that what has been agreed gets implemented. But, the slow pace of transitional arrangements risk derailing or even reversing reforms. This should be avoided by setting new and workable timelines and handover-takeover mechanisms to ensure that designated agencies and sub-agencies carry out maintenance on classes D, E and other roads formerly undertaken by Roads Department, District Roads Committee, KWS and Local Authorities. Nearly a quarter (24 percent) of the RMLF is allocated for maintenance of these roads, which currently face the risk of falling in the hands of Members of Parliament to be managed under the Constituency Development Fund.

Delay in fully establishing the rural road agency created the opportunity for Members of Parliament to gain control of the rural roads funding. Under the equitable allocation arrangement, the criteria used includes factors such as: district area, population served, road kilometer length in the district, economic activities, amongst others. In the APRP of 2007/2008, a sum of Kshs. 1.161 billion was allocated equitably to the 71 districts for maintenance of their roads. However, in the run up to the 2007/2008 elections a number of new district were created through administrative fiat mainly to give the incumbent electoral advantage resulting in more than 200 ‘districts’. The situation is unwieldy and

Box 1: Definition of Road Works

Routine maintenance – This applies to the regular maintenance activities necessary to ensure that the roads perform as designed and that the road asset is not lost. This is given first priority for roads in good and fair condition to prolong their life.

Periodic maintenance – These are activities undertaken at regular intervals to improve the riding quality, pavement strength, safety and drainage capacity.

Rehabilitation – These are maintenance activities to restore and strengthen the pavement to extend the life of the entire road which will forestall further deterioration and expensive reconstruction

Spot improvement – Refers to improvements on the carriage way such as gravelling as well as structures and soil conservation measures to improve and consolidate the roads that have been partially improved or are under routine maintenance.

Reconstruction – Involves the construction of the entire road anew in order to restore the lost pavement among other improvements.

Upgrading/Expansion – This involves the construction of a road from earth/gravel to bitumen standard, improving capacity, increasing capacity, increasing number of lanes, junction improvements among other activities to carry increased traffic and improve accessibility.

Development – Entails construction of new roads, missing links, capacity improvement measures such as widening, dualling, interchanges, bus lanes among others.

Source: KRB, Barabara NEWS 4, July 2009

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currently the Interim Independent Electoral Boundaries Commission is in the process of reviewing electoral and district boundaries.

5.5 Implementation ChallengesThe Kenya Roads Board however faces a number of administrative and other challenges in the delivery of its mandates. One of the challenges facing the implementation of the annual work plans has been the limited administrative capacity of the various road agencies and the governance and political economy constraints emanating from the environment in which they operate. Interviews with senior officials of KRB indicate that in spite of efforts to shield the Board from political interference in resource allocation, the Board continuously faces heavy political interest, pressure and criticism from politicians who think they are not receiving their rightful share of these resources.

Some of the Road Agencies and Sub-Agencies such as the Ministry of Roads and various municipal councils have been part of the bureaucracy,, which operates under major bottlenecks such as: poor institutional structures;, red tape;, low staff morale due to low salaries;, inadequate staffing and equipment;, low technical capacity; and, non-existent structures for monitoring and evaluation creating major bottlenecks in the delivery of efficient and timely public services. Decision making in local authorities in many cases is slow and often not based on professional inputs in which full analysis of the situation and prioritization has been carried out, making them easy prey for political manipulation and mismanagement of resources.

Thus, one of the challenges that KRB has faced since it was established about ten years ago has been delays in the implementation of road maintenance work plans and effective supervision to ensure that the contracted works are completed to the agreed standards. There have been many reports of shoddy work done by contactors, often inwith collusioncompliance of with public officials entrusted with the responsibilities of overseeing the works. Audits by the Public Accounts Committee (PAC) have identified a number of weaknesses affecting implementation of road projects (see Annex 7 and Annex 8 for details).

The District Roads Engineer (employee of the Ministry of Roads), who is also the Secretary to the District Road Council (DRC) implements the road maintenance projects in constituencies. DRCs are supposed to use the following criteria to prioritize roads for maintenance in the constituencies: (1) all maintainable roads are given first priority for routine maintenance in order to protect investment;, (2) roads connecting administrative, market and social centers and the classified road network, including security roads, are attended next;, and (3) any remaining funds are then used to improve accessibility through spot improvements.

There are indications that at times politicians have disputed using money to maintain maintainable roads arguing that priority should be given to worse off roads instead. While this position may have some merit, the overriding objective of securing assets is paramount and the gap between these two perspectives needs to be closed. For as long as disparities in road conditions continue to exist within constituencies, vote minded MPs will always try to influence resource allocation in such a manner as to increase re-

38

electability. And since the MP is a key figure in the constituency, making them champions of reforms may be a good idea, after all especially if they can be properly trained and given the technical support to make informed decisions.

Similarly, lack of capacity of districts and local authorities in preparation of Annual Roads Work Programs (ARWPs) and making returns was a widely shared view among the key our informants interviewed. To address this, As a consequence, KRB spent Kshs.20 million in 2007/08 FY to purchase computers, accessories and printers for road agencies and sub-agencies. In addition, KRB procured a training program to train all the agencies and sub-agencies (excluding Nairobi, Kisumu, Mombasa and Eldoret Municipal Council and Roads Department) on the planning and reporting requirements of KRB.

There is however, no doubt that the creation of KRB has had a major impact in increasing resources available for the maintenance of the country’s road network. 25 Before the establishment of the KRB and Roads Maintenance Levy Fund dedicated to road maintenance, the annual budgetary allocations to roads maintenance through Treasury were acutely inadequate, leading to deterioration of the road network in many parts of the country. The gap between availed budgetary resources and the actual needs for road maintenance and rehabilitation has remainedis enormous. For instance in 1993, the total expenditure by the Ministry of Public Works and Housing which was in charge of the roads and housing was Kshs 1.7 billion against the requirement for maintaining a rehabilitated and rationalized road network of Kshs 4.7 billion (US$ 55million) (SSATP Working Paper No. 51. p33).

These huge deficits in the financing of the country’s road maintenance and rehabilitation were some of the main factors behind the establishment of the Road Maintenance Levy Fund in 1993. The Fund, which started its operations in June 1994, has greatly improved the availability of financial resources for maintenance and rehabilitation of Kenya’s road network with its current annual fuel levy collections of about ksh20 billion. In a clear departure from trend that characterized the 1980s and 1990s, there has been a significant increase in funding to roads sub-sector. According to the Ministry of Roads estimates, budgetary allocation for road infrastructure has increased from KShs 19 billion in 2002 to KShs 7.1 billion in 2009. Increased discipline in Public Financial Management (PFM) has meant that the government is able to collect more tax revenue through taxation. As part of legislative reforms, parliamentary rules and procedures have increased the oversight role of Parliamentary Committees, which now have enhanced powers to sermon Ministers and their Accounting Officers to account for resources planned and expended.

25 KRB released close to Kshs. 100 billion for road maintenance over the period 2001/02 to 2008/09, resulting in a large part of the road network being brought to maintainable condition.

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Source: Governance Matters 2009

Figure 3

Governance indicators of voice and accountability (Figure 3) have improved since 2002 peaking in 2006.26 Civil society groups are more visible and vocal. Proceedings of Parliament are now more accessible through the Internet, print and broadcast media, which has the effect of raising the political cost of none accountability therefore providing incentives to politicians to account. On the ground, increased accountability has translated in more targeted allocations significantly expanding the number and regional spread of road projects, with emphasis being on rehabilitation, maintenance and construction of major trunk roads followed by secondary roads and rural roads covering the entire network. Regional links have also received significant attention with the on-going construction of Isiolo-Moyale Road linking Kenya and Ethiopia and Athi River-Namanga-Arusha Road connecting Kenya and Tanzania, both part of the Cape Town –Cairo TransAfrica Highway.

5.6 Increasing private sector participation in roads development

On 10th December 2009, the Kenyan Parliament approved the first road concession project in the country, marking a bold economic and policy step towards involvement of the private sector participation in financing infrastructure through public private sector partnerships. The concession involves a 30-year concession of the Machakos Turnoff to Rironi part of the Mombasa-Malaba highway to a private sector investor. According to available information phase one of the concession will have four toll stations to be erected at the Athi River Enterprise Road, James Gichuru Road and Rironi Junctions and the Southern Bypass and Uhuru Highway Overpass through Nairobi. The debate in Parliament on the issue attracted considerable interest and demonstrated the political hurdles that must be overcome before road concessioning becomes an important source of funding for infrastructure development and modernization. (This process which has contributed immensely toin infrastructure programmes of many countries including India, Malaysia, Mexico and Brazil).

Parliamentarians were concerned with a wide range of issues including: the fear of dealing with foreign private investors;, possibility of scandals, especially in view of the unresolved Anglo-Leasing scandals and others in the country;, other risks and

26 Kaufman, Kraay and Mastruzzi 2009

40

vulnerability of putting public resources on the project;, and the need for acomprehensive cost-benefit analysis.

The recent launching of a Kenyan infrastructure bond as a financial instrument in the country’s capital market marked another important milestone in the country’s efforts to breakaway from government allocated and donor funds by involving the private sector in financing national infrastructure. Its relatively good performance and positive reception in the country’s capital market serve as indicators of the future potential of such instrumentsits future potential.

5.7 Management of Devolved FundsA significant proportion of road rehabilitation and maintenance funds is today implemented at the grassroots through a wide range of devolved funds such as CDF, Local Authority Transfer Fund (LATF), RMLF, etc. This was especially aimed at addressing the widespread complaints of unfair distribution of infrastructural resources in various regions/districts in the country

While the move towards devolution is generally supported, there have been widespread concerns about the extent to which local MPs are should be involved in the management of the projects. A study by two NGOs, Public Accountability Network and Kenya Human Rights Commission released recently, argues that some politicians have tended to interfere with the utilization of these devolved funds leading to misuse of the resources. The report further says that there was a tendency to create political patronage networks in addition to causing multiplicity and duplication of projects, leading to wastage of resources.

Another concern with the devolved funds has been the extent to which the focus on constituency road network priorities may lead to an overall network which, is not effectively aligned and integrated for maximum regional and national impact in terms of road transport and inter-district connectivity.

5.8 Economic and Political Constraints Facing Roads Sub-Sector Reforms

While there have has been significant progress in the roads sub-sector in the post-Moi era, the sub-sector continues to face a wide range of challenges that have slowed down the reform process and achievement of set targets. These constraints include: financial, infrastructural weaknesses and poor governance issues;, poor supervision of road works leading to mismanagement of available resources;, and inadequate attention to preventive maintenance.

One of the constraints has been the challenge of balancing between economic justification in the determination of prioritization of road construction projects vis-a-vise the pressure for equitable distribution of road projects across the country. Another challenge relates to the process of identifying and selecting road projects, which is designed to involve considerable participation by stakeholders. According to KRB officials interviewed, the prioritization of rural and urban roads proposals are generated

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at the grassroots and then forwarded to the Kenya Roads Board directors and technical team for selection according to the available resources. It is argued that while some of the projects so selected may not necessarily qualify on economic criteria basis, especially in the short-term. But, once completed, such projects help to open up the areas served releasing significant dynamic linkages in economic, social and political dimensions. The pressure for road projects is extremely high for individual MPs and senior government officials who stand to gain immense political benefit when such projects are adopted and implemented.

As argued elsewhere in this report, implementation of road projects has always been a highly charged issue politically, especially at with respect to rural roads. There have been widespread complaints in the country’s 46-year post-independence period that the selection of road projects in various constituencies and regions was to some extent a reflection of the political clout of politicians and sometimes other public personalities from those areas. This has prompted increasing demands for more transparency in throughterms of dissemination of information regarding selection or identification and as well as, financing of road projects and the regional distribution of the road network including, rehabilitation, maintenance and construction of road projects to the general public and MPs. To satisfy these demands a number of measures have been implemented in the last six years to enhance transparency, accountability and to promote regional equity in the distribution infrastructure resources.

The budget for the Ministry of Roads is today closely scrutinized in Parliamentary discussions of the Ministerial budgets. The Board of Directors of KRB introduced and implemented the policy of publishing its approved annual road projects and allocated resources in the local media as well as in KRB’s website with the objective of disseminating correct information to avoid generating politically damaging rumors or distorted information as well as giving the public, the constituents and all stakeholders facts to enable them put pressure on their representatives and those implementing the projects as part of the increasing public pressure and demands for accountability.

Another significant measure has been increased allocation of devolved funds at the local or constituency, as well as at the municipal and county level for road rehabilitation and maintenance. Most of these devolved funds are designed in largely equal amounts in an effort to reduce complaints of unequal allocation at the grass-root levels and thereby diffuse one of the most common sources of political tension in the country. This is and important GPE issue given Kenya’s poor political stability track record (Figure 4).

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Source: Democracy Indicators 2009

5.9 Efficiency versus Equitable DistributionHowever, an issue of concern has been that pursuit of equitable distribution of resources in all parts of the country leads to spreading thinly the available resources thereby reducing efficiency goals of the national infrastructure development program. In addition to thinly spreading available infrastructure development resources, the road networks developed at the constituency or local levels are not nationally coordinated to complement each other, limiting national synergies and benefits that could have resulted from utilization of the same level of resources in a coordinated and complimentary way.

5.10 Poor Supervision of Rehabilitation and Maintenance WorksAnother constraint that has bedeviled roads sub-sector projects has been poorly implemented road projects where a significant proportion was not done according to the agreed specifications leading to low value for money used. This is mainly due to a combination of poor governance in the form of flawed procurement practices, poor supervision of road works during the construction period, low levels of local contracting capacities combined with the socio-political pressure to use local contractors. Audit reports on implementation of local level CDF and LATF projects reveal widespread malpractices in the procurement of contractors and other suppliers of services in the form of favoritism, nepotism and patronage due to interference by MPs, councilors and other influential personalities. This has made maximization of value for money spent on roads sub-sector projects a difficult objective to achieve.

The problem has been attributed to bribery and other corrupt practices as well as low supervisory capacity due to limited number of qualified personnel to effectively supervise the projects. This task becomes quite daunting when it is realized that there are about 140 local authorities to deal with. In order to curb these practices, KRB has in the last few years introduced use of private sector supervision and auditing services in KRB funded projects. This is undertaken through technical compliance and audit teams formed specifically to address the problem of poor governance KRB is currently having the third lot of consultants appointed to carry out this compliance and audit with using a framework which has been fairly well developed.

5.11 Slow Pace in Effecting Axle Load Control

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A major challenge in the rehabilitation and maintenance of Kenya’s road network has been relatively ineffective axle load control system leading to short lifespan of rehabilitated roads. Although this problem is widely acknowledged by the government and most stakeholders, effective enforcement of recommended measures has been limited due to widespread bribery and other forms of corruption involving officials manning weighbridges along the main international road artery, Mombasa-Malaba highway serving the Northern Corridor member. Business cartels have persistently fought or resisted measures aimed at enforcement of the axle load control to curb road destruction through excessively loaded trucks plying the Northern Corridor road network. Heavy bribe amounts paid to government officials manning the weighbridges have served as a force against compliance withto axle load limitations. These cartels have also sometimes used the country’s judicial system to frustrate the enforcement of axle load regulations.

For instance, the Gazettement of new rules banning trucks with 4 axle loads on Kenyan roads was delayed for more than two years through court injunctions until a presidential directive issued in 2008 finally facilitated enforcement. This, however, did not entirely eradicate the extent of the road destruction through overweight trucks using the road due to the failure of often times compromised public officials in manning key strategic enforcement points. It is hoped that introduction of mobile weighbridges, and use of information and communication technologies that are currently being introduced will and on-going privatization of the management of weighbridge points will significantly reduce the problem of road destruction and the associated loss and wastage of public investments on infrastructure through ineffective enforcement of axle load rules in the country and the region.

5.12 Privatization and Automation of WeighbridgesIn August 2010, an important step was taken towards reducing corruption in the management of weighbridges, when two weighbridges along the Mombasa-Malaba road, Athi river and Mariakani near Mombasa were for the first time privatized.The Director-General of KeNHA said recently that all the 13 weighbridges which are under his organization were in the process of being computerized in order to reduce corruption further. Each weighbridge will be fitted with public display boards automatically displaying the weight of the passing vehicles. Other measures to strengthen the management of weighbridges include reshuffle of personnel deployed at various points and appointing a manager to be in charge of each weighbridge.

Another initiative has been installation of cameras in some strategic points of the highway to facilitate monitoring corruption activities. For offending motorists have been also raised sharply to act as a disincentive for overloading trucks along the highways.According to Eng. Mishack Kidenda, the Director-General KeNHA, there has been a decline in the level of corruption relating to management of weighbridge. According to the Director-General fewer cases of corruption have been reported to KeNHA’s Ethics and Integrity offices which are now managed in close collaboration with the Kenya Anti-Corruption Commission (KACC) and KeNHA are partnering in the country’s efforts to eliminate corruption at weighbridges (Standard, June 30, 2011, p.33).

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5.132 Inadequate Railway TransportAs a result of systematic underinvestment and mismanagement of the Kenya Railway Corporation in the 1980s and 1990s, the share of railway in the carriage of cargo from Mombasa Port to the country’s and region’s hinterland had become insignificant at less than 10 percent of the total cargo. This led to the shift of transportation of bulky cargo which is normally handled through railway transport to road transport. This shift, coupled with the failure to enforce axle load control, led to heavy destruction of the road network with newly rehabilitated sections of the Northern Corridor road network failing within periods of 2-3 years according to information from the Ministry of Roads, thereby raising the financial requirements for rehabilitation and maintenance beyond the available resources.

5.14 New Impetus in Modernization of Railway TransportRecent growing national and regional attention to modernization of railway transport to address increasing social, economic and political problems associated with poor transport and infrastructure, show that past neglect and low investment in railway transport is coming to an end and some concrete measures and decisions have been taken to address the issue.

At the national level, the government of Kenya has finally taken decisions to develop the Nairobi Railway Commuter transport a mass transport system to solve the current nightmare of traffic jams in the country’s capital city. The government has allocated about ksh 3 billion in the financial years 2010/2011 and 2011/2012 to develop a commuter railway transport linking Jomo Kenyatta International Airport (JKIA) with the city centre and a number of surrounding townships such as Athi River, Kitengela, Syokimau. Mlolongo, Githurai, Ruiru, Thika and others. Construction work on the new stations and rehabilitation of the existing railway line has started and it is estimated that the first phase of the project will be operational by December 2011.

The project has received strong business and political support and is listed as one of the Vision 2030 flagship projects. The urgency for the project has increased in the last one year as cost of commuter transport become a socially and politically volatile issue following the recent huge increases in petroleum fuel prices, especially after political turmoil in North Africa and Middle-East.

At the regional level, the governments of Uganda and Kenya have accepted to embark on efforts to construct a modern standard gauge railway linking Mombasa and Kampala. Procurement of consultants to carry out feasibility studies on the project has been underway.

Meanwhile, the concessionaire of Kenya/Uganda Railways, the Rift Valley Railways is embarking on a major rehabilitation of the current railway infrastructure to enable it play a much bigger role in the carriage of bulky cargo in the region.The rehabilitation programme received a major boost in July 2011 when the Board of Directors of Africa development Bank agreed to lend ksh 3.6 billion (US$ 40 million) to RVR. This is part of a five-year US$ 246 million investment programme to finance the rehabilitation of RVR infrastructure between Mombasa and Kampala in Uganda. The

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project is expected to make the railway transport along the northern corridor more efficient, reduce costs of transport in the region and help shift cargo from the road to the railway. According to the ADB, the project is expected to double the cargo transported through the railway to about 3.3 million tonnes per year by 2015 and reduce the marginal transport cost by 30 percent. Other expected benefits of the project include increased revenue for both governments of Kenya and Uganda, increased environmental impact and reduced maintenance and rehabilitation of the road network along the Northern Corridor.

The railway transport in the region will be further expanded through the proposed new transport corridor linking Lamu port in Kenya to Juba in Southern Sudan with a branch to Ethiopia. The recently concluded feasibility study by the Japanese Port Consultants identified a modern railway line as one of the infrastructure projects which include a Port, highway, fibre optic cable, pipeline and resort cities.

5.153 Poor Environment and Lack of Proper Framework for Private Sector Participation

Due to the prevalent fear and mistrust of involving the private sector in the financing and management of key public transport and other forms of infrastructural facilities, the country has not been able to tap growing source of infrastructure financing resources through public private sector partnerships, such as design-build-finance-maintain, concessioning, etc. This led to overreliance on limited budgetary resources, the fuel levy and donor funding, all of which were not adequate in meeting the financing gap in the rapidly growing sector.

As a Northern Corridor Report notes in relation to promotion of PPPs in the region “while the countries of the Sub-region still rely heavily on official development aid, it is in their ability to create the necessary environment to promote private sector investments that will ultimately make the difference” (Northern Corridor, p11).

Fearing public reaction to toll road charges, the country’s political class has been at best, lukewarm in its support for road concessioning which have been successfully used in many developing and developed countries. Parliament has recently authorized the first concessioned road project, the Southern Bypass and Uhuru Highway Overpass through Nairobi, to be undertaken. Another positive measure in this connection was the launch of the country’s first infrastructure bond to be traded in Kenya’s capital market as was mentioned earlier in the report.

However, for the country to reap full benefits of private sector participation and PPPs in the national infrastructure development there is need for a clear policy framework that will allocate authority and responsibility within the parts of government, for example, between central ministries and road agencies, to ensure the proper management of tension between parties. The policy framework would also define the process for proposing, identifying and structuring PPP projects to facilitate the generation and implementation of viable projects that are integrated with the national planning process. It is also important that those who will be affected by road projects participate in their

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planning, implementation and evaluation. The PPP policy framework should also provide for evaluation and revision in light of experiences and lessons learned.

5.164 Some Final ThoughtsSuccess of reforms in the roads sub-sector depends on broader governance reforms. Independent management and involving road users and civil society stakeholders in the management of roads (ownership), for example, putting limits to executive authority. This is feasible where decision-making is more evenly distributed (with adequate checks and balances), where citizens have information about how bureaucratic decisions influence their welfare (and can act to punish politicians for performance failures or reward them for success), and where there is restraint on the undue influence of powerful groups outside the public sector to influence the shaping of policies, laws, and regulations of the roads sub-sector.

In the Kenyan case, both conditions have been absent and the institutional arrangement has traditionally concentrated executive power narrowly. This has bred a patronage system that allows rent-seeking behavior in which elites have a vested interest in the status quo and little incentive for reforms. We find that the degree of resistance to a particular reform package is directly proportional to itstheir costs. Reforms, especially if they promote the business interest of the elite, have a better chance of success. It is relatively difficult to obtain detailed information on businesses where influential politicians have stakes, which partly explains why this area is not well researched. However, understanding politics-business linkages in Kenya is critical to unravel policy dilemmas and for better design and implementation of reforms.

The implications of the foregoing GPE analysis are straightforward: To address Kenya’s roads sub-sector challenges sustainably, requires appropriate political institutions that can guarantee sustainability and effectiveness of decision making by independent agencies. Therefore, the design and implementation of reforms must pay greater attention to incentives structures, entrenchment of professionalism in decision making, and the relative power and ability of different interest groups to influence key decision-makers. A political economy lens can help in the design and implementation of such a robust policy reform processes.

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KENYA ROADS BOARD

Road maintenance, funding, coordination and evaluation

District Roads Committee

Prioritization, funding, monitoring and evaluation

6 Regions Park Roads 5 City councils, municipal/ town roads 71 Districts

Figure 5 National Roads Sub- Sector Organizational Framework

Maintenance Funds Flow from KRB Administrative/Jurisdiction flow Development Funds Flow from MoR

KENYA URBAN ROADS AUTHORITY (KURA)

Road maintenance funding (RMF)

MINISTRY OF ROADS (MOR)

KENYA NATIONAL HIGHWAYS AUTHORITY (KENHA)

KENYA RURAL ROADS AUTHORITY KERRA)

ROAD POLICY, PROGRAMME COORDINATION, MONITORING & EVALUATIONROAD DEVELOPMENT FUNDING

KENYA WILDLIFE SERVICE (KWS)

Development, maintenance works execution on National parks,

National reserves road delegated by Ministry of Public Works

Development and maintenance works execution on city and municipal roads

Development, maintenance works execution onCLASS A, B AND C ROADS

Development and maintenance works execution on class D and below, small town roads and special purpose roads

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6.0 PORTS6.1 IntroductionMombasa port remains the most important port connecting Eastern Africa through the Northern corridor, with the region’s key markets of Western Europe, Asia, North and South America and other parts of Africa. Kenya Uganda, Rwanda, Burundi and parts of Tanzania, Democratic Republic of Congo (DRC) and Sudan depend heavily on the port for their export and import trade. The port links these countries via road and rail transport as well as an oil pipeline. The port provides important feeder services that link the port with other regional ports such as Dar-es-salaam, Mogadishu, Djibouti, Salalah, Dubai and Durban. The port records show that the Mombasa port regularly serves about 22 international shipping lines.

The main facilities of the Mombasa port include 16 deep water berths, one container terminal designed to handle 250,000 Twenty Foot Equivalent Units (TEUs) per annum (with construction of a second container terminal in the preparatory stages), a bulk grain handling terminal, one cement and flouuorspar handling terminal, two oil terminals with an annual throughput capacity of about 20 million tonnes. The cargo handled through the port has registered fairly high annual growth rates for most of the last decade with transshipment cargo registering the highest annual growth rate during the period followed by transit cargo and domestic cargo.

The last decade of Moi’s 24 year reign, saw the performance of Mombasa port deteriorate drastically as a result of centralized government control in the port sector, endemic corruption and mismanagement of the port resources and under investment in critical areas that were needed to modernize the port and enhance its capacity for efficient delivery of services.

By the time the NARC government under President Kibaki took over at the beginning of 2003, the port was saddled with huge overdraft and large amounts of unpaid bills to various suppliers of goods and services, some of whom were phantom suppliers. The port operated with old or obsolete equipment which seriously undermined its efficiency. Efforts to improve the port operations by contracting private sector management were taken by the so-called- Dream Team of some Kenyan well known professionals led by Dr. Richard Leakey. This failed when the foreign private company contracted to manage the container terminal operations pulled out after a short stint with the port. The company cited lack of cooperation from the Kenya Ports Authority especially with regard to purchase of new equipment to improve port operations.

Following changes in key personnel at the port and some reforms taken by the then new NARC regime, the performance improved significantly from a heavily debt-ridden corporation at the end of 2001/2002 financial year to a financially healthy corporation with an annual turnover of close to Kshs. 15 billion and a profit of between Kshs. 3 to 5 billion during the period 2004-07.

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However, the reforms and restructuring needed were not fully implemented, seriously limiting the impact of the reform program. This was largely due to lack of a shared vision as well as limited political support and ownership of reforms needed at the port which were often seen as externally imposed. While there were factions within the Ministries of Finance and Transport that favored greater focus on reforms, there were also elements especially within the political class at the Coast Province as well as within senior management staff at the port who regarded such reforms as threats to both regional political interests as well as self-interests for both political and business elites. There were general and long standing fears that the Coastal region would lose control of the port generally regarded as a key regional asset. The port was seen as a cash-cow by some of the leaders in terms of employment, tenders, patronage and maintenance of a large network of economic rent seekers. The fact that some of the people opposed to reform were to be found in various top echelons of private sector, parliament and top levels of government meant that only limited success was achieved in the overall reform agenda of the Kibaki government by the end of its first five years.

This resistance to reforms continued even after the formation of the country’s power-sharing coalition government in which the cabinet was highly divided and indisciplined as well as polarized along ODM-PNU political partiesparties’ regional and ethnic lines. , whichThis in turn allowed growth of political horse-trading especially by a loosely defined regional political point men who often ignored the broader public interest in pursuit of narrow and parochial personal, group and regional interests. These regional spokesmen and prominent political figures have tended to hold government at ransom because the two Principals in the coalition government have not been willing to take certain public decisions for fear of losing political support from these powerful regional political leaders, especially given the thinly balanced parliament.

To overcome this tendency to blackmail the reform agenda through vested interests of powerful political actors will require further progressgains in accountability, contrary todifferent from the prevailing situation in the coalition government;, as well as stronger political parties which are issue based and ablebased on issues and that are able to discipline their members. As demonstrated in the Zambian case,27 stronger accountability arrangements enhance the incentives - to focus on public purposes - of those political actors who might otherwise prefer to focus more on private ends.

6.2 Overview of Recent Performance of Mombasa PortDespite a wide range of operational and capacity constraints facing the Mombasa port, cargo traffic has continued to grow at fairly high annual rates. Cargo traffic handled at Mombasa Port rose by 55 percent from 10.6 million tonnes to 16.4 million tonnes between 2002 and to 18.98 million tonnes by 2010, an average growth rate of about 9.2 per annum (see Table 5). During the period, containerized cargo more than doubled from

27 Levy et al. 2007

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305,427 TEUs to 615,733 TEUs (Republic of Kenya, 2009, p.234). Typically, about 25 percent of the cargo passing through Mombasa Port is destined to the neighboring countries, with the Kenyan domestic cargo accounting for the remaining 75 percent. For instance, of the 12.9 million metric tonnes traffic throughput handled at the port in 2004, 9.6 million tones was domestic cargo.

Table 5: Traffic Handled at Mombasa Port 20062-20082010Unit 2006 2007 2008 2009 2010

Containers TrafficShips Docking

TEUsNo.

479,3551,857

585,3671,811

615,7331,686

618,8161,748

695,6001,579

ImportsDry GeneralDry BulkBulk Liquids

000’DWT“““

4,0992,3445,403

4,8662,7225,474

4,9792,8915,441

5,4354,6416,432

5,9873,8716,386

Total Imports “ 11,839 13,062 13,311 16,508 16,244Of which Transit In “ 3,473 4,042 4,471 4,612 5,004Motor Vehicles landed No. 65,348 73,818 87,284 95,798 95,604ExportsDry GeneralDry BulkBulk Liquids

000’DWT“““

1,810313132

2,102205167

2,295200190

2,22062

167

2,4107095

Total Exports “ 2,244 2,474 2,685 2,449 2,575Of which Transit Out “ 335 381 404 368 377Total Imports and Exports “ 14,083 15,536 15,996 18,957 18,819Transhipment “ 318 426 419 105 158Grand Total “ 14,402 15,962 16,415 19,062 18,977Source: Republic of Kenya, Economic Survey, 2011, p.249DWT- Dead Weight Tonnes

The negative influence of non-unconducive governance and political economy environment was dramatically demonstrated by the aftermath of the disputed elections of 2007. There is general agreement from those interviewed that the post-election violence that erupted in Mombasa and other parts of the country after the announcement of the 2007 general elections, had strong negative impact on the port performance. A recent port document points out that “the challenges that prevailed in 2008 adversely affected shipping and economic performance in the country and the region’s competiveness”. The report, however, shows that in spite of those negative effects the port was able to record improvements in a number of areas including operations and the volume of cargo handled. The ability of the port to control the negative impact of the post-election violence and record some level of improvement in various parameters was seen as a reflection of the positive impact of some of the improvements implemented at the port in the post-Moi period.

There was some increase of 2.8 percent in the port throughput between 2007 and 2010, from 15.96 million tonnes to 18.98 million tonnes respectively. The Kenya Ports Authority officials attributes this growth to moderate growth in the port’s throughput to “efficiency gains arising from the modernization of equipment and business process re-engineering”. Between 2006 and 2010 the port also recorded a 5.2 percent growth in containerized cargo from 479,355 to 695,600 TEUs

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respectively. This growth was, however, just smaller than the growth rate of 22.1 percent in containerized cargo traffic of the preceding period 2006/2007 (p.2), an indication of the magnitude of the negative impact arising from the widespread national violence which followed the announcement of the 2007 disputed general elections. The KPA report attributes the lower growth rate in container traffic in 2008 to the post-election violence and the global economic meltdown which started in the USA economy and spread quickly to virtually the whole global economy.

The period saw the port’s transit cargo rise from 3.8 million tonnes to 5.4 million tonnes between 2006 and 2010 respectively. Another activity that felt the impact of the post-election violence was the port’s transshipment activity which declined from 318 million tonnes to 105 million tonnes in 2009 and 158 million tonnes in 2010. The post-election violence is said to have created “unprecedented congestion at the port necessitating a temporary freeze in handling transshipment”, (p.3). The impact of the post-election violence, also affected the Northern Corridor member states, forcing many of them to start thinking of ways and means of reducing their dependence on the Mombasa port. These impacts and reactions clearly show the importance of political economy factors in current and future performance of both the port in particular and the Kenya and regional economies in general.

A 20-year Master Plan for the Kenya Ports Authority prepared in 2002/3 projects that the port’s traffic cargo by 2025 will reach around 25 million tones. In order to cope with the expanded growth in port cargo traffic during the Master Plan period, the port will needed to invest in key facilities including improvement in the facilities of the current container terminal, construction of a second container terminal which would raise annual capacity of the port to about 1.8 million TEUs, construction of other import facilities such as bulk cargo, petroleum products (LPG) and motor vehicle handling sections as well as a free trade area. It was estimated that these projects would require investments of about US$ 500 million (TTCA Secretariat, 2004, p.18).

6.2.1 A Review of Port Operational EfficiencyThis section examines a number of indicators usually used in measuring port performance, to comment on the performance of the Mombasa Port. They include service indicators which reflect factors such as the time a ship or cargo may spend at the port; output indicators capturing traffic and throughput of the port; utilization indicators in the form of berth occupancy for instance; and productivity indicators measuring aspects such as ship productivity in port or at berth and equipment productivity such as crane productivity.

The performance of ports with regard to handling of containerized cargo varies considerably depending on the type of equipment available for use and the level of efficiency prevailing in terminal operations in a particular port. Available data shows that ports with ship-to-shore gantry-equipped container terminals are able to achieve about 30 moves per hour on average for ports with state of the art

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equipment. The average performance of ports in Sub-Saharan Africa is much lower than this, and it is estimated to vary between7 to 20 moves per hour for ports in the region. Ports with container gantries achieve a performance of about 14 moves per hour, while ports relying on ships’ cargo handling equipment achieve only half of that, that is, 7 moves per hour (Ocean Shipping Consultants Ltd, June 2008, p.6).

6.2.2 Port Dwell TimeA look at available data on dwell time shows that the operational efficiencies of regional ports is still way behind international standards. Dwell time, a measure of the average time that containers stay at a container terminal, for instance after being offloaded from the ship or before they are loaded is widely used as a port’s efficiency indicator.

While the international standard dwell time is generally recognized at 7 days or less, African ports have much longer dwell times, sometimes as much as 14 days in West and East African ports (Ocean Shipping Consultants Ltd, p.7). These high levels of dwell time are some of the main causes of congestion and inefficiencies in these ports, translating into high container handling and general cargo costs (Table 6). The table shows that while the container handling costs from the ship to gate in East Africa ranges between US$ 135-275, the equivalent costs for ports in the rest of the world was US$ 80-154. The data indicates that East Africa have the highest average ship to gate costs of handling containers compared with Southern and West African ports as well as ports from the rest of the world.

Table 6: Gateway Container Handling and General Cargo Costs for Ports in Africa and the World

Region Container handling (ship-to-gate), $

General cargo (over-the-quay per metric ton), $

East Africa 135-275 6-15Southern Africa 110-243 11-15

West Africa 100-320 8-15

Rest of the World 80-154 7-9

Source: Ocean Shipping consultants, Ltd, Jun 2008, p.7

The relatively high inefficiency in handling container cargo at the port of Mombasa is attributed to a variety of factors including: frequent interruptions of crane operations due to equipment breakdown and, lunch-breaks; , and poor management of the containers in the container yards arising from poor communication system between various sections or actors such as container yard managers, those receiving containers, transporting companies, railway officials, customs, port health and other service and government quality inspectors. It is thus common for a container to remain in the port for weeks before it is cleared and leaves the port, a process which according to clearing and forwarding agents could be undertaken in two days with better logistical arrangements (James Caron, et al, 2000, p.4).

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The high port dwell time is also sometimes caused, amongst other cuasesfactors, by the delays arising from either poor state of the main northern-corridor highway linking the port and various inland destinations;, to other causes of delay such as police barriers and checkpoints, requirements to move in convoys of trucks, weighbridges, and other delays created for rent seeking purposes., etc.,T the decline in railway transportation over the last two decades, especially for bulk cargo, led to the shift of over more than 80 percent of the railway cargo to the road which caused major destruction of the road network. This increased the turn-around period for trucks, thereby increasing the port dwell time for cargo that needed to be transported upcountry.

It is evident therefore, thatThus, necessary investments and operational practices have not been implemented to enhance or maximize synergies arising from road-port linkages. It was reported that movements of bulk grains and other bulk cargo were often delayed unnecessarily by disagreements between government health and quality inspection officials with the owners of cargo or their agents. Establishment of the 30,000 tonne Grain Bulk Handling facility enabled the port to largely move away from manual offloading of bulk grains, resulting into significant cost-reduction in handling grains at the port. It was estimated that the establishment of the facility led to a saving of about US$ 12 per ton in terms of ocean freight costs, (ibid) demonstrating the huge benefits that arise from introduction of modern appropriate technologies in various port operations.

For sensitive cargo such as food imports, the process is made more complex because of the requirements of services of specialized institutions - especially Kenya Bureau of Standards (KBS), Kenya Revenue Authority (KRA) and the Kenya Plant Health Inspectorate Services (KEPHIS) - before the cargo is cleared. These kinds of inspection services have been blamed not only for raising the dwell time of cargo at the port but also for creating an enabling environment for bribery and other forms of corruption as port users try to negotiate how to remove the barriers in order to move the cargo through the port.

A study by the Transit Transport Coordination Authority of the Northern Corridor (NCTTCA) shows that the performance of Mombasa Port was below par in terms of the dwell time of cargo coming through the port. While the dwell time varied from month to month and country of destination of the cargo, the average dwell time was high by international standards, and ranged from 11.2 days for DRC-bound cargo to 30.1 days for Burundi-bound cargo (Table 6).

KPA latest data on latest import container dwell time shows significant improvement for the Jan-Sep 2009 and 2010 periods compared to 2008. The average container dwell time for the first 9 months of 2009 was reduced to 6.4 days compared to the 2008 monthly average of 13.1 days, a 51.1 percent reduction. The same improvement was recorded with regard to ship turnaround time, as the average port time per ship was reduced to 3.7 days compared to 4.5 days during the

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corresponding period in 2008 (Table 79). The improving trend is generally maintained in the year 2010.

The improvements recorded in terms of reducing port dwell time, has been partly the result of investment on more cargo handling equipment in the last few years as well as investment in ICT that have helped to reduce manual operations and improve communications and coordination between various units and departments. There have also been administrative changes aimed at improving port operations, including the implementation of 24-hour operations in many sections of the port.

Table 7: Dwell Time in Days per Country of Destination for RoadTraffic Country July August September October AverageLocal Kenya 13.2 14.0 14.3 13.3 13.7

Transit

Burundi 36.5 47.3 15.1 21.5 30.1Congo 11.6 11.8 10.2 11.1 11.2Malawi 18.0 20.0 19.0 19.0Rwanda 12.4 13.9 14.5 13.5 13.6Somalia 12.3 12.6 11.7 11.5 12.0Sudan 15.3 12.8 16.0 18.0 15.5Tanzania 10.9 15.4 10.2 12.7 12.3Uganda 14.3 14.1 14.2 14.3 14.2Zambia 20.0 20.0

Source: Transit Transport Coordination Authority of the Northern Corridor (NCTTCA) (Nov 2008, p.30)

Port handling productivity data for Mombasa container terminal is shown in Table 8 for the year 2005. It shows that the port registered 9.04 moves (gross) or 10.78 moves (net) per hour.

Table 8: Port Handling Productivity at Mombasa Container TerminalMonth (for the year 2005)

Number of ships

Effective Total Port Time

Effective Total Berth Time

Moves Performance per 24h

Performance per hour

Gross Net Gross Net

JanuaryFebruaryMarchAprilMay JuneJulyAugustSeptemberOctoberNovemberDecember

433641443837384238394340

3,3112,3203,0173,3812,4882,4532,4502,4872,5072,3883,1392,639

2,8142,0812,7213,0672,2822,0752,0612,1811,8962,1682,0181,958

24,40420,91127,03627,35124,11725,99725,73522,86922,53023,66225,32524,528

176.9216.3215.1194.2232.7254.4252.1220.7215.7237.8193.6223.0

208.2241.2238.5214.0253.6300.7299.7251.6285.2261.9301.2300.7

7.379.018.968.099.6910.6010.509.208.999.918.079.29

8.6710.079.948.9210.5712.5312.4910.4811.8810.9112.5512.53

Total/Average 479 32,579 27,322 294,465 216.9 258.7 9.04 10.78

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Source: Source: Transit Transport Coordination Authority of the Northern Corridor (NCTTCA) (Nov 2008, p.35)

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Table 9: Import Container Dwell Time, 2008-2010MONTH 

MONTH

2009 2008 20102008

2008-2009Days % 2009-2010

Days %Days

JAN 10.1 17.1 6.217.1 -7.0 -40.9 -3.9-7.0 -62.9FEB 8.6 14.4 6.914.4 -5.8 -40.3 -1.7-5.8 -24.6MAR 6.5 12.7 5.812.7 -6.2 -48.8 -0.7-6.2 -12.1APR 7.0 10.5 5.810.5 -3.5 -33.3 -1.2-3.5 -20.7MAY 5.6 11.9 4.911.9 -6.3 -52.9 -0.7-6.3 -14.3JUN 5.2 11.9 6.511.9 -6.7 -56.3 -1.3-6.7 -20JUL 4.5 18.9 6.618.9 -14.4 -76.2 -2.1-14.4 -31.8-76.2AUG 4.3 15.9 5.215.9 -11.6 -73.0 -0.9-11.6 -17.3-73.0SEP 5.2 8.5 5.88.5 -3.3 -38.8 -0.6-3.3 -10.3-38.8AVG. 6.4 13.1 6.013.1 -6.7 -51.1 -1.5-6.7 -23.7-51.1

Source: Kenya Ports Authority, 20092011

6.2.3 Capacity and Efficiency ConstraintsTransport costs for cargo from Mombasa to various destinations along the Northern Corridor continue to be a major source of concern for the countries using the port and Northern Corridor transport services. A recent inspection tour conducted between 3rd and 12th November 2008 by the Seamless Transport committee made up of personnel in transport and related Ministries/Departments from Kenya, Uganda and Rwanda concluded that the prevailing transport costs of cargo through the corridor was still too high as a result of numerous tariff and non-tariff barriers. The survey listed a wide range of impediments toof cargo transportation from Mombasa to various destinations within the various Northern Corridor Authority member states.

At the port of Mombasa, the inspection team found numerous bottlenecks in the flow of cargo which caused delays, raised costs and encouraged bribery. One of the main bottlenecks was the congestion at the port. The port designed to handle 250,000 TEUs, was handling about 600,000 TEUs. This was aggravated by the limited capacity of the various key equipments.

Other bottlenecks highlighted by the inspection team were long delays in the clearance process as a result of technical problems of the newly installed ICT equipment;, bureaucratic red tape;, bribery, inefficient and lengthy uncoordinated payment processes at the port and various border points;, poor logistical arrangements;, inadequate facilities and amenities;, widespread unethical practices such as bribery/corruption at weighbridges;, existence of many roadblocks; and police checkpoints which also served as rent seeking points.

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For more than two decades, the port of Mombasa has faced perennial capacity constraints in its provision of services due to technical, logistical, administrative and governance constraints. First, it is currently one of the ports operating substantially above the generally accepted 80 percent level of its installed capacity, leading to major efficiency bottlenecks in the portits operations. According to a recent study by the Ocean Shipping Consultants (June 2008), the Mombasa Port faces major constraints in handling both the general cargo traffic and container traffic. . Operating at about 90 percent of its installed general cargo capacity, the Mombasa Port is amongst the most constrained ports in the region in handling this category of cargo (Northern Corridor: Programme for Improving Transport Infrastructure and Facilities; March 2006).

Other African ports experiencing more or less similarsame level of capacity constraints are Dar-es-Salaam, Douala, Port Sudan and Luanda all operating at between 75 percent and 95 percent of their respective capacity. Only Cotonou and Cape Town were operating below 55 percent of their capacity. The port operated at more or less the same level of containerized cargo capacity in this category. The Report identifies the worst affected African ports as Tema, Dar-es-Salaam and Durban, all operating between 100 percent and 150 percent of their container traffic capacity (Ocean Shipping Consultants, 2005 p.5).

In order to address this constraint, a new container terminal is underway, financed by the Japanese government at a cost of Kshs. 26 billion. The selection of this project was done through collaboration between the Kenya Ports Authority, Ministry of Finance, Foreign Affairs and Office of the President. A number of other projects are also underway to help decongest the port and raise its overall capacity. They include: improvement of the road network within and around the port;, purchase of new equipment computers; , IT management and new information systems. As the report notes, in both South Africa and Kenya, both the public and private sectors had invested heavily in modern handling systems and equipment, contributing leading to bringing greatly to improved performance (ibid, p.6).

The study by Ocean Shipping Consultants Ltd, however, observes that without effective implementation of institutional and regulatory reforms in Mombasa and other ports in Africa it will not be easy to raise the port’s efficiencies to the levels that ports in some parts of the world have achieved, and points out that without these reforms, “technical improvements can yield only a fraction of their potential” (ibid, p.8).

Thus, iInstitutional and regulatory reforms will thus continue to be priority issues as the Mombasa Port makes efforts to enhance its efficiency through modernization of equipment and operational systems.

6.3 Source of Pressure for Efficiency Improvements at Mombasa Port 2003-2007

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The relative increase in efficiency at the Port of Mombasa during the NARC government can be attributed to a number of factors. FFirst, the new government which replaced Moi’s 24-year regime in which the Kenyan economy stagnated had campaigned and made promises to the public strongly focused on rapid national economic recovery. Thus qQuick economic recovery, rehabilitation and expansion of infrastructural facilities, were thus generally regarded as some of the key pillars of fulfilling the promises made to the electorate in the 2002 campaign. This wasis clear from the then new government’s economic growth and development strategy blueprint, the Economic Recovery Strategy (ERS). In the strategy, the crucial national and regional roles of the Mombasa Port, Jomo Kenyatta International airport and the Northern Corridor linking Mombasa to the Eastern African region were explicitly recognized and prioritized in terms of reforms and budgetary support to facilitate necessary rehabilitation and institutional reforms.

Secondly, the government recognized that the starting point in the desired economic recovery process was in the area of management reforms of key economic institutions and facilities. Thus, the appointments made for CEO positions and to a lesser extent membership of the boards were more carefully selected in many of these institutions. The CEO of KPA had been for instance head-hunted by the World Bank supported “Dream Team” of Richard Leakey in the last few years of the Moi regime. He was recruited from his senior management position of an international shipping line. Recognizing his professionalism and contribution, the new government retained him in the same position. As mentioned earlier in this report, he played a pivotal role in turning around the port from a debt-ridden to a highly profitable corporation within a relatively short period. The impact of professional management at the port, as well as in quite a number of other state corporations, showed the potential positive impact in creating self sustainable, professionally managed public institutions.

By closing loopholes through which public resources had been siphoned out previously bythrough corrupt politically appointed CEOs and board chairpersonsmen and members, substantial resources were generated, retained and used to expand and modernize various infrastructural facilities leading to higher efficiencies and performance. Internally generated resources thus played a key role in the investment and modernization programmes of KPA, Kenya Airports Authority and indeed many other state corporations during the period 2003-2007.

Thirdly, a review of the performance of a wide range of public enterprises in Kenya during the period 2003-2007 indicates major improvements in many of them, both in terms of operational efficiencies and revenue generation, demonstrating that the new government gave more than lip service to reforms that promoted efficiency to fuel economic recovery, the centre piece of the new government. It can also be argued that economic recovery was both a personal and professional challenge to President Kibaki, a respected economist who was a long-serving Minister for Finance in the 1970s when Kenya had one of the best economic performance records in Africa.

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There is strong evidence to show that during the 2003-2007 period, efforts were made to implement reforms that allowed parastatal enterprises to gain greater autonomy in their operations, recruit professionals in key positions and generate and invest financial resources in key areas. As a result many parastatals which had become dependent on government subsidies were within a relatively short time, transformed into profitable self-sustaining entities financing a large proportion of their current and development budgets with internally generated resources. Examples include the Kenya Ports Authority, the Kenya Airports Authority, KENGEN, Postal Corporation, Telkom, Mumias Sugar Corporation, and many others.

ItThus, it can thus be argued that improved port efficiency was taken much more seriously by the new government than was the case in Moi’s regime. This explains to a considerable extent, the gains made at the Mombasa Port in terms of efficiency improvements during the period. The new administration saw the port as a key enabler in the push for rapid economic recovery, raising the country’s regional competitiveness in international trade, and making Kenya a premier transport hub through creation of a more efficient seaport at Mombasa, an airport at the Jomo Kenyatta International Airport as well as a rehabilitated Northern Corridor for land-based transport.

These objectives were, however, only partially achieved due to political-related and other impediments discussed in thise report.

6.4 An Assessment of Mombasa Port ReformsWhile some efforts have been made in the last fifteen years to introduce reforms at Kenya’ premier port, the country’s reform efforts continue to lag behind port reform leaders in Africa. Port reform efforts at the port of Mombasa are largely focused on three areas:

a) Privatization of some parts of port facilities and operationsb) Management reforms including recruitment, right-sizing and procurement

systemsc) Modernization of equipment and other facilities to enhance the operational

and technical capacity of the port.

Using a port reform score of how African countries have implemented important reforms to modernize port operations, the port of Mombasa scores poorly in the Ocean Shipping Consultants’ Study. The index provides an overall score of progress on four key aspects of ports sub-sector reforms, i.e., 1) Legislation, 2) Restructuring, 3) Policy oversight and 4) Private sector involvement.

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Table 10: Country Port Reform Index (%)Tanzania : 90%Benin : 78%Ghana : 72%Sudan : 69%South Africa : 56%Mozambique : 42%Nigeria : 38%Senegal : 30%Cape Verde : 29%Kenya : 28%Madagascar : 24%Namibia : 14%Chad : 10%Cote d’ivoire : 6%

Source: Ocean Consultants Ltd, 2005, a Report Prepared for the World Bank and SSATP

According to port reform score data prepared by Ocean Consultants Ltd in 2005, Tanzania emerged as one of the top reformers, with a score more than 90 percent, with Cote d’Ivore having the lowest score of about 6 percent among 15 ports studied. Kenya’s port occupied 11th position with about 28 percent, while Tanzania had registered reforms in all the four areas above i.e. legislation, restructuring, creation of policy oversight institutions and improved facilitation of private sector participation.

Participation of private sector in the operations of port facilities has gained worldwide momentum since 1990s. Between 1990 and 1998 alone, about 112 port projects deals were concluded, involving private sector participation in 28 developing countries with an investment of US$ 9 billion (Private Sector, Note No. 193, p.1).

There has been a significant shift from the traditional service port model to land-lord port model. In the service port model, a public port agency or authority provides most of the commercial services in addition to playing a regulatory role. Under the landlord port model, the public port authority acts mainly as a regulator, owns the land and basic infrastructural assets but allows private sector operators to commercially operate container terminals, berths etc. Most of the participation of the private sector operators has been in the form of concession contracts for varying periods, with the ownership of the land remaining under the public port agency or authority.

Available data shows that through such concessions, the private sector operators have played significant roles in the expansion and modernization of port facilities,

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equipment etc. However, this process has been more pronounced in Latin American and Asian ports compared to African where the process has been slow. From the World Bank data covering the period 1990-1998, Malaysia was the leading country of top 10 developing countries in-terms of investment in port projects, with private sector investments estimated at US$ 2 billion. Malaysia was followed by China, Indonesia, Brazil, Argentina and then India.

6.4.1 Review of Mombasa Ports’ Privatization EffortsWhile the Kenya Ports Authority identified ‘land-lord’ port as the preferred model of running the Mombasa port in 2002, resistance from politicians from the Coast, workers union and lukewarm support from some of the senior management officers of the Authority have led to limited progress in the implementation of this policy.The land-lord port policy preferred by the KPA was expected to have the government and KPA largely withdraw from direct cargo handling operations at the port by allowing private sector operators play this role through concessioning or leasing arrangements. At the same time, the Kenya Ports Authority was expected to be corporatized and operate more autonomously as a land-lord port with minimal interference from the government through the Ministry of Transport which continues to exercise oversight authority through the Minister of Transport.

Although a number of services are today provided by the private sector, such as handling of imported cars as well as a wide range of containerized cargo which are now mainly handled through privately developed and managed Container Freight Stations (CFCs), the Mombasa port continues to be run according to the Service Port Model where the Kenya Ports Authority is the main operator of the cargo-handling and other key services such as tug-boat, navigation, stevedoring, etc.

Despite the benefits that ports in various parts of the world have realized from privatization of container terminal operations, these operations are today carried out more or less solely by the Kenya Ports Authority. Discussions with people familiar with the Mombasa port indicate that privatization of the container terminal has been resisted by both management staff as well as the general staff. The resistance has been largely due to fears of loss of employment, as the container terminal has become a nerve center of the port.

The construction of the proposed Japanese-supported second container terminal is expected to help introduce private sector operations to compete with the KPA-managed terminal. This proposal is generally not popular with the staff, for the same fear of loss of employment for the current employees. For most of them, retention of their positions has higher premium charges than the benefits that would arise from increased efficiencies associated with privatized container terminal.

While private sector participation in port management has been quite popular in Africa in recent years, the process has been slow in Kenya. The failure to privatize the container terminal reduced the country’s ability to attract foreign investors. The

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report by (Ocean Shipping Consultants) again shows that privatization of port activities in various African countries had generated private investments worth US$ 1.3 billion, over and above US$ 1.7 billion paid to the governments in the form of royalties; investments in container terminal facilities accounting for approximately 62 percent of the recorded investments. The second most important component of these investment resources involved privatization of multi-purpose terminals, at around 32 percent while investment in bulk facilities at the ports was a much a less important component attracting less than 10 percent of recorded investment resources from the private sector (ibid, p.4).

Nigeria emerged as the most successful among Sub-Saharan Africa countries with regard to concessioning of container terminals, with the country accounting for more than 50 percent of total private investments in the regional ports (op. cit.,p.4). Other successful concessions of container terminals among Sub-Saharan African countries include Abidjan, Dakar, Dar-es-Salaam, Maputo, Luanda, Tema, Takoradi, Djibouti and Douala, with Mombasa container terminal earning the dubious distinction of being “ so far the only one reported instance of a cancelled concession contract” (ibid, p.4).

Kenya’s first serious effort to have a management concession of the Mombasa container terminal survived only for a short period before collapsing due to disagreements and dissatisfaction between the various parties which led to poor performance and cancellation of the management service contract awarded to Felixingtowe Port Consultants.

6.4.2 Resistance to Privatization ReformsThe greatest resistance to port reforms has been against measures aimed at enhancing the participation of private sector operations through various strategies such as concessioning, leasing port facilities to private sector operators, allowing private investors to establish facilities in the form of build-operate-transfer or build-own-operate - transfer, etc.

Thus, while the government and the KPA board of directors approved the policy to make Mombasa Port a ‘land-lord’ port in 2002; where KPA would continue to own the port facilities while the operations are carried out by the private sector through various forms of leasing arrangements, very little has been actually implemented, eight years since the approval of the policy.

The resistance to privatization of port activities is directly linked to the fear that the process will allow one of the major assets of the Coast region to get into the private hands of an ‘outsider’ from within the country or, out of the country. This fear is based on the arguments that the privatization process wouldill most probably make it difficult for a coastal investor emerge as the winner of a bid in a competitive to win in a competitive process, due to the in view of the perception of the region as one of the marginalized parts of the country in terms of education and /wealth distribution etc. The fear associated with the port being taken over by an ‘outsider’

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is that a large proportion of employment would go to non-residents of the region. This fear is demonstrated by the fact that one of the questions regularly asked by Members of Parliament from the Coast to the Minister of Transport is to give a break-down of the people employed at the Port by district of origin. There have been regular complaints by Members of Parliament from the Coast that that the port management is employing up-country people thereby denying opportunities for the coastal regional workers.

As far as some of the Coastal political leaders are concerned, this fear of take-over of the port by outsiders seems to overshadow the obvious socio-economic benefits that would accrue from increased private investments and participation in the management of port facilities;, in the form of higher levels of employment incomes and a wide range of backward and forward linkages in the coastal region, the country and the whole of the greater Eastern Africa region.

The continuing special interests of the Coastal region political elites on the Mombasa Port are graphically captured in the latest demands by the Coast Parliamentary Group in an article published by the Daily Nation (January 5, 2010, p.29) titled “Let’s Run Port”, where the vice-chairman of the Coast Parliamentary Group (CPG) which brings together all the current Members of Parliament from Coast Province, Hon Gideon Mung’aro and his colleague, Hon Kazungu Kambi, are quoted to have demanded that the government should allow Coastal region residents to run the Port of Mombasa arguing that “only Coastal natives should manage the facility”, and that the port was their ‘coffee’ and ‘tea’ in reference to the main cash crops of some of the upcountry regions.

They said that the parliamentary group will not allow “multinationals or people from outside the region to run the Mombasa Port” and that “Coast leaders would only support the port’s privatization if people from the region were given a greater say in the running of the vital institution”. They further said “the privatization of the port should only be according to the various districts in the region so that “each of the districts at the Coast gets one or more berths to privately own and manage”. They argued that they are opposed to multinationals because they would “bring in their technology and workers, denying local people employment opportunities”. They aAlso complaininged that “although the port generated billions of shillings in government revenue, only a trickle went back to develop the region” (Daily Nation, 5th January 2010, p.29).

The above demands demonstrate the views or perceptions that a large proportion of Coastal political leaders have continued to hold for most of the post-independence period. This has considerably slowed down the governments’ privatization programme of some of the port facilities and services given. T the fact is that it was not politically prudent to ignore these perceptions although the perceptions were generally regarded as myopic in most of the government circles/port’s. These perceptions have however undermined and the country’s direct and indirect socio-economic benefits from a well executed privatization programme..

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Discussions with senior management staff at the port indicate that one of the main sources of pressure from the regional politicians arises from requests to provide jobs to the politicians relatives, friends and political supporters. A large proportion of about 2000 reserve casual workers who are occasionally employed on casual basis by the port have historically come through the Members of Parliament and other leaders from the region and their socio-economic and political networks. To continue to enjoy this privilege, such leaders are keen to ensure that the port is managed by people easily accessible to them, and these are generally seen to be people from the Coast. This explains the strong insistence by politicians that the CEOs and other top managers of the port should come from the region.

Another reason that explains the political leaders’ interestinterests ion the port is the desire to be able to influence the award of contracts and benefits from provision of contracting services. The Kenya Ports Authority is a source of a large number of big and small supply and contracting services that are regularly advertised in the media. Both political and business elites at the Coast would prefer to have many of these undertaken by Coastal suppliers/contractors. It is generally assumed by these elites that their desires would be more easily achieved with management recruited from the region.

Inadequate reforms at the Mombasa port are demonstrated also by the fact that the country has not yet enacted independent port regulation mechanisms. The government, through the Ministry of Transport continues to perform the regulatory role of the port activities with the Port Authority acting as the enforcement arm. One of the weaknesses of this regulatory system is that it is highly prone to conflict of interest when issues and disputes with the private sector operators are involved because in some cases some of the key players in the public regulatory body may be interested parties. This has huge potential to undermine the integrity of decisions made. Thus, in order to enhance efficiency in Sub-Saharan Africa ports, one of the key reforms required in Sub-Saharan Africa is the need to give adequate attention to institutional reforms, both with regard to regulatory structures and other institutional parameters that inject efficiency and good governance in port management operations and decision-making.

6.4.3 Resistance and Other Constraints to Port Management ReformsOne of the contributing factors to Kenya’s poor port-operations has been the caliber and autonomy enjoyed by key management staff whoich was were often hand picked from political supporters or financiers of political regimes. This is especially the case especially when appointments of Chief Executives and Senior Management staff may depend upon the whims of the Executive arm of the government, without a clear competitive framework. This changed considerably in 2004 under the NARC government when all senior staff members including the CEOs were expected to go through competitive interviews under the Board of Directors, following the advertisement of the after the vacant posts in the press.were advertised in the press. This, together with a reformed Procurement Act which, became effective in 2005

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helped to bring under some control the wastage which the port, like many other parastatals, had suffered. It is worth noting that while these measures helped to control mismanagement and other excesses, they were not able to eliminate corruption and other weaknesses in the administrative and governance structures of the port partly because they could not effectively shield the management from regular political interference from powerful political and business elites pursuing self-interest. However, the new personnel and management style and tighter procurement procedures helped the Kenya Ports Authority to improve governance considerably as the Authority came out of the Transparency International list of the most corrupt public institutions in which the corporation had been featuring prominently for several years. It also helped to strengthen the Authority’s revenue base which made it possible for the port to undertake major expansion and modernization of equipment largely financial with internally generated resources.

Next to reforms aimed at privatization of some of the facilities of the Mombasa Port, management reforms have faced the second most serious political resistance. The appointments and retention of the CEO of the port has for a long time been heavily influenced by political considerations both during KANU, NARC and the PNU–ODM Grand Coalition regimes. This has often overlooked the performance or qualifications of the people involved. For instance in 2006, one of the CEOs who had played a key role in turning the port from a debt-ridden parastatal into one of the few profit- making parastatals, remitting a substantial annual dividend to the Treasury; was relieved of his position following sustained pressure from Coastal politicians that the port should be managed by a person from the region. Sources indicate that the pressure on the government to replace the CEO was particularly high during the 2005 national referendum debate and campaign on a new constitution.

Appointments of subsequent CEOs have elicited considerable media and political interest again with Coastal politicians pushing for a person from the region. Like the case of privatization reforms, management reforms are resisted because of the fear that appointments based purely on meritocracy of the candidates would take away control of a key regional political and business asset from regional political and business elites whose parochial and personal interests would be jeopardized by promotion of professional and transparent recruitment and procurement processes.

Recent events indicate that even CEOs from the region are not safe when they do not meet vested personal interests of key political/business elites. Discussions with people well acquainted with port affairs show that the last two CEOs at the Port were appointed and fired through direct or indirect actions of the Minister of Transport, a politician from the Coast, without strictly following the laid down procedures.

The latest case took place in February 2010 when the CEO was fired by the Minister without the knowledge of the KPA Board of Directors or the Permanent Secretary. The legality of this latest sacking of KPA CEO was raised in subsequent media

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stories, because the Minister took the action after a Court of Law had nullified his election in his constituency in the December 2007 elections, following a court petition against the results. Apart from the question whether he had powers to perform his ministerial duties after the court had nullified his election as a Member of Parliament, there were issues raised about reasons behind sacking of the CEO under whose one-year stay at the helm of the port, the institution had recorded one of the highest profit in the last few years;, as well as whether the minister had powers to fire the CEO without the knowledge of the Board.

The latest episode of the firing of the port’s CEO by a Minister whose election had already been nullified, attracted high media and political interest and coverage, a demonstration of growing freedom of press and expression as a result of greatly increased democratic space in the post-Moi era. Commenting on the issues, a leading business writer in the country’s newspaper wrote, “Ministers treat parastatals as if they are their personal property-firing managing directors at their whim and fancy, replacing them arbitrarily and appointing replacements on the basis of their ethnic and political affiliations” (Jaindi Kisero, “End Culture of Ministers Meddling in Parastatals,” Daily Nation, March 3, 2010, p.12).

A well planned retrenchment programme to cut down the level of employment from its current number of about 4,500 people to about 2,500 has not taken off more than seven years since the plan was prepared and discussed by technocrats from the relevant ministries and the Kenya Ports Authority Board of Directors. The resistance to the programme has been spear headed by the politicians from the region and trade union leaders who have on several occasions threatened to organize labor strikes, to oppose the planned right-sizing programme aimed at to improving efficiency at the port. The arguments against the programmes have been largely hinged on the perceived adverse effects of the reform on the workers in a country suffering from high levels of unemployment, poverty and inequality.

The main interest of politicians has been preservation of their careers, with less weight accorded to the wider national and regional benefits of a more efficient port. This is made possible by limited knowledge and awareness of the majority of the region’s population with regard to the wider benefits of efficiently managed port facility. The country has thus lost heavily in terms of failure to implementing a right-sizing exercise for more than six years, as well as in terms of the efficiency gains that would have accrued to the users of the port if unnecessary costs had been eliminated through the right-sizing programme.

6.4.4 Modernization of the Port Facilities and EquipmentModernization of the port facilities and equipment has been another key plunk in the reform agenda. By end of 1990s, a significant number of the key facilities of the Mombasa port were either, poorly maintained, obsolete and inadequate to deal with the rapidly growing volume of cargo traffic through the port or modern larger shipping vessels and new technological requirements and challenges. Gross mismanagement of the port revenue and port operations had transformed the port

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into a debt-ridden parastatal with overdrafts in excess of Kshs 21 billion by year 2000.

As the port performance improved with new management during Dr Leakey’s led Dream Team and under the first Kibaki Government from 2003, significant priority was given to port reforms and modernization of its key facilities and equipment. With tighter controls over port revenues in the last eight years, a large proportion of resources used in expansion and modernization projects was raised through internally generated resources and loan facilities serviced through port revenues. Japan Bank for International Cooperation (JBIC) loan facility is expected to be serviced by revenue generated from port operations like most of the other projects which have been undertaken at the port in the last seven years, underlining the economic gains from relative improvement in operations and management in the post-Moi era. , aThis is a major contrast from Moi’s era when the port’s equipment were seriously ran down due to gross mismanagement, corruption and prolonged under-investment in essential port equipment and other facilities which, characterized the last decade of Moi’s regime.

By 2007, an estimated Kshs15 billion had been spent to acquire new tug boats, ship-to-shore gantry cranes and a wide range of other equipment in addition to undertaking works on the container terminal.

A number of projects are underway at the port aimed at improving the port’s efficiency and capacity considerably and help reduce governance problems through use of ICT. These include:

Construction of a second container terminal jointly funded by the JBIC and the government of Kenya through the Kenya Ports Authority. The agreement between the two countries was signed towards the end of 2007, with Japan providing a soft loan facility of Kshs26 billion. The project was selected and given priority as part of essential measures needed in the country’s preparation for the anticipated growth in container cargo traffic. The project is designed to have four new berths of between 11-15 meters each, capable of handling an additional 1.2 million TEUs. The project is currently ion the design phase, with the Japan Port Consultants having won the consultancy contract to design and supervise the project implementation. Whose first phase is expected to be ready by 2013. The signing of contract with the Toyo Company Japan as the contractor of the project was signed at the beginning of July 2011 and the construction is expected to commence in the coming few months.

A related project is the dredging of the port channel to a depth of 15 meters and widening of the channel’s turning basins to help the Port of Mombasa handle new generation larger ships which, currently cannot be accommodated at the port. T the inability to handle large modern shipping liners hasve adversely affected the port’s competiveness and loss of business. The project has been one of the top priorities of the KPA for more than a

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decade and its selection and prioritization was largely based on the need to remove clear bottlenecks in port operations.

The dredging of the Kilindini Channel access of the Mombasa Port and the expansion of the container terminal through construction of berth no. 19 of the Port were simultaneously launched on 5th July 2011, by the new Minister for Transport, Amos Kimunya. The two are part of key ministry’s flagship projects of the country’s Vision 2030. The dredging project is designed to increase the depth of the access channel to the port from a minimum of 13.4 metres to a minimum of 15 meters, and increase the width of the channel to 300 meters at the narrowest point, to allow the Port to handle postpanamax vessels. The construction of berth 19 will cost an estimated ksh 56 billion and will increase the length of the current container terminal by 160 meters enabling it for the quay to handle a minimum of three large vessels of a length of 235 meters each. The construction of the berth funded by KPA is estimated to be completed in 2 years time.

The dredging project funded by the Government of Kenya at a cost of US$ 66 million is being undertaken by a Dutch firm m/s Van OOrd Dredging and Marine Contractors. The implementation of the dredging project is being implemented in three phases in addition to the consultancy study carried out by the Japan Port Consultants firm in 2007. The first phase of the project launched launched on 5th July 2011 involves dredging of the outer and inner channels while the next two phases will respectively cover the main channel and panama berths 12-14 as well as a new container terminal, berths 20-23.

When completed the dredging is expected to meet both current and future national, regional trade and shipping needs, create capacity to handle post-panamax vessels of 300 meters, improved and safer navigation within the Port, increased higher returns on the Port’s capital investments, transform the Mombasa port into a hub port serving feeder ports in the region and help promote national and regional trade as a result of increased Port’s capacity, efficiency and competiveness. (KPA website)

The latest development regarding the Launch project is that the Japan Port Consultants working with an inter-ministerial team of relevant Kenya Ministries and departments completed a feasibility study financed through budgetary allocation by Kenya government in June 2011 has been presented at a meeting of Permanent Secretaries before it is forwarded to the Cabinet. The inter-ministerial team recommends implementation of the project in stages, starting with the Port and the newly independent republic of Southern Sudan. The project has received widespread government support, which has recently been boosted by the remarks by the President of the newly independent republic of Southern Sudan to the effect that his government is eager to see Lamu-Juba corridor operational as soon as is possible to improve transport and trade relations between Southern Sudan and Kenya and the rest of the world.

The Kilindini Waterfront Operating System (KWATOS) is another important project recently completed at the port of Mombasa. Officially launched on 1st

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July 2008, the project was aimed at computerizing the waterfront operations and to link them with the Kenya Revenue Authority Simba System to enhance the port’s operational efficiency in key areas and to increase the port’s capacity. The impact of the project is expected to be further enhanced, when the Port’s Community Based System is completed, as this is in thee final phase of the implementation of the Port’s ICT strategy which is aimed at turning the port into an e-port by 2010.

The implementation of the project was expected to achieve positive results in improving the port’s governance, operational and business dimensions. The potential benefits of transforming the Mombasa port into an e-port include reduced corruption and general rent-seeking behavior through minimization of human to human contacts by automating most operations at the port; efficiency gains in the operations of the port due to reduced bureaucracy and other bottlenecks which arise or are associated with heavy reliance on manual operations; reduced congestion which iwas in turn expected to raise the port’s capacity to handle cargo, leading to higher rates of return; increasing the role of private sector in the provision of port services.

Unlike the political resistance to privatization, management, regulatory and institutional reforms, there was limited resistance to the expansion and modernization programme of the port’s facilities and equipment from political and business elites. Indeed in stakeholder forums held at the port every Friday morning, there was strong pressure from both local and foreign stakeholders for KPA to raise its service level through appropriate investments on facilities and equipment. The Board of Directors has also generally supported the modernization programme by providing budgetary resources as much as possible with available resources.

However, while there was none or only limited opposition to the port’s modernization and expansion programme from the politicians and other stakeholders, implementation of accepted capital investment projects tookake too long to implement. There are projects which have taken several years without implementation after board approval. This has sometimes been as a result of procurement processes which, are challenged through the procurement dispute tribunal, andwhich can sometimes delay the process by as much as a year or more. Projects like the construction of the Dongo Kundu Bypass, dredging the channel to allow the port to handle new generation larger ships, construction of a second container terminal and many others that have been on the drawing board for several years.

This process of enhancing private sector participation has been on-going for a number of years but is generally slow due to the opposition from self-interested groups.

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6.4.5 Proposed Lamu PortThe proposed second national port at Lamu provides an example of how long it can take to start implementation of a project and, the adverse effects of bureaucratic delays due to differences within different arms of the government and external interference in the implementation of projects in the country.Lamu Port was identified as the most suitable location for Kenya’s second international port in 1975 when a study on the subject was completed; . But no serious efforts were made to start preparations for implementation of the project. It was in 2005, following the conclusion of the negotiations on the Comprehensive Peace Agreement (CPA) for Southern Sudan which was hosted by Kenya, hosted, that the government revived the idea of establishing the Lamu Port to open up a new transport corridor linking Kenyan Coastal ports with Southern Sudan and Ethiopia. Kenya’s Ministry of Transport working closely with the Kenya Southern Sudan Liaison Office (KESLO), developed a new concept paper of the new corridor and attempted to market to various donors to undertake the various components in terms of concessions for the port, railway line, highway and pipeline to Link Lamu and Southern Sudan. Hardly any serious investor showed interest on the proposed projects until a Kuwait investor indicated his interest on undertaking all the components on a 30-year build-operate and transfer (BOT) arrangement through a special purpose vehicle company.

The negotiated draft agreement between the Ministry of Transport and the Kuwait Investment Company in 2006 was not approved by the government largely because the Ministry of Transport and Ministry of Finance differed on key aspects of the project. aAt the same time when some of the country’s development partners, notably the International Finance Corporation (IFC) - which had been approached to provide professional advice on the project - proposed major changes in the project which the Ministry of Transport thought would killadversely affect the realization of the project. The proposal by IFC and the Ministry of Finance was that instead of undertaking the project under one umbrella company as proposed by the Kuwait Investment Company, the components should be separated and advertised separately. It was the view of the Ministry of Transport that this was unlikely to succeed because the various components may not be economically feasible on their own, and that the offer by the Kuwait company was probably the best under the circumstances. These differences between the two Ministries and the attitude taken by IFC led to a stalemate which stifled progress on the Lamu port project and associated infrastructural facilities.

Apart from the differences between the two Ministries and the negative stand taken by IFC, there were other political undertones; with some of the politicians against the project arguing that the country should not allow a foreign private sector investor to control such important infrastructural facilities and that the proposed concession could lead to unfair exploitation of the country’s resources.

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Lack of a clear policy framework for concessioning in the country also adversely affected the project. Many Kenyan politicians and the general public were not adequately familiar onto how concessions are generally conducted in various parts of the world, making them rather suspicious of the proposed concession.

It is clear that for Kenya to reduce its dependence on limited government revenue for modernizing and expanding her infrastructural facilities in transport and other sectors, there is need to develop a clear national policy framework on involvement of private sector in infrastructure development through various concessioning arrangements and increase general awareness of benefits that can be derived from such arrangements. Such awareness is needed by both the general public, political leaders and other stakeholders.

In Kenya, like many other developing countries, imperfections and distortions in political markets have made it difficult to create positive pressure for results. The major aspects of political market imperfections include lack of/ or inadequate voter information, social polarization and weak political credibility with respect to the country’s main political parties. As Philip Keefer and Stuti Khemani point out, these imperfections have tended to “undermine the role that elections can play in guaranteeing accountable and responsive governments” (Keefer and Khemani, p.7). The authors point out that information constraints make it difficult for the poor to hold the politicians accountable and by encouraging politicians to focus on the priorities of broad national development.

6.4.6 Demonstration of Benefits for PrivatizationThere is growing evidence of the huge benefits that the Port of Mombasa would enjoy if bold reforms were implemented in the form of key facilities and operations at the port.It is generally acknowledged that the establishment of the Grain Bulk Handling Limited (GBHL) was an important milestone in increasing the capacity of the port to handle bulk grain imports into Kenya and the region. The efficiency of the firm in handling grain imports is rated highly in Africa. Without GBHL, the congestion at the port could have reached unmanageable levels. This is today recognized and appreciated by the port management. The facility is also an important source of employment in the coastal region showing that the fears of loss of employment as a result of privatization are often exaggerated. It is also interesting to note that the facility is largely an initiative from Coast based investors, allaying the politically held views that privatization would mainly benefit outsiders.

Another success story in this regard is the decision by KPA to appoint private sector owners/operators of Container Freight Stations to handle containerized cargo. The policy allows CFSs to handle cargo right from the ships to their customers. Some of the CFSs are well equipped to handle various types of cargo. The net impact of this has been the reductionto reduce of constraints in the port’s cargo handling equipment, lowering of cargo dwell time at the port, reducreduction of ing congestion and improvement of the ing container terminal yard planning which

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hasto facilitated convenience and efficiency in the management of containerized cargo.

The ability of KPA to finance most of projects undertaken at the port as well as the impressive re-equipment programme undertaken principally through internally generated revenues, in the post-Moi period is a vivid indicator of the economic potential that can accrue from improved governance structures, tighter procurement procedures and professionalization and de-politicization of senior staff appointments and increased transparency and accountability in the management of public institutions in the country.

It is however, important to recognize that the above benefits constitute a relatively small proportion of the potential benefits from more widespread reforms, if effectively implemented. For instance, more effective participation of the private sector in investment and management of the port operations could have most likely injected much larger amounts of resources at the port and the economy at large, leading to much faster modernization and expansion of port facilities.

It is important to note that privatization of other parastatals in Kenya in the last two decades or so have yielded dramatic benefits not only to the corporations, but to the whole economy. Prominent examples include privatization of Kenya Airways which has made it one of the best performing airlines in Africa in the last ten years. The airline is today one of the leading players in the Kenyan economy with an annual turnover of about Kshs60 billion, and an enterprise with huge direct and indirect linkages with tourism, agriculture, trade and many other sectors of the economy both in Kenya and the region as a whole.

Another example demonstrating dramatic effects of well implemented reforms is illustrated by the benefits that have accompanied restructuring and reforms undertaken in Kenya’s Posts and Telecommunication sector. These reforms have transformed the debt-ridden Kenya Posts and Telecommunications Corporation (KPTC) into dynamic privatized corporations such as Safaricom, Zain and others that have become major and better employers and leading tax payers in the country.There is thus growing evidence of major positive benefits from well executed reforms, indicating that the Port of Mombasa would benefit from such reforms if political resistance is overcome. 6.5 Factors Shaping Coastal Politics and Social-Economic and

Political PerspectivesSome of the political perspectives today influence the way the Coastal political and business elites view the role of Mombasa Port and recommended reforms can be traced back to the pre-independence days especially the period just before independence in 1963. During the Lancaster House Constitutional talks which led to Kenya’s independence, the Coastal region, led by one of its most powerful sons, Hon Ronald Ngala, favored a federal system of government, popularly known as

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“Majimbo” in the Kiswahili language. Ngala and most of other Coastal politicians saw the Majimbo system as the best way of protecting economic, social and political interests of the Coastal region. With a smaller population, fewer well educated people, and generally low level of literacy the Coastal politicians regarded the region as highly vulnerable to domination by the more populous peoples from upcountry, especially the large tribes of Kikuyu, Luo and to some extent Luhya.

The Kenya African Democratic Union (KADU) political party was created to spearhead the interests of the minority tribes. The party, the main competitor to the Kenya African National Union (KANU) was led by Daniel Arap Moi, Ronald Ngala and Masinde Muliro from Western Kenya and was generally supported by the white settlers who saw it as a way of reducing the power of KANU and the large tribes. The white settlers as a minority group in the country saw KADU as a political vehicle that could also serve their political and economic interests.

The push for a Majimbo system of government was one of the party’s main distinguishing factors and also one of the issues in which the party differed strongly from KANU which, was in favor of a unitary system of government. During the Lancaster House Constitutional negotiations held in London, and political rallies in the country, the need to protect or ring-fence economic interests of the Coastal people and other minority groups was highly emphasized. It was argued that unless a federal or ‘Majimbo’ government was created, the resources would be grabbed or plundered for the benefits of the large tribes. Politicians from the minority groups argued that indeed the main reason why the large tribes were against the Majimbo system was their desire to exploit economic resources of minority groups.

With KANU emerging the victor in the general elections leading to independence, the Majimbo debate weakened after the country adopted a unitary system of government, with strong presidential powers. The idea was further pushed to the background when KADU merged with the ruling party KANU as the key KADU leaders joined KANU and the government at high positions in the cabinet and the ruling party. While these events reduced the debate on Majimbo system of government, strong fears of domination of minority groups by large tribes economically, politically and socially remained quite strong among some Kenyan communities; especially within the Coastal region and parts of Rift Valley.

After 46 years of independence, the Coastal region is still strongly associated with the federal Majimbo system of government. whichThis featured strongly during the 2007 general elections with ODM embracing it and PNU against the concept. The political perception of the Coastal leaders that the region is weak and needs special attention against the upcountry tribes continues to influence socio-economic and political view and positions taken, largely leaving a regional protectionism stance.

A large proportion of the Coastal politicians in the post-independence period have remained vocal or silent supporters of the Majimbo system and have frequently spoken out against exploitation of resources from the region by outsiders either

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from within or outside the country. Examples include complaints against the ownership of tourist hotels and other facilities at the Coast; with many arguing that the region has not significantly benefitted from the thriving tourist industry in the region.

Another recent example has been the attempt to mine the titanium resources at Kwale. More than 10 years after the discovery of large titanium deposits in Kwale which could significantly influence the economic fortunes of both Kwale and the Coastal region in general, efforts by a Canadian firm, Tiomin International Company, to establish an industry to extract the mineral have not taken off due to lack of political support from local leaders, as well as unrealistic demands for land compensation from land owners who were supposed to vacate the land for mining and processing activities to commence. Thus, an industry which would have had major positive impacts on the region has not taken off because of what one wcould call traditional hostility towards investors from outside the region, depriving the region anticipated employment and income opportunities from the mineral deposits.

The above discussion provides a background through which reforms at the port have been opposed or supported by both Coastal politicians and business elites.

6.5.1 Sources of Influence of the Coastal Political EliteThere has been considerable debate on how a small group of political and business class has been able to significantly block reforms of a key national and regional infrastructural facility like the Mombasa Port. Discussions with well informed Kenyans in and out of Government and academic researchers indicate that the power of this group is derived from the nature of Kenyan politics in most of the post-independence period. The Coastal politicians have used the situation often to pursue narrow or parochial regional interests whose economic rationale cannot always be justified at the national and regional levels.

During Kenyatta’s and Moi’s regimes the leadership continued to be sensitive to the region’s continuing fears of marginalization, by not ignoring their economic and political views as much as possible in order to facilitate harmony and unity in the country.

During the post-Moi era when opposition politics dominated, the Coast Province acquired additional significance for the main political parties. First, for a leader of a political party to win the top seat in the country he or she must garner at least 25 percent of the cast votes in five out of the country’s eight provinces. In the last three general elections, the Coast Province was seen as a key area to win votes. In the nature of Kenyan politics, it forces the leaders of political parties to lean backwards to woo and appeaseplease key regional political and business leaders for their support. In what some leaders call ‘horse-trading’, leaders of political parties have made all kinds of promises, both at the personal and group levels, ranging from distribution of cabinet posts, public appointments and regional issues. Above all,

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national leaders have to avoid taking decisions which, may create a fall-out between them and ‘tribal or regional’ spokesmen.

The needdesire to appeaseplease regional leaders has continued in the current Grand Coalition government as the main political parties seek their support in a hang-parliament, where no party has a comfortable majority for crucial debates in a highly sensitive period in the country’s political history. This has been aggravated by the expectations of the 2012 gGeneral elections, which means that often neither of the principal political parties are willing to implement decisions which are unpopular with certain regions for fear of alienating them politically. The on-going Mau Complex saga is a case in point.

The political situation in the country has thus promoted considerable impunity from some of the political leaders in both the Coastal region and other parts of the country. This, to a large extent, explains the source of powers that certain political leaders hold on certain national issues;, irrespective of whether the positions taken are good or bad for the country as a whole.

6.5.2 Business Interest Groups, Political Patronage and Pressure, Special Business Elites and Political Patronage

In addition to the fears of political domination and marginalization of the Coastal region by outsiders, investments in port facilities have encountered considerable constraints emanating from business elites whose interests are threatened by new investors or entrants whether from the region or outside the region; with both the existing and new investors seeking support from the region and outside the region. The examples of the Grain Bulk Handling Ltd and the proposed second Port at Lamu are good current examples. The prevalence and impact of governance and political economy issues in the operations at the Mombasa Port operations are illustrated by the intensity and frequency of confrontations between Parliamentary Committees, the Port Authority and its management and the executive arm of the government through the Ministry of Transport and more recently the Prime Minister’s Office. For instance, there is an on-going tussle between the Prime Minister’s office and the Parliamentary Committee on Agriculture regarding the proposed establishment of a second grain handling facility at either the port of Mombasa or the proposed Lamu port.

The issue of whether another grain bulk handling facility should be established and allowed to compete with GBHL, which had enjoyed eight years exclusive rights to handle bulk grain imports, has generated a lot of accusations and counter accusations between GBHL management and a group of investors fighting to be permitted to establish a second bulk grain handling facility at the Port of Mombasa. This has spilled into the political arena as both sides of the debate seek support from key political figures. Following the expiry of the exclusive rights granted to GBHL in February 2008, a group of grain handlers who had all along been pushing for the cancellation of the monopoly enjoyed by GBHL applied to the Kenya Ports

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Authority to be permitted to establish a second bulk grain handling facility at the Port of Mombasa. KPA Board of Directors was reluctant to grant this permission arguing that there was no need for a second facility since GBHL hadwas with excess capacity.

Following complaints by the new group of local investors that there were underhand maneuvers to protect GBHL’s exclusive rights which had expired, the Permanent Secretary, Ministry of Transport intervened and published a public advertisement for interested investors in a second grain handling facility to express their interests. On the last day of submitting expressions of interest, the Prime Minister’s Office ordered cancellation of the advertisement. These investmentsactions intensified accusations and counter accusations with GBHL and the new group of investors each alleging that their opponents were using political patronage to pursue their interests. As a result of these complaints, the Parliamentary Committee on Agriculture decided to investigate the matter leading to a confrontation between the committee and the Prime Minister’s Office which accused the committee of interference inwith the executive decision-making process.

The on-going confrontation between the Prime Minister’s Office, the Parliamentary Committee, and private sector millers is a reflection of the strength of political economy conflicts revolving around business interests related to the port operations. It has been common for vested business interest groups to work with selected Members of Parliament or Parliamentary Committees to pursue their agenda.

The Office of the Prime Minister has accused the Parliamentary Committee of launching investigations on the issues surrounding the establishment of the country’s second grain handling facility without taking into account the fact that the Prime Minister’s Office had already ordered the Inspectorate of State Corporations, under his office, to carry out an assessment of the Grain Bulk Handling Facility and that the Inspectorate had already prepared a report on the issue. The Parliamentary Committee was thus accused of ignoring the report as well as an earlier Cabinet decision on the GBHL and the decision taken to locate a second grain bulk handling facility in the proposed second national port at Lamu. The decision to locate a new grain handling facility in the proposed second port of Lamu was seen as an indirect way of extending the monopoly powers of GBHL indefinitely. The Lamu Port is in its early stages of conception and planning and could take more than a decade before it is operational.

The committee was also accused of conducting investigations into the GBHL as a result of pressure from private sector “traders with vested interests” and that the investigations were carried out “with ulterior motives to intimidate public officials” (the Sunday Standard, Nov. 29, 2009, p.11). The Prime Minister and a number of ministers have further criticized the Parliamentary Committees for interfering with

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the powers of the Executive arm of government in its decision making process. (The Sunday Standard, Nov. 29, 2009, p.11).

On the issue of collusion between some Members of Parliament and businessmen, the Prime Minister complained that some of the Members of Parliament had been hired by various parties with vested interests to ask various questions in Parliament, pointing out that some “people go to committees to pursue vendettas of failed contractors” (ibid, p.11).

The tendency for vested interests to work closely with political leaders is a reflection of fairly common behavior described by Philip Keefer and Stuti Khemani (World Bank, 2003), that in societies where there is information distortion, there is a tendency to form special interest groups to “purchase narrowly targeted policies by providing campaign funds” (Keefer et al, p.10). A number of stakeholders interviewed for this study said that it was common in Kenya for special interest groups to acquire political support from influential politicians through favors such as providing campaign funds in exchange for being able to influence certain policies, programmes or interventions in their favor, often blocking out or frustrating projects, programmes and reforms that would have benefitted the larger society. As Keefer and Khemani point out in their study, in situations with low levels of literacy and poor information flow to the public, space is created “for organized and informed special interests to purchase narrowly targeted policies at the expense of broad services” (Keefer and Khemani, p.8). Provision of jobs for unemployed youth has been one of the activities politicians in Kenya seek to get credit in exchange for political support.

7.0 Impact of the New Constitution on the Mandates of Existing Transport Institutions

The three authorities have today been in effective operation for less than two financial years. While their establishment has been generally welcome as an effort to improve the efficiency in the management of the road sub-sector especially in terms of separating the policy-formulation functions of the ministry of Roads from the operational functions of the three Road Authorities, the devolution exercise enshrined in the new constitution has created both operational and legal grey areas regarding the mandate of development and maintenance of road infrastructure in the country.

While the mandate of the Kenya National Highways Authority (KNHA) seems straight forward regarding its responsibility of development and maintenance of all the national highways, the mandates of the Kenya Urban Roads Authority (KURA) as well as that of Kenya Rural Roads Authority (KRRA) are less clear in the context of the newly established 47 counties which are charged with responsibilities of managing devolved resources for infrastructure development and maintenance and other sectors of the economy. The exact roles of the counties have not been spelt

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out. At the moment work is going through a Task Force established to spell out details of the country’s devolved system to help formulation of appropriate legislation for the devolved units. The Task Force on Devolved Government submitted its Interim Report, “A Report on the Implementation of Devolved Government in Kenya” on 20th April 2011. This report will form the basis for developing a detailed legislative framework that will clearly delineate the sharing of various functions between the two levels of government created by the constitution i.e the national government and the county governments.Distribution of various functions between the national and county governments is spelt out in Article 186 and the Fourth schedule of the new constitution. The article points out that “except as otherwise provided for by this constitution, the functions and powers of the national and county governments respectively, are set out in the Fourth Schedule”. However, despite this, a closer look at the Fourth Schedule shows areas of possible overlap and conflict between the national and county powers and functions relating to infrastructure and related activities. According to the Fourth Schedule of the Constitution, functions and powers of the County with regard to County transport are:

County roads Street lighting Traffic and parking Public transport and Ferries and harbours, excluding the regulation of international and

national shipping matters related thereto.

With regard to functions and powers of the national government on transport and communications, the following are some of the listed powers and functions in the Fourth Schedule:

Road traffic The construction and operation of national trunk roads Standards for the construction and maintenance of other roads Railways Pipelines Marine navigation Civil aviation Space travel Postal services Telecommunications Radio and television National public works Public investments

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Areas where overlaps and conflicts between exercising of authority and powers between the national and county governments include the following unless the legislation being developed is clearly spelt out:

National Government County Government ‘Road traffic’ ‘Traffic and Parking’ Kenya Urban Roads Authority ‘Country roads’ Marine navigation Ferries and harbours, excluding

regulation of international shipping and matters relate thereof.

Public investments Ferries and harbours Public transport Street lighting

Standards for the construction and maintenance of other roads

County Roads

Thus,i) There could be confusion in the functions of KURA and various

municipalities/town within various counties.

ii) There could also be misunderstanding regarding ‘road traffic’ mandates under the national government and ‘traffic and parking’ under the county government.

iii) There has been considerable concern regarding the function of marine navigation under the national government functions and that of ferries and harbours’ under the county government. For instance ferries and harbours are largely sustained through public investment by the national government, yet they are listed as part of the functions of the county governments. It is therefore not clear whether harbours and ferries largely funded by the national government as public investments should be functions of county government as listed in the constitution’s Fourth Schedule.

iv) It will be important to clarify the role of KURA and KRAA in view of the fact that county roads are under county governments.

From interviews with senior government officials, there was a school of thought that felt KURA and KRRA could provide advisory services to the county governments in the areas of developing standards and supervising road construction and maintenance in rural and urban areas. It was also argued by some of the officials interviewed that if a port or ferry activity or facility has been developed through national public investments, its functions should come under national governments.

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7.1 Capacity Limitations in Devolved UnitsWhile a devolved government system is one of the highly popular provisions of the new constitution, it is widely recognized that the capacity of the counties is significantly limited to efficiently utilize resources allocated to them from the centre as well as raise additional resources within the county and effectively managed key institutions under their mandates.

This limited capacity in personnel could also become a fertile ground for bad governance in the management of county affairs for the majority of 47 counties. The capacity challenge that will face the counties in managing their affairs becomes clear when the capacity within the current central government is taken as an example. The results of a recent national audit of public service carried out by the Ministry of Public service and released to the public on 29th June 2011, highlight the serious Capacity limitations of the country’s public service even before the devolution takes place. The survey shows that out of a total of 500,000 less than 20 have ph.Ds, only 50,000 have university degrees; 170,000 of the teachers are high school graduates, 7,000 of the teachers have diploma certificates. There was a largenumber of public servants without any certificate.

Decentralization will undoubtedly aggravate the shortage of qualified, specialized and experienced staff in virtually all the counties. Apart from the shortage of some specialized skills needed in various counties, there is the additional problem of raising adequate financial resources to pay for such skills when available. A related constraint could arise regarding ethnicity of people to be employed if county leaders push for employment of people from their counties.

Thus, the capacity of counties to manage large infrastructural projects will be strongly tested. This partly explains the proposal being forwarded that one of the functions of KURA and KRRA could also be to advise counties on road infrastructure issues.

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78.0 Concluding RemarksThe last decade of Moi’s regime witnessed a major deterioration in all aspects of the country’s transport infrastructure, as seen in the poor state of the road network, the Port of Mombasa, declining rail haulage capacity and poorly maintained airports and airstrips. This was the result of a wide range of factors that adversely affected the transport sector in particular and the Kenya economy at large. They included amongst others economic stagnation, with GDP growth rates falling below 1 percent. By the end of 2002, there was a major decline in the flow of external resources froorm development partners and foreign investors due to the unfavorable political and economic environment and failure to control corruption in the management of public enterprises. These and other challenges contributed to massive under-investment in either maintenance of existing or expansion of the country’s transport infrastructure facilities.

Recognizing the poor state of transport infrastructure facilities as a major bottleneck in the country’s Economic Recovery Strategy for the period (2003-2007), the then new NARC government gave huge priority to the transport sub-sector in terms of budgetary allocations and reforms. The reforms included changes in board and management staff, greater participation of the private sector in the financing and management of transport infrastructure, reforms in financial and procurement systems to strengthen governance structures, introduction of the performance contracts in all public institutions, restructuring of transport institutions and creation and strengthening of new institutions and systems aimed at enhancing financial management and efficient delivery capacities in the road, port and other transport sub-sectors.

These reforms have had significant positive impact in the transport sector as well as the whole economy in the last six years, as seen in the growth rates of the total transport output; major recovery of the national economy with gross domestic product growth rates rising from 0.6 percent in 2002 to 7.1 percent in 2007, before declining to 1.7 percent following the post-election violence experienced in 2008; rising revenue and profits of key transport institutions such as the Kenya Ports Authority, Kenya Airports Authority, the Kenya Civil Aviation Authority, Kenya Airways etc.

It is however, important to note that while significant benefits have been achieved through the reforms implemented in the post Moi period , the country was neither able to implement the reforms fully nor was it able to utilize the full potential of the reforms implemented. This was largely due to continued challenges arising from poor governance and an unfavorable political environment brought about by ethnically charged political elite and unstable political parties.

Political disagreements between the two main factions of the NARC government created deep divisions, mistrust and tensions which led to the break-up of the loose coalition especially after the 2005 referendum on the draft constitution. This, not only adversely affected the ability of the government to fully implement reforms on

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transport and other economic sectors , it also created an unstable economic environment for investments and planted seeds of the disputed elections of 2007 and the subsequent post-election violence witnessed in 2008 which cancelled a large proportion of the economic gains made under the ERS programme.

While the Grand coalition government between ODM and PNU helped to stop the violence, it has been riddled with mistrust, rivalry and , lack of cohesion and a shared vision in the management of national affairs.

The structure of the cabinet appointed from the two major political parties forming the coalition; with each of the two principals holding powers over those appointed from their parties, has adversely affected the ability to instill discipline in the Cabinet because of the restrictions imposed on the president by the National Accord with regard to giving and reshuffling cabinet ministers. These restrictions have affected the extent to which governance issues can be handled within particular ministries. A review of the operations of the Kenya cabinet in the last two years reveals failure to observe common rules of collective responsibility, pursuit of individual or partisan party interests in the management of public institutions and inability or unwillingness of the two principals to take necessary actions, mainly as a result of the restrictions imposed by the National Accord as well as fear of losing support from their political parties and supporters. The situation has been complicated by the intense political strategizing for the 2012 general elections.

These trends impose considerable impediments toin the ability of the government in taking measures that are necessary to promote good governance structures and practices. There are growing concerns that appointments and retention in certain key ministries may not always be determined by the ability, performance and track record of the appointees, but by their political clout and, ability to negotiate for specific dockets as compensation for their political support. The specific dockets pursued may be those that may promote their political careers.

Thus, the country’s political environment continues to be a key determinant of the extent to which economic reforms can be instituted and implemented. The ability to de-politicize appointments of key personnel to manage public institutions will be an important step towards strengthening good governance and better performance and more efficient delivery of services.

8 7.1 Key observations

This study of governance and political economy of the Mombasa Port brings out a number of interesting observations:’

1. Implementation of management reforms especially in form of merit appointments of professional can lead to relatively quick turn-around in the performance of state corporations.

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2. Improved operational and financial performance of the port has enabled the port to finance its main modernization and expansion programmes, either directly from its revenues or through credit facilitated and serviced through internally generated revenues.

3. Narrow regional, economic and political self interests can hold central government initiated reforms at ransom. The ruling party’s hold on power depends on support from regional political and business elites. Privatization of key public facilities through various forms of private-public partnership arrangements and other forms of private sector participation is an important way of reducing political interference in the management of such facilities.

Putting management of such facilities like international ports under political or business elites with personal, political or business interests has a high probability of undermining performance due to conflict of interest.

Impact of the New Constitution on the Mandates of Existing Transport Institutions The three authorities have today been in effective operation for less than two financial years. While their establishment has been generally welcome as an effort to improve the efficiency in the management of the road sub-sector especially in terms of separating the policy-formulation functions of the ministry of Roads from the operational functions of the three Road Authorities, the devolution exercise enshrined in the new constitution has created both operational and legal grey areas regarding the mandate of development and maintenance of road infrastructure in the country.

While the mandate of the Kenya National Highways Authority (KNHA) seems straight forward regarding its responsibility of development and maintenance of all the national highways, the mandates of the Kenya Urban Roads Authority (KURA) as well as that of Kenya Rural Roads Authority (KRRA) are less clear in the context of the newly established 47 counties which are charged with responsibilities of managing devolved resources for infrastructure development and maintenance and other sectors of the economy. The exact roles of the counties have not been spelt out. At the moment work is going through a Task Force established to spell out details of the country’s devolved system to help formulation of appropriate legislation for the devolved units. The Task Force on Devolved Government submitted its Interim Report, “A Report on the Implementation of Devolved Government in Kenya” on 20th April 2011. This report will form the basis for developing a detailed legislative framework that will clearly delineate the sharing of various functions between the two levels of government created by the constitution i.e the national government and the county governments.Distribution of various functions between the national and county governments is spelt out in Article 186 and the Fourth schedule of the new constitution. The article points out that “except as otherwise provided for by this constitution, the functions

84

and powers of the national and county governments respectively, are set out in the Fourth Schedule”. However, despite this, a closer look at the Fourth Schedule shows areas of possible overlap and conflict between the national and county powers and functions relating to infrastructure and related activities. According to the Fourth Schedule of the Constitution, functions and powers of the County with regard to County transport are:

County roads Street lighting Traffic and parking Public transport and Ferries and harbours, excluding the regulation of international and

national shipping matters related thereto.

With regard to functions and powers of the national government on transport and communications, the following are some of the listed powers and functions in the Fourth Schedule:

Road traffic The construction and operation of national trunk roads Standards for the construction and maintenance of other roads Railways Pipelines Marine navigation Civil aviation Space travel Postal services Telecommunications Radio and television National public works Public investments

Areas where overlaps and conflicts between exercising of authority and powers between the national and county governments include the following unless the legislation being developed is clearly spelt out:

National Government County Government ‘Road traffic’ ‘Traffic and Parking’ Kenya Urban Roads Authority ‘Country roads’ Marine navigation Ferries and harbours, excluding

regulation of international shipping and matters relate thereof.

Public investments Ferries and harbours Public transport Street lighting

85

Standards for the construction and maintenance of other roads

County Roads

Thus,[i)] There could be confusion in the functions of KURA and various

municipalities/town within various counties.

[ii)] There could also be misunderstanding regarding ‘road traffic’ mandates under the national government and ‘traffic and parking’ under the county government.

[iii)] There has been considerable concern regarding the function of marine navigation under the national government functions and that of ferries and harbours’ under the county government. For instance ferries and harbours are largely sustained through public investment by the national government, yet they are listed as part of the functions of the county governments. It is therefore not clear whether harbours and ferries largely funded by the national government as public investments should be functions of county government as listed in the constitution’s Fourth Schedule.

[iv)] It will be important to clarify the role of KURA and KRAA in view of the fact that county roads are under county governments.

From interviews with senior government officials, there was a school of thought that felt KURA and KRRA could provide advisory services to the county governments in the areas of developing standards and supervising road construction and maintenance in rural and urban areas. It was also argued by some of the officials interviewed that if a port or ferry activity or facility has been developed through national public investments, its functions should come under national governments.

Capacity Limitations in Devolved UnitsWhile a devolved government system is one of the highly popular provisions of the new constitution, it is widely recognized that the capacity of the counties is significantly limited to efficiently utilize resources allocated to them from the centre as well as raise additional resources within the county and effectively managed key institutions under their mandates.

This limited capacity in personnel could also become a fertile ground for bad governance in the management of county affairs for the majority of 47 counties. The capacity challenge that will face the counties in managing their affairs becomes clear when the capacity within the current central government is taken as an example. The results of a recent national audit of public service carried out by the Ministry of Public service and released to the public on 29th June 2011, highlight the serious Capacity limitations of the country’s public service even before the devolution takes

86

place. The survey shows that out of a total of 500,000 less than 20 have ph.Ds, only 50,000 have university degrees; 170,000 of the teachers are high school graduates, 7,000 of the teachers have diploma certificates. There was a largenumber of public servants without any certificate.

Decentralization will undoubtedly aggravate the shortage of qualified, specialized and experienced staff in virtually all the counties. Apart from the shortage of some specialized skills needed in various counties, there is the additional problem of raising adequate financial resources to pay for such skills when available. A related constraint could arise regarding ethnicity of people to be employed if county leaders push for employment of people from their counties.

Thus, the capacity of counties to manage large infrastructural projects will be strongly tested. This partly explains the proposal being forwarded that one of the functions of KURA and KRRA could also be to advise counties on road infrastructure issues.

78.2 RecommendationsOverall, the context, power, institutions, actors and processes captured in this diagnostic represent opportunities to implement reforms in the infrastructure sector. However, as the analysis shows the Bank’s strategic and operational work needs to take explicit account the political economy context of reforms. Accordingly, the following options should be considered:

78.2.1 Option 1: Stay the courseThis option means that the Bank, taking into account the political economy dynamics discussed in this and other reviews, continues with its support for institutional and governance reforms in infra the structure, as well as in other related sectors, within the framework approved by the Board of Governors and currently agreed with the Government of Kenya. This would entail, for example support for Vision 2030 and the Integrated National Transport Policy. For example, Vision 2030 is the current policy framework pursued by the Kenyan government to guide the country’s socio-economic development. This is important from an ownership perspective in the sense that it implies the existence of political will to pursue the Vision, and an undertaking that public resources will be made available to support Vision 2030 projects and programs. This, in our view is the first best option and offers Kenya a realistic chance of achieving its development objectives.

78.2.2 Option 2: Cautious or ‘wait and see’Under this option the World Bank would adopt a ‘minimalist’ engagement in Kenya operating only in selected sectors whilst waiting for the outcome of on-going constitutional and other governance reforms. The rationale for this approach is that a carrot-and-stick approach would exert pressure on the government to undertake key reforms or risk losing the Bank’s support altogether. But this could send the wrong signal and elicit a negative response especially if the carrot is perceived as shorter than the stick. Considering that the Bank, in addition to financing also plays

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a moderating and advisory role in the development process, adopting a wait-and-see approach at this time would in our view be counterproductive in Kenya’s reform process. Hence, we do not recommend this strategy.

78.2.3 Option 3: DisengagementThe third alternative is for the Bank to disengage from further supporting infrastructure reforms in Kenya. This, in our view is a NO option for the simple reason that, while Kenya has many positive aspects such as a sophisticated and enterprising private sector, an educated labor force an emerging democratic culture, etc., the country is not yet at a stage where the reforms are self sustaining. Moreover, experience the world over shows that once you disengage, re-engaging tends to be a costly exercise. Hence, for this among other reasons (e.g. geopolitical and strategic) there is need for the World Bank Group and other partners to remain engaged.

8 7.2.4 Specific Recommendations

Recommendation 1: Actively champion the core values underlying Kenya’s development blueprints. Vision 2030’s aim of thrusting Kenya to a middle income economy is based on three key ‘pillars’ – economic, social, and political – anchored on the following core values and principles: (1) macroeconomic stability; (2) continuity in governance reforms; (3) enhanced equity and wealth creation opportunities for the poor; (4) science, technology and innovation; (4) land reform; (5) human resources development; and (6) security and public sector reforms. This clear statement of objectives is all the more reason why the Bank should support the Vision 2030 by promoting such value through media campaign, public debates, etc., to inform the public, raise the level of awareness, help fight impunity, and bring the political class to account.

Recommendation 2: Assist government to develop a clear PPP framework and promote its adoption in order to help the country benefit from private resources for infrastructure development similar to what counties like India, South Korea, Spain and Portugal have successfully done. The 2030 Vision aspires for a country firmly interconnected through a network of roads, railways, ports, airports, waterways, and telecommunications, and a country where water and modern sanitation facilities are available to all. To ensure that the main projects under the economic pillar are implemented, investment in the nation's infrastructure will be given the highest priority.

Recommendation 3: The World Bank should use its wide knowledge and global experience to help widen infrastructure financing instruments to complement the recently launched infrastructure bond. The Integrated National Transport Policy approved by Cabinet in 2009 recognizes that an effective and efficient transport system is an important prerequisite in facilitating national and regional integration, promoting trade, economic growth, poverty reduction and wealth creation. The policy outlines that the transport sector in Kenya consists of the following modes, namely: road transport; rail transport; maritime and inland waterways transport;

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pipeline transport; air transport; and non-motorized and intermediate means of transport.

Recommendation 4: Continue support for on-going efforts to make the concessioned Kenya-Uganda Railway work effectively. This includes giving technical support to overhaul the current railway system and replace it with standard gauge modernize system to serve the region. Many examples exist around the world of the inefficiencies and bottlenecks created when road and rail links are not developed at a pace adequate to handle increased port activity especially with regard to bulk cargo.

Recommendation 5: Provide technical and financial support for the strategic planning, implementing and maintenance of a cost-effective transport system. Port reforms, for example should encompass other land transport reforms to ensure complementary development of interconnected links in the transport infrastructure. Further, this planning effort will have to take into account various stakeholders’ interests in the long-term development of the coastal areas within the framework of Vision 2030. This includes working with government, private sector and civil society to push for more governance reforms that help to reduce the risks of narrow and regional political self interest holding the overall national reforms at ransom.

Recommendation 6: The Bank and other development partners continue supporting measures aimed at improving governance in various activities in the roads and ports infrastructure development especially with respect to identification of projects to be funded, procurement, maintenance and supervision of works being implemented. The Integrated National Transport Policy covers issues related to transport infrastructure planning, development and management, legal, institutional and regulatory frameworks, safety and security, funding, gender mainstreaming, utilization of Information and Communication Technologies, and environmental considerations, among others.

Recommendation 7: In the context of transport infrastructure planning, support work on developing better integration between different forms of transport to provide a more efficient transport system, i.e., one that ensures freight can be easily transferred from road to rail to shipping thereby delivering value for money at minimum cost. For people, integrated transport planning enables easier end-to-end journeys and greater choice of modes.

Recommendation 8: In terms of road infrastructure development and management, provide further assistance to support institutional capacity building in terms of (a) planning and implementation of road maintenance, administration and monitoring of the RMLF, targeting road agencies and sub-agencies, (b) maintenance planning and procurement management, (c) traffic management and coordination, and (d) training and staff development.

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Recommendation 9: Work closely with the client government (Ministry of Roads, Kenya Roads Board, and the recently created road authorities) to develop a nationally agreed system of sharing resources that addresses equity and efficiency issues to the satisfaction of all stakeholders. Related to this, facilitate a study of the capacity and efficiency of decentralized entities to handle road maintenance levy and other fiscal resources, and assist the government to fully and urgently operationalize viable road agencies and sub-agencies.

Recommendation 10: Scrutinize allocation of public resources for signs of ethnic and/or regional bias and promote more equitable resource allocation. As a corollary, support capacity building within the public sector, in particular in relation to policy research and budgetary oversight.

Recommendation 11: Assist the government to undertake further management reforms in public sector institutions and provide support to elements of Kenya’s society that are able and willing to sustain pressure on the government for improved performance.

Recommendation 12: Following this update study and Kenya’s new constitution, the following recommendations are made:i) The functions of the county government on road infrastructure facilities are

likely to conflict with those of existing bodies, especially Kenya Urban Roads Authority and the Kenya Rural Roads Authority. It is important for relevant commissions and other stakeholders ensure that grey areas which may cause confusion and conflict are streamlined at this time when detailed legislation of operations and structure of devolved units is under discussion,

ii) In the same spirit, functions and powers allocated, to county governments on ‘ferries and harbours’ and those of national government on ‘marine navigation’ will need urgent clarification to avoid conflict on how to manage key essential ports which serve not only Kenya but the region at large. Ferries and Harbours currently require heavy public investments which may be difficult for a country to undertake.

iii) Other functions relating to transport infrastructure that need to be clearly clarified in the expected detailed legislation include ‘public road transport’ “traffic and parking” as a responsibility of the county governments.

iv) The need for and pace of devolution and restructuring of provincial administration require careful balancing given the limited human and resource capacities of the counties.

v) In view of the positive results found privatization and automation of the weighbridges along Mombasa-Malaba Highway, more resources should be availed to cover most of the weighbridges in the country.

vi) If the rising cost of living continues partly due to sharp increases in petroleum fuels, making road maintenance fuel levy unsustainable, it will be important to think of alternative ways of having a viable road maintenance fund. Increase public awareness of the benefits of port reforms to both

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political leaders, business elites and the general public to reduce resistance to the reforms.

2) Facilitate implementation of the reform programme at the port by ensuring that those in charge are not people with individual or regional narrow self-interests related to the port.

3) Central government should take deliberate measures to de-politicize appointments and management of the port.

4) Invest in modernization and upgrading of facilities at the port, road and rail networks to maximize on synergies for efficient port-road and port-rail linkages.

4) Develop and popularize a clear public-private sector partnership framework that is publicly well understood and owned to quicken the rate of improvement and modernization of various port and road infrastructure to reduce dependence on government and donor resources.

5) Enhance investments in ICT facilities to reduce human contacts and manual operations as a means of reducing rent seeking and raising port efficiency.

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14. Kaufmann, D. and A. Kraay (2002): “Growth without Governance” Economia 3(1) 169–229. Online: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=316861

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16. Keefer, P. (2008): “Political Market Imperfections, Clientelism and the Quality of Democracy” DISC Working Paper Series 2008/3, Center for the Study of Imperfections in Democracy

17. Keefer, P. (nd) “Governance and Economic Growth in China and India”, Chapter 7 in Dancing with Giants: China, India and the Global Economy: 189-217

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18. Keefer, P. and D. Stasavage (2003): “The Limits to Delegation: Veto Players, Central Bank Independence, and the Credibility of Monetary Policy”, American Political Science Review 97(3), August: 407-23

19. Kenya Ports Authority, Performance Review, January-September 2009.20. Kenya, Republic of (2009): Harmonized Draft Constitution of Kenya, Nairobi:

Government Printers21. Kumar, A. (2000): Assessment of Selected Road Funds in Africa: Case Study of

Benin, Ethiopia, Ghana, Kenya and Zambia, Sub-Saharan Africa Transport Program, Africa Region: The World Bank

22. Landell-Mills, P., G. Williams and A. Duncan (2007): “Tackling the Political Barriers to Development: The New Political Economy Perspective”, Policy Practice Brief 1 (January).

23. Leonard, D.K. (1984): ‘Class formation and agricultural development’. In Politics and public policy in Kenya and Tanzania, edited by Joel D. Barkan (Praeger, New York).

24. Levy, B. et al (2007): “Zambia: Governance, Political Economy and Development Strategy”. World Bank Draft.

25. Lipton, M. (1988): Why poor people stay poor (Aldershot, Gower)26. Mani, A. and S. Mukand (2007): “Democracy, visibility and public good

provision”, Journal of Development Economics 83: 506-52927. Mars Group Blog http://www. blog.marsgroupkenya.org/?p=45, accessed on

November 1, 2009.28. Ocean Shipping Consultants Ltd: “Beyond the Bottlenecks: Ports in Sub-Saharan

Africa, Background Paper No. 8, June 2008.29. Opon, C. (2007): “Towards an Integrated Decentralization Policy in Kenya”:

Paper presented at ActionAid International Kenya Consultative Meeting on Decentralization Policy, October.

30. Oucho, J. O. (2002): Undercurrents of Ethnic Conflict in Kenya, African Social Studies Series: Boston.

31. Oyugi, W.O. (1995): ‘Service Provision in Rural Kenya: Who Benefits?’In J. Semboja and Ole Therkildsen (eds.) Service Provision under Stress in East Africa: the State, NGOs and Peoples’ Organization in Kenya, Tanzania and Uganda (Centre for Development Research: Copenhagen), pp. 121-40.

32. Philip Keefer and Stuti Khemani: Democracy Former Public Expenditures and the Poor, Development Research Group, the World Bank, April 2004.

33. Report by Kenya Ports Authority http://www.kpa.co.ke34. Republic of Kenya (2000): Interim Poverty Reduction Strategy Paper 2000–2003

(7 May). Nairobi: Government Printer.35. Republic of Kenya (2009): Economic Survey, Nairobi: Government Printer36. Republic of Kenya (2009): Road Sector Investment Plan 2008-201237. SSATP (2007): Second Development Plan 2001-2011: Fostering Sound Policies

and Strategies for the Provision of Reliable, Safe, Efficient, and Affordable Transport (Strategic Framework Draft), World Bank: Washington, D.C.

38. Sundet, G. Eli Moen and Tiberius Barasa (2009): Political Economy of Kenya, Norad.

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39. Smith, Lawrence (2004): Agriculture in Kenya: Identifying What Shapes the Policy Environment, Oxford: Oxford Policy Management, in European Commission (2008): “Analyzing and Addressing Governance in Sector Operations”, Reference Document No. 4, Tools and Methods Series: European Commission

40. The National Democratic Institute for International Affairs, (2004): “Bolivia’s Political Party System and the Incentives for Pro-Poor Report”, Assessment Report and Program Recommendations (October): NDI

41. The Sunday Standard Nov 29, 2009 p.1142. Transit Transport Coordination Authority of the Northern Corridor (NCCTA),

Development and Implementation of a Transport Observatory on the Northern Corridor: Paper Presented on Transport Policy and Strategic Plan Meeting Held in Mombasa 19-21 Nov 2008

43. Transit Transport Coordination Authority of the Northern Corridor (NCCTA), Northern Corridor: Programmes or Improving Transport Infrastructure and Facilities, Aug 2006

44. Transit Transport Coordination Authority of the Northern Corridor (NCCTA), Investment Opportunities in the Northern Corridor with Emphasis on Transport Infrastructure: A Paper Prepared by TTCA Secretariat for Presentation at the COMESA Business Summit, Kampala 7-8 June 2004

45. Williams G., A. Duncan and P. Landell-Mills (2007): “Making the New Political Economy Perspective more operationally relevant for development agencies”, Policy Practice Brief 2 (January).

46. World Bank (2007a): “Strengthening World Bank Group Engagement on Governance and Anticorruption”, Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries, Washington, D.C.

47. World Bank (2007b): Kenya - Maintaining and Rehabilitating the Road Network for Growth, PREM, May

48. World Bank (2008): The Political Economy of Policy Reforms: Issues and Implications for Policy Dialogue and Development Operations, Social Development Department, World Bank

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51. Wrong, M. (2009): It’s Our Turn to Eat, London: HarperCollins www.worldbank.org/html/extdr/comments/governancefeedback/gacpaper.pdf

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Annex 1 Kenya’s Road NetworkNetwork Responsibility Designation Paved

kmUnpaved km

Total km

Classified A, B and C roads

(Ministry of Roads) Kenya National Highways Authority

9 Provincial Departments and 71 Districts (part only)

A 2,886 869 4,114

B 1,432 1,366 2,695C 2,487 5,180 8,021

Sub-total A B, and C 6,805 7,415 14,830Classified D and E roads

DRCs (planning) and MoR [KURA, KRRA] (execution)

71 DRCs and DREs

D

E

Sub-total D and E 1,918 35,846 37,723Classified ‘Special’ roads

71 DRCs and County Councils, 71 Municipalities and Nairobi City

G, L, R, S, T, W 214 11,090 11,252

Total all classified roads 8,937 54,351 63,805Urban roads Municipalities (for

all adopted streets) MoR/KURA (for classified roads in urban areas) and County Councils for roads in townships

75 Municipalities, Nairobi City, 58 Town Councils and 71 County Councils

Adopted and Unadopted streets

2,490 12,040 14,530

Unclassified rural roads

County Councils and DRCs

71 County Councils and DRCs

Mostly tracks and footpaths (extent largely unknown)

100,000 (est.)

100,000 (est.)

Roads in National Parks and Game Reserves

Kenya Wildlife Services and MoR (for Classified roads in parks)

25 National Parks

Game trails and administrative roads

4,409 4,409

County Councils and MoR (for classified roads in Game Reserves)

34 Game Reserves some run by several County Councils

Game trails and administrative roads

2,736 2,736

Total network in National Parks and Game Reserves 7,145 7,145Forest roads Forest Department Forest Reserves Access, Feeder

and Plantation roads

6,800 6,800

Total Network 11,427 180,336 192,280Total ‘Public’ Road Network 11,427 166,391 178,335Source: Adopted from the KRB (2007) Annual Public Roads ProgramNote: Class A roads (international trunk roads linking centers of international importance and

crossing international boundaries or terminating at international ports); Class B roads (national trunk roads linking nationally important centers); Class C roads (primary roads linking provincially important centers to each other or two higher class roads; Class D roads (secondary roads); Special Purpose roads (Government-, Settlement-, Rural Access-, Sugar, Tea-, and Unspecified-roads); and Unclassified Roads (Park and Reserve roads and Forest roads).

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Annex 2: Risk Mitigation Action Plan in Kenya’s Road SectorRisk Control/Action Actor

Collusion and bid rigging

1. Use post-qualification instead of pre-qualification to avoid advance knowledge of the firms invited to bid.

2. Public dissemination of the overall roads program and business opportunities in the roads sub-sector, reinforce government’s and Banks commitment to fight corruption. This will also include publication of the project’s detailed and updated procurement plan on the website

GoK

1. Engage an independent procurement specialist charged with reviewing bid specifications and bids for Bank-funded contracts, and reporting directly to Ministry of Finance, Ministry of Roads and the Bank.

2. Include the Bank’s audit rights in the work contracts.

3. Ensure works contracts are large enough to attract international and larger domestic firms.

4. Ensure that contracts are not deliberately split to circumvent the Banks prior review threshold or to limit competition.

WB

Fraud and corruption in the road construction industry

1. Establish a transparent, well documented and consistently implemented system for debarment of poor performers and contractors engaged in fraudulent and corrupt practices through National Construction Authority (NCA)

2. Strengthen the Recipient’s capacity to design and supervise the construction of roads, with particular emphasis on quality and contract management.

3. Review on-going or recently completed contract(s) to check for fraud such as imbalanced bid, use of substandard materials, lower quantities used than paid for, and other non-compliance with specifications.

4. Determine through an independent survey why some bidders who buy bid documents chose not to submit bids.

GoK

1. A technical audit to be conducted independently of the implementing agency on

WB

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Risk Control/Action Actorall contracts.

2. Strengthen use of contractual remedies, such as performance bonds, in case of project delays and poor performance

Track overloading – lack of enforcement and corruption

1. Review current efforts to address corruption in control o f axle loads, recommend appropriate measures to mitigate such risks, and examine need for additional weight control infrastructure, preferably automated.

2. Ensure that road designs are commensurate with the prevailing traffic and axle load projections.

3. Institute a fine that is commensurate with damages to the roads plus additional deterrent measures to ensure compliance.

4. Establish quarterly and random independent reviews o f the weigh stations’ activities including fines imposed and collected.

GoK

Delays in Value Added Tax (VAT) refunds, causing inflated prices in road construction

1. Assess the amount o f VAT outstanding for reimbursement to contractors and liaise with Ministry of Finance and Kenya Revenue Authority to put in place a system to minimize delays.

2. Provide guidance notes and instructions to the contractors on VAT procedures and timeline.

GoK

Weak due diligence on bidders. The integrity and past performance of contractors is a key determinant of fraud and corruption risks.

1. Recipient must increase its efforts in conducting due diligence o f bidders, particularly with regard to past performance, financial and technical capacity, equipment holding, and compliance with tax laws and site safety regulations.

2. Undertaking performance reviews to ensure poor performers are identified.

GoK

Absence of robust cost estimates

1. Cost estimates should be developed from first principles and adjusted for prevailing market conditions and, if possible, also comparable to markets in the region (i-e., East Africa).

2. Hire a consultant to develop new, robust cost-estimates and regularly update the cost

GoK

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Risk Control/Action Actormethodology and estimates as necessary to reflect prevailing market conditions.

3. Exercise the audit rights under the contract to review true cost structure of recently completed project.

Weak capacity to detect and deal with corruption

Facilitate training workshops focused on identifying red flags and establishing controls in procurement, financial management, and human resource management particularly in the road sector, including prevention of fraud in works contracts.

WB

Weak complaint handling mechanisms

1. Strengthen systems to handle and effectively respond to complaints in a timely manner.

2. Establish and implement a communications strategy to build awareness of fraud and corruption and provide the means for all parties to register their complaints.

3. Encourage the appropriate authority to institute strong whistleblower protection regulations.

GoK

Weak roads management capacity

Strengthen planning, programming, budgeting, execution, monitoring and evaluation capacity of the road agency.Ensure the key positions for the three roads authorities are selected through a competitive process based on their qualifications against the established Terms of Reference.

GoK

Overall transparency and social monitoring of road construction

1. Take additional practical steps to foster a culture of transparency and probity in the road subsector.

2. Establish a communications strategy through radio programs and talk shows where the issues facing the road sector are discussed and the general public is asked to participate through expressing their views and comments

GoKWBCivil

Society

Source: World Bank 2009

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Annex 3: Excerpts from the Parliamentary Hansard of June 26th 2007

Acknowledging the PAC effort- that of a watchdogThank you, Mr. Temporary Deputy Speaker, Sir, for the opportunity. First of all, I want to thank the Chairman of the Public Accounts Committee (PAC) and his team for doing a very good job. In this Report, Parliament is exercising its function as a watchdog. Outside there, there are a lot of misconceptions about the role of Parliament and a number of people take advantage of this. We find that Members of Parliament are blamed outside there, for responsibilities that are not theirs.

The role of the Executive, the Judiciary and the LegislatureMr. Temporary Deputy Speaker, Sir, for example, we find that when roads are poor, no medicine in hospitals, problems with the buildings in schools and so on, people outside there, blame the respective Member of Parliament. What is our Member of Parliament doing? He has done nothing for the last four years because of our poor roads. People do not appreciate that the Government consists of three arms which are the Executive, the Judiciary and the Legislature. The role of Parliament is so clear and known and it is there also in the Constitution; it is to make laws and to act as a watchdog of public funds. So, if roads are poor, it is the Ministry of Roads and Public Works to take the responsibility. If there is a problem with hospitals and dispensaries, we have got a whole Ministry of Health headed by a Minister, a Permanent Secretary and officers at the provincial, district and even divisional level. It is never the role of a Member of Parliament to see that the medical system is working properly.

Public officers continue to operate with impunityMr. Temporary Deputy Speaker, Sir, these hon. Members of Parliament have done what has been done by this Parliament year in, year out. The PAC of this House has been doing its work very effectively as it should be done. We have reports that have been written exposing misappropriation of public funds and several financial scandals and even going to the extent of recommending that certain individuals be excluded from holding public offices. What has been lacking is the will on the part of the Government to take action as per recommendations of the PAC. This Report is not different from reports which have been produced and discussed in this House in the past and approved. There has been very little implementation and that is the reason why public officers continue to operate with impunity. I am saying this as somebody who has been an insider and who knows exactly what is happening.

Corruption Index: Pending Bills & Illegal allocation of Government propertiesWhen I took over the responsibility of heading the Ministry of Roads and Public Works, I found that the Ministry was very high up in terms of the corruption index in the Government. I appointed two committees. One was to investigate the illegal allocation of Government properties. The second one was to investigate the issue of pending bills in the Ministry.

Government resisted the Kiptoon CommitteeAt that time, the pending bills in the Ministry of Roads and Public Works amounted to Kshs7.5 billion. So, I set up a committee headed by Eng. Andrew Kiptoon, who is a very eminent engineer, and with very prominent personalities in our country. I wanted to put an end to this phenomenon of pending bills. I wanted to get down to the root cause of this. Mr. Temporary Deputy Speaker, Sir, once I did this, I found a lot of resistance within the Government system. I found letters coming from the Treasury trying to restrain my hands by telling me that I should not appoint another committee since there is another committee in the Treasury dealing with pending bills. I told them that the committee in the Treasury was merely dealing with figures. It was a committee of laymen in as far engineering was concerned. The committee that I appointed was a committee that was going to do a technical audit of the projects in respect of which pending bills had been raised.

DFID funded the committeeIt required engineers going down to the field to carry out inspections to satisfy themselves that, in fact, work that had been done was commensurate with the amount of money that was being demanded by the contractors. There was a lot of resistance and I do not want to go into details because I know it will be very embarrassing to the Government. Mr. Temporary Deputy Speaker, Sir, I

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was told that I did not have the powers to appoint committees to carry out investigations. I even went on to quote my letter of appointment which gave me powers to appoint people to advise me. I was told that there were no funds for these kinds of committees. In the end, I ended up requesting assistance from the Department for International Development (DFID). It was the British Government which eventually gave money to fund that committee. That was the only way that committee was able to do its work. In other words, the system within the Government was resisting the work of that committee. However, the work was being carried out. This committee went round the country, carrying out a technical audit.

The report was shockingThe report itself was very shocking. Out of the Kshs7.5 billion which was being demanded, it established that only Kshs250 million was actually due and payable. However, on the contrary, the contractors did owe the Government another Kshs2.5 billion in terms of wrongful payments. Those are the facts; that whereas the contractors were demanding Kshs7.5 billion, it was the Government which was owed Kshs2.5 billion in terms of wrongful payments, and that only Kshs250 was owed genuinely to some of those contractors. That was what led me to term some of them as “cowboy contractors”.

Pending bills are used to fleece this Government.Mr. Temporary Deputy Speaker, Sir, pending bills are used to fleece this Government. There is collusion. It begins first with the officers of the Ministry and then it goes onto the political class, we have the Attorney-General’s office and then the Judiciary. That is how the system works.First, around that time, it became much more lucrative for a contractor not to do the job. These contractors had organized themselves in a kind of a cartel where they were actually awarding the contracts to themselves. When a tender is done, there is collusion. First, they begin with pre-qualification of contractors. Serious competition is eliminated at that level. Once that has been left now, they remain those of that cartel. They agree that there are so many contracts to be awarded. So, they agree that contractor “A” will be the lowest in this contract.The next one, they say it will go to contractor “B”. So, all the other contractors will be put above the other contractors and so on and so forth. It does not matter that they are the lowest in this particular contract because the figures are immaterial. Once they have been awarded the contract, then the real serious business begins. That is when the variation orders come. This is done in a very crafty way. First, the engineers and quantity surveyors leave loopholes within the contract documents, to be used by these contractors to inflate the prices, through variation orders. So, there will be variation orders that will inflate the prices. Once that is done, somewhere along the line, the contractor declares a dispute with the Government. Once this has happened, after a certain period of time, the contractor stops the work, because he is not being paid.

Collusion with the Government officersThere is collusion also with the Government officers. After 90 days he begins now to apply pending bills and interest begins to accumulate. Within that time, he will have removed his equipment from the site and taken them somewhere else, and replaced them with some dilapidated equipment. So, he continues now to charge the Government for idle equipment, yet, the machinery he has put on site is unserviceable. So, the pending bills will continue to pile up and in the meantime, he is again doing some other jobs elsewhere.

More lucrative for a contractor to abandon a project, rather than complete itSo, in the end, you will find that this contractor is demanding three times the original contract sum, for having done only ten or 20 per cent of the work that he was required to do. That is why we had so many projects which were started and unfinished. It was much more lucrative for a contractor to abandon a project, rather than complete it. That is how all these pending bills accumulated.

The Attorney-General now comes into play AG part of the schemeOnce the pending bills have accumulated, the contractor will go to court, despite the fact that the contract provides for arbitration. Once he goes go court, the Attorney-General now comes into play. He is supposed to go and defend the Ministry. The Ministry officials will come up with evidence to show that, in fact, this money is not owed, but the Attorney-General will do two things. One, he will

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either advise the Ministry that this contractor has got a water-tight case against it and, therefore, it should pay him, or he fails to appear in court. If he fails to appear in court, then there will be an ex parte judgment delivered against the Ministry. This is being done deliberately, because the Attorney-General’s Chambers is also part of the scheme.The other one is the courts themselves. If the Attorney-General is not party to the scheme, then it is the courts; the Judges or magistrates. So, you will find a situation where a lawyer from the Attorney-General’s Office goes to court and says:

“Your Honor, this matter is not properly before the court, because the contract provides for arbitration and the contractor has actually jumped arbitration and come straight to the court. Therefore, we urge,

your Honor, to order that this matter be referred back to court.”

The Judge or magistrate will rule that the matter is properly before the court, because he has already been offered his cut in the whole deal. So, you will find that there is collusion here between the Attorney-General and the courts. So, we need to take a holistic approach when we are dealing with this particular issue. We should not just blame the Government officers.

Office of the Attorney-General is one of the most corrupt offices in this countryMr. Temporary Deputy Speaker, Sir, Justice Chunga once called me, when I talked about this collusion, and said: “Bwana Waziri, you are blaming us - not that I am defending corruption in the Judiciary - but I want you to know that in a number of cases, the hands of the Judiciary are tied. This is because most of the times, either the officers from the Office of the Attorney-General have failed to appear in court, in which case, we enter ex parte ruling, or they come and tell us that the matter has been resolved between the parties. So, we just enter a consent judgment.” I asked him to give me a list of the cases. When I looked at the list, it was shocking. There were about ten cases where the Government had been fleeced over Kshs2.5 billion. I brought this particular matter to the attention of the Attorney-General. So, the point I am raising is that we know exactly what is wrong. The Attorney- General - and I wish he was present in this House - knows exactly what is wrong. Instead of him smiling and laughing all the time, he needs to do something about his own officers.

The Office of the Attorney-General is one of the most corrupt offices in this country.

Even after the so-called surgery of the Judiciary, it continues to remain one of the most corrupt judiciaries in Africa.When the members of the Judiciary come here, we all give them respect. Mr. Speaker asks us to stand for them. But even after the so-called surgery of the Judiciary, it continues to remain one of the most corrupt judiciaries in Africa.It continues to remain very corrupt, despite the fact that we have continued to increase the salaries of its members. So, something serious needs to be done about the Judiciary and the Office of the Attorney-General, if we want to seriously deal with this issue of corruption.

Ministry of Finance is corruptMr. Temporary Deputy Speaker, Sir, the Ministry of Finance is another one. In this Report, there is a special case about the Customs offices in Loitokitok. Only two weeks ago, I was in Loitokitok—I was talking about the issue of the contract for the construction of customs houses at Loitokitok which was awarded at a tender sum of Kshs44 million. By the time they were over, the contractor was demanding more than Kshs1.4 billion. I was just saying that this is one of those cases where there is collusion and the tender sum is completely immaterial. Eventually, the intention is to use those projects to fleece the Government. The Government needs to take a thorough audit of particularly two departments:

The Attorney- General to desist from just laughing and smiling all the time, and take serious actionMr. Temporary Deputy Speaker, Sir, unless the Government tells the Attorney-General to desist from just laughing and smiling all the time, and take serious action

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about offending officers in his Ministry, this issue of corruption within the Government is going to continue. Mr. Temporary Deputy Speaker, Sir, His Excellency the Vice- President and Minister for Home Affairs, of course, knows this because he is a neighbor of the Attorney-General and he always smiles with him. But I am saying that— Mr. Temporary Deputy Speaker, Sir, I want to tell His Excellency the Vice-President and Minister for Home Affairs to tell the Attorney-General that, like the Bible says: “There is a time for everything”, there is a time to laugh and a time to weep; there is a time to give birth and a time to bury, and so on. So, the Attorney-General must know that there is a time for him to roll up his sleeves and be serious. I am saying so because the problem is right inside his Ministry. I have evidence of an incident which I drew his attention to, where there is a clear case of collusion.

AG directing ministries to pay for contracts where nothing has been deliveredMr. Temporary Deputy Speaker, Sir, there was a case of somebody who tendered tosupply the Government with stationery at a cost of Kshs35 million. When his company was unable to supply the stationery, the contract was cancelled. The Government then re-advertised the tender and this company participated again in the tendering process. But this time, it lost the tender and it went to court challenging the cancellation of the original tender. The company was awarded some damages to the tune of Kshs75 million. That money was not paid and kept on piling as pending bills and interest. By the time I came into the picture, this company was demanding Kshs250 million. This figure increased to more than Kshs500 million. This is despite the fact that these people were not able to supply anything after they tendered for Kshs35 million and the Government cancelled the contract. They are now demanding more than Kshs500 million. To my surprise, a letter had come from the Attorney-General’s office directing the Ministry to pay them, arguing that the money was due and payable, despite the fact that the company did not supply a single item to the Government! So, I am saying that the problem lies within the Attorney-General’s office.

Those pending bills have been paid quietlyMr. Temporary Deputy Speaker, Sir, in conclusion, I want to say this. I mentioned earlier that I appointed a Committee to investigate pending bills and I laid that Report on the Table of the Cabinet. As a result, a Committee headed by the former Controller and Auditor-General, Mr. D.G. Njoroge, was appointed. That was in 2003. It took my first committee four months to carry out investigations and submit the report. But as I am speaking today, the Committee of Mr. D.G. Njoroge has not finalized its work. The issue of pending bills has not been finalized to date, and I am sure that there is no intention to complete it soon, because all those pending bills have been paid quietly! So, there is collusion with officers in the Treasury to pay some of the pending bills. Even if the respective Ministry stopped payment, the Treasury will proceed to pay.

The biggest failure of this Government is to fight corruption. There is no will to fight corruption!Mr. Temporary Deputy Speaker, Sir, I am saying here that one of the biggest failuresof this Government is to fight corruption. There is no will to fight corruption! Corruption is happening on a daily basis and this Government is losing millions of shillings. It is estimated that out of the total Government revenue every year, 30 per cent goes down the drain; it is fleeced! That is a lot of money, particularly for a Government that came into power on the platform of zero tolerance to corruption! I, myself, became the first victim. I exchanged very bitter correspondence with my colleague when he was protecting some of these people.

Cowboy contractors benefactors of the GovernmentMr. Temporary Deputy Speaker, Sir, when I talked about these pending bills, before the report was released, the Chairman of the Pending Bills Committee was summoned to the Treasury in the office of the Minister, where he was confronted by two contractors whose names were adversely mentioned in the report which had not been released. He was told that these were benefactors of the Government; they funded the NARC Government and, therefore, the Government wanted their names to be removed from the report. The Chairman of the Committee left that place a very terrified person. He rang me and told me: “I had been summoned to the Treasury and I was confronted by some of these contractors. I was told to remove their names from the report. What do I do?” I told him to do

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nothing of the sort. I told him to produce the report the way he had written it and I will then know what to do with it.

Mr. Temporary Deputy Speaker, Sir, the report was presented to me and I invited Mr. John Githongo, who was then the Permanent Secretary in charge of Ethics and Governance. I also invited the Press to be present when the report was being handed over to me. To my surprise, phone calls were made as to why I should allow the Press to be present when a document which was supposed to be a secret Government document was being presented to me. I said that there was nothing secret about it because I had appointed this Committee to work on behalf of the members of the public. I said that our Government wanted to do things differently from KANU. We wanted to be transparent in everything that we were doing. This created a lot of anxiety and animosity within the Government system.

This Government lives and thrives on corruption. It cannot correct itself.When I presented this report to the Cabinet, this Committee was appointed, which was never intended to complete any work, but to cover up. The report of this Committee has not been produced, just like the report of the Committee which was inquiring into the Artur brothers or the mamluki saga. You heard yesterday that, that report cannot be released for security reasons. I know that the report on these pending bills cannot also be released for security reasons.My charges are that this Government lives and thrives on corruption. It cannot correct itself. The only way that Kenyans can deal with this Government properly is to vote it out and vote into power, a Government of the Orange Democratic Movement. With those few remarks, I beg to support.Source: MARS GROUP BLOG , accessed on November 1, 2009

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Annex 4: Overall Funding of the KRB Fund in FY 2007/2008 in Kenya Shillings

Broad Items Funded

2% 1% - City Council of Nairobi

16% 57% 24% Portion of the KRBF Agricultural Cess

Total Funding

%Roads Dept UDD & LAs DRC-

EquitableKWS

Administration 130,764,260 128,800,000 36,000,000 26,347,516 1,990,300 323,922,076 1.77Office/Dept/Unit Operations

163,017,140 487,462,000 72,551,636 723,030,776 3.94

Road Works Materials

130,005,000 130,005,000 0.71

Training 10,063,000 95,425,000 5,245,600 111,733,600 0.61Outstanding Payments

107,000,000 107,000,000 0.58

On-going Contracts

4,875,682,726 554,880,000 455,082,660 89,000,000 5,974,645,386 32.59

On-going Force Account Works

1,042,173,624 1,042,173,624 5.68

Routine Maintenance

18,000,000 2,520,000,000

946,476,150 225,000,000 470,813,448 943,437,790 98,009,700 65,000,000 5,448,737,088 29.72

Equipment 6,135,600 259,825,500 12,955,100 278,916,200 1.52Emergency Works

50,000,000 360,000,000 116,150,000 40,120,000 222,566,250 788,836,250 4.30

New Proposed Works

2,340,000,000 380,000,000 107,740,206 578,259,794 3,406,000,000 18.58

Total 360,000,000 180,000,000 2,880,000,000

10,530,000,000 1,200,000,000

1,147,433,550 1,872,566,450

100,000,000 65,000,000 8,335,000,000 100.00

Source: Annual Public Roads Programme for Financial Year 2007/2008, KRB

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Annex 5: Construction of RoadsNo. Name of Project Contractor Contract Sum Length

In KmContract Period

(Months)Begin Date End Date

1 Processional Way Nyoro 128,957,803.20 2 6 December 2004 11th May 2005 2 Thogoto-Gikambura-Mutarakwa Rd 0458 Kundan 1,042,884,600.00 32 18 3rd July 2006 3rd January 20083 Kirigiti-Rioki-Ngewa S.S.Mehta 688,548,102.00 22 15 27th June 2007 28th September 20084 Rukenya Forest Rangers Post G.Issaias 743,924,800.00 16 18 20th March 2007 20th September 20085 St. Mary’s-Nyakahura-Kiamara-Muringato-Irima-

Gitugu Rd 0462Kay Cons. 889,936,236.16 30 24 3rd July2006 3rd July 2008

6 Dundori-Olkalou China Wuyi 3,485,554,917.83 100.3 24 15th March 2007 15th March 20097 Kirima-Kiandu-Nyeri-Nyeri/Konyu- Othaya Under Tender 519,839,616.00 20 15 27th February 2008 30th September 20098 Miiri-Itundu Lee Construction 1,100,784,383.51 13.7 24 8th April 2008 8th April 20109 Mukurweini-Gakonya&Rutune-Mahuaini Tm-Am 1,113,073,375.52 31 24 04th July 2007 04th July 200910 Kabati-Kagunduini Rd Put 1,034,427,709.87 47 24 3rd July 2006 3rd July 200811 Witu-Lamu-Kiunga Not Yet Awarded12 Mariakani -Kilifi Dhanjal Brothers 2,510,000,000.00 56 24 27th November 2007 27th November 200913 Wote-Makindu China Road 1,838,688,406.65 66 24 19th August 2005 19th August 200714 Isiolo-Merille River China Wuyi 4,875,409,271 136 30 7th November 2007 7th May 201015 Makutano-Kikima-Tawa Victory 1,895,094,559.84 47 24 12th September 2007 12th August 200916 Ena-Ishiara-Meru Intex 2,798,526,782.82 60 30 1st April 2007 1st October 200917 Embu-Mutunduri-Kianjokoma Aegis 502,026,888.00 17.5 15 8th April 2007 8th July 200718 Kitui-Kangonde Victory 1,019,817,184.90, 45 30 12th May 2005 11th November 200719 Ruiri-Isiolo Crescent 1,449,831,592.62 52 30 29th Sep 2005 29th March 200820 Farm-Kawiru-Mutuati-Kachilu Intex 1,388,857,282.82 38.5 18 1st July 2007 1st Jan 200921 Garissa-Modogashe Aegis 748,214,113.58 20 18 4th April 2007 4th October 200822 Keroka-Nyangusu Kay 997,796,870.08 40 30 16th April 2004 15th Jan 200823 Daraja-Mbili-Nyatieko-Eronge-Kegogi-Miruka H.Young 1,803,695,791.40 50 24 21st Sep 2007 20th Sep 200924 Ndori-Owimbi Put 693,022,483.90 23 18 1st May 2005 31st Oct 200625 Owimbi-Luanda-Kotieno Put 1,049,472,915.39 25 18 4th April 2007 4th April 200826 Nyamira-Kadongo Put 350,000,000.00 16 24 15th Feb 2005 17th Feb 200727 Email- Loitoktok Synohydro 4,236,198,771.59 100 30 6th Nov 2007 6th Jan 201028 Kipsagak-Serem China Wuyi 1,365,000,000.00 53.5 26 19th Nov 2004 19th July 200729 Gambogi-Serem-Jebrok 20 12 3rd Jan 2007 2nd Jan 200830 Junct.C51-Iten-Kapsowar-Chesoi Intex 604 ,841,354.88 70 30 2nd Nov 2005 31st August 200831 Bumala-Rumbwa Hayer Bishan 904,993,488.00 48 24 3rd May 2005 3rd May 200732 Kakamega-Ingotse-Nzoia Bridgestone 159,673,954.00 43 18 29th Dec 2006 30th June 200733 Mihuti-Kayu34 Kagio Baricho Kerugoya-Kibirigwi(D455/D454) Intex 1,371,968,882.82 25 24 1st April 2008 1st April 201035 Meru- Mukinduri-Maua(D482) H. Young 1,843,023,145.98 52 24 25th May 2007 1st Sep 200936 Othaya-Konyu(D433)Junc70 Kariki-Kairu/Gachami-

Dhudi Primary SchoolElite 967,801,279.68 52 15 28th July 2008 30th March 2010

37 Ndumberi –Limuru(D409)/Nduota-Kigwaru S.S Mehta 1,848,172,193 33.4 24 1st April 2008 1st April 201038 Kamukuywa-Kaptama-Kapsokwony Kundan Singh 2,699,623,837.35 67 30 22nd June 2007 22nd Dec 200939 Ebuyango-Ekero Associated 1,034,412,217.20 31 18 20th April 2007 20th October 200840 Stand Khisa-Khunusalaba Bridgestone 743,717,065.45 25 24 2nd October 2007 1st October 200941 Bugoma-Bokoli-Kimilili Westbuild 750,080,299.10 30 12 16th April 2007 16th July 200842 Construction Of: Runda Whispers

Flats –KiambuAssociated 227,546,392 2.5 12 June 2007 May 2008

Total Cost 53.425,438,568.14Source: Road Sector Investment Plan 2008-2012, GoK

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Annex 6: Rehabilitation of RoadsNo. Name Of Project Contractor Contract Sum Length

In KmContract Period

(Months)Begin Date End Date

1. Mbagathi Way Kabuito 445,363,927.20 5.8 12 19th August 2005 18th August 20062. Nairobi – Ruiru Kabuito 1,095,768,700.40 64 12 21st May 2007 21st May 20083. Nairobi Road China Shegli RMB 205.61 53.85 18 24th June 2007 24th December 20084. Sagana State Lodge Kirinyaga 416,752,920.00 47 27.5 14th August 2003 11th September 20055. Muranga – Sagana Kirinyaga 1,613,267,471.00, 55 48 13th September 2005 1st August 20066. Ruiru – Kiambu S.S.Mehta 795,985,620.00, 40 23 10th August 2005 10th July 20077. Othaya-Township S.S.Mehat 239,620,200.00 13 24 14th November 2004 14th April 20058. Thika Gitanga – Gatura/Gatanga-

NdakainiKabuito 1,245,216,036.00 76 18 3rd October 2005 2nd October 2007

9. Thika – Gacharage-Githumu S.Smehta 868,111,891.00, 40 18 14th September 2005 13th March 200710. Ruiru – Thika Kabuito 672,314,830.00 51 12 21st May 2007 21st Amy 200811. Machakos Turn Off-Masii H.Young 1,140,829,260.00 78 24 13th September 2005 12th September 200712 Masii-Kitui Crescent 722,141,899.20 73 18 17th August 2005 12th September 200713 Makutano-Embu G. Issaias 968,125,560.00 46 18 13th September 2005 17th February 200714 Embu –Thuchi G. Issaias 898,913,232.00 32 24 25th August 2005 24th September 200715 Thuchi-Nkubu S.S.Mehta 1,360,061,256.00 64 24 25th August 2005 16th August 200716 Nkubu-Meru-Lewa Intex 898,351,882.82 40 24 17th August 2005 16th August 200717 Sultan –Hamud-Machakos Turn Off Sbi 3,040,616,512.54 55 24 11th October 2008 10th October 200818 Machalos Turn Off-Emabkasi Sbi 4,258,041,088.15 45 30 11th October 2006 10th April 200919 Kisian –Bondo Hayer Bishan 730,972,295.47 48 18 21st April 2004 30th September 200520 Katitu Kendu Bay H.Youg 684,333,646.00 42.2 30.4 14th September 2005 28th March 200821 Kisii-Kilgoris H.Young 1,873,743,671,.81 74 30 24th December 2006 24th June 200922 Mai-Mahiu-Naivasha-Lanet Sogea Satom 6,145,629,636.39 94 31 14th March 2005 13th October 200723 Mai-Mahiu-Narok Maltauro 3,780,519,355.05 90 30 2nd September 2006 1st March 200924 Maji Ya Chumvi-Miritini China Road 2,304,598,494.51 35 18 10th January 2006 9th July 200725 Lanet-Njoro Turn Off China Road 2,971,818,573.21 32 24 9th October 2006 8th October 200826 Njoro Turn Off-Timboroa China Road 4,383,603,852.42 84 30 9th October 2006 8th April 200927 Athiriver-Namanga 6,208,705,229.80 136 36 5th November 2007 5TH November 201028 Lewa –Isiolo Intex 1,586,023,782.82 29.5 18 11th April 2008 11th October 200929 Makutano- Kikima-Tewa Victory 1,895,094,559.84 47 24 12th September 2007 12th August 200930 Lailkipia Airforce Base-Army Barracks-

Mt Kenya Safari LodgeVictory 711,362,648.50 25 18 14th December 2007 14th June 2009

31 Bomet-Liten Spencon 1,498,321,052.30 42 24 6th December 2007 7th April 2008

32 Rongo-Homabay Gogni Rajope 1,109,958,232.20 39.5 24 6th December 2007Total 55,666,254,084.63

Source: Road Sector Investment Plan 2008-2012, GoK

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Annex: 7 Reports of Parliamentary Committees on Implementation of Road ProjectsAccordingly, the Report of the Public Accounts Committee on the Government of Kenya Accounts for the Year 2004/200528 identifies anomalies in the Statement of Assets and Liabilities for (KRB) Deposits. For example, the statement reflects KRB Deposit balance of Kshs. 115,152,815.45 as of 30th June 2005 which differs from the ledger balance of Kshs. 123,312,989.75 by 8,160,173.30. In addition, an examination of the Vote Book showed KRB Deposits balance of Kshs. 200,167,764 thereby occasioning a further difference of Kshs. 85,014,948.55. The Public Accounts Committee Report notes that the difference has not been explained or reconciled.

Also, the Report of the Public Accounts Committee on the Government of Kenya Accounts for the Year 2005/200629 raises a red flag regarded under expenditure and under collection of Appropriations-in-Aid (AIA) Vote R13 of the Ministry of Roads and Public Works. It is noted that the Recurrent Appropriation Account for Vote R13 for the year ended 30 June 2006 reflects gross under expenditure of Kshs. 5,134,928,289 or approximately 37 percent of the gross estimates of Kshs 13,891,312,987. The Report further notes that the account also reflects deficiency in AIA of Kshs. 1,917,898,831.60 or about 16% of the estimated receipts of Kshs 12,099,670,967. The under collection of AIA was mainly under Sub-Vote 136 – Roads, where Kshs. 10,126,773,187.90 was collected against the estimated amount of Kshs. 12,052,845,811 resulting in a shortfall of Kshs. 1,926,072,623.10 (parag.528).

According to the Report, the reasons given for the under expenditure include early voluntary retirement and non-recruitment of drivers which reduced expenditure on personal emoluments and allowances and non-release of Exchequer issues to Districts against the AIEs issued. Information available indicates that during the year, the MOR inherited pending bills totaling Kshs. 325,485,250.65 from Roads Maintenance Levy Fund for Recurrent Vote due to non remittance of funds to District treasuries by the Ministry of Finance. Authority to Incur Expenditures (AIEs) issued on Road Maintenance Funds were accompanied by cheques payable to Permanent Secretary, Treasury. The Paymaster General processed the AIEs but did not remit the funds to various Districts concerned. It is therefore not known how the Treasury accounted for these cheques.

The Public Accounts Committee (PAC) heard evidence given by the Accounting Officer in the MOR that the under expenditure of Kshs. 5,134,928,289 occurred mainly under head 384, Fuel Levy Funds where an under expenditure of Kshs. 5,005,701,534 was realized. The under expenditure was occasioned by:

a) Non disbursement of all the budgeted fuel levy funds by Kenya Roads Board to the MoR;

28 Downloaded from the National Assembly website: http://www.bunge.go.ke 29 ibid

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b) Delayed release of some funds by KRB to the MoR resulting in limited time to spend the before the closure of the financial year; and

c) Delayed and non remittance of Fuel Levy Funds to the districts by the Treasury through the District reimbursement system.

The under collection of Kshs. 1,926,072,624 was attributed to the mode of disbursement to the road agencies by the Kenya Roads Board since the entire fuel levy amount is captured as a one line expenditure item under the MoR. Amounts payable to Kenya Wild Life Service, Ministry of Local Government, and KRB are disbursed directly by Kenya Roads Board and do not pass through the Ministry, resulting in under collection of the same amounts in the ministry accounts. According to the Report, “measures are being taken to address this anomaly”.

The Committee also heard that Road Maintenance Levy Funds and AIEs are now disbursed directly by the MOR hence improving efficiency. However, the Committee was gravely concerned over poor planning in utilization of resources by the MOR either due to inefficiency, incompetence or lack of good management. Therefore, the Committee recommended that the Accounting Officer should always ensure that only projects whose formalities are certain to be finalized are included in the budget so that other projects are not denied services due to non use of funds. The Committee further recommends that the Accounting Officer should liaise with Treasury to regularly review disbursement mechanisms for the Roads Maintenance Levy Funds to eliminate any delaying bottlenecks.

Another Vote – Development Appropriation Account (Vote D13) for the year ended 30 June 2006 reflects gross under-expenditure of Kshs. 5,849,336,46837 or approximately 33.8 percent of the gross estimated amount of Kshs.17,321,049,804. The account also reflects deficiency in AIA of Kshs. 3,558,042,722.45 which is approximately 34.9 percent of the gross estimates of Kshs. 10,188,580.204 (parag.530)

Explanations given for the under expenditure are slow rate of procurement and documentation process and implementation of projects. For the under collection of Appropriations-in-Aid, explanations include non receipt of expenditure details from donors to reflect donor counterpart funding and slow tendering procurement process and documentation. However, information available indicates that some pending District Bills totaling Kshs. 26,691,479.70 were processed through Paymaster General (PMG) Section but Treasury failed to release the equivalent amount to cover Development Expenditure. Provincial/District Officers incurred expenditure against AIEs but could not effect payments because funds were not released before the end of the financial year (parag.531)

Similarly AIEs totaling Kshs. 50,250,000 to cover Road 2000 Programme were processed through the Ministry of Finance (Treasury) in May 2006 to various District Work Officers in Nyanza Province in respect of Swedish International Development Agency (SIDA) portion funds. These AIEs were funded through

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Exchequer Issues of Kshs. 48,500,000 leaving a balance of Kshs. 1,750,000 unutilized balance in the Donor’s account. The Ministry had not indicated what action it would to take to avoid recurrence of similar under utilization of resources voted and made available for development of roads (parag.532).

The PAC heard evidence given by the Accounting Officer that under-expenditures were caused by “structural problems” as AIEs were released by the MoR while the related funds were supposed to be released by the Treasury directly to the Districts. Sometimes, Treasury failed to release the equivalent funds to cover the AIEs. This problem has been “solved” and since the beginning of 2006/2007 financial year, all AIEs are released to the Districts with accompanying cheques directly from the MoR. The Ministry has further taken the following measures to avoid under utilization of voted resources made available for development:

1. Proper and realistic budgeting is done to reflect only funds that will be spent within the financial year;

2. Involvement of the Contractors in preparation of work plans.3. Proper liaison with the Development Partners to ensure that only funds to

be utilized are included in the Budget.

The Public Accounts Committee was concerned at the lack of proper planning leading to non utilization of allocated funds when the country is in dire need of development initiatives. It recommended that the Accounting Officer should always liaise with his counterparts and other stakeholders with a view to thrashing out issues and problems that might hinder fast implementation of projects, a coordination function expected of all government officials especially at the level of Permanent Secretary!

The Committee further recommended that only projects whose formalities are certain to be finalized should be included in the budget. It noted that poor planning, haphazard execution and management of projects, coupled with laxity and negligence by both the MOR and Treasury led to inadequate budgeting and the perennial accumulation of bills.

Regarding pending bills, examination of the MOR records by the PAC showed that bills amounting to Kshs. 1,739,628,701.95 which should have been settled during the year under review (2005/2006) were outstanding as at 30 June 2006. Out of this amount, bills totaling Kshs. 1,038,214,278.89 were chargeable to the Recurrent Vote R.13 and Kshs. 701,414,423.06 to the Development Vote D.13 (parag.533). Included in the pending bills of Kshs. 1,739,628,701.95 for both the Recurrent Vote R13 and the Development D13 are bills adding up to Kshs. 426,407,952.30 for which the MOR had issued AIEs to the Provincial/District Works Officers, with copies to the Ministry of Finance. Copies of the AIEs sent to the Ministry of Finance were accompanied by cheques for the equivalent amount and were processed through the Treasury’s PMG Section.

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However, for unexplained reasons, the Ministry of Finance did not release the equivalent Exchequer Issues to cover the expenditure. The Provincial and District Works Officers concerned had incurred expenditure against these AIEs but could not effect payments due to lack of Exchequer Issues which were not released (parag.534). Such “failure” to settle bills during the year to which they relate distorts the financial statements for that year and adversely affects the following year’s provision to which they have to be charged. Had these outstanding bills been paid and expenditure charged to the accounts for the year, the Recurrent Appropriation Account for Vote R13 would have reflected a net surplus of Kshs. 2,178,815,178.51 instead of the net surplus of Kshs. 3,217,029,457.40 shown while the Development Appropriation Account for Vote D13 for the same period would have reflected a net surplus of Kshs. 1,568,060,775.66 instead of the net surplus of Kshs. 2,269,475,198.72 recorded.

The Committee heard evidence by the Accounting Officer that the MOR has put in place several measures to reduce the pending bills, including:

Ensuring that huge portfolio of new projects are not taken on board so that funds allocated to the MoR are not too thinly spread out to too many projects and that ongoing projects are adequately funded, and

The MOR now sends AIEs with accompanying cheques hence no expenditure in the District can be incurred without the requisite funds.

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Annex: 8 Roads Project Implementation Issues

Ruiri – Isiolo (D490)/Isiolo – Muriri (D485)/Amos Loop Roads Project

This project was awarded to the second lowest bidder at a contract sum of Kshs. 1,449,831,592.65 instead of the lowest bidder at Kshs. 1,225,580,172.25, which would have saved the MoR Kshs. 224,251,420.40, an amount almost equal to RMLF allocation to Kilifi District in Coast Province for the year 2007-2008. Work on the project commenced on 25 September 2005 and was to run for 30 months ending 25 March 2008. The contract had no provision for advance payments. The contractor was asked to provide a bank guarantee to support any down payment. Three months into the contract, the contractor on application was given 10% Advance Payment against a guarantee obtained from a bank which had also guaranteed the company performance. When the Bank was placed under the statutory management by the Central Bank for irregular dealings (not related to the project), the MoR was left without a guarantee against the advance payment or performance (parag.551-2 ibid).

The Audit carried out by the PAC in August 2006 revealed that the contract was running behind schedule. Ten months into the project (or 33.3 percent of contract period), physical progress was at 17 percent, the mobilization strength was at 62 percent and the percentage of the contract sum certified stood at 16.05 percent. Reasons attributed to this unsatisfactory performance were low equipment/plant mobilization, shortage of fuel, cement, material and frequent equipment breakdowns. Moreover, the project was operating without a valid resourced programme of works and cash flow projections and although this had been brought to the attention of the contractor severally by the MoR Resident Engineer, there very little corrective measures seems to have been taken. Thus, the project risked extension of time and possible cost overruns, putting into doubt timely delivery of the project and realization of value for money (parag. 553).

In his testimony to the PAC, the Accounting Officer confirmed that the tender was awarded to the second lowest bidder M/s. Crescent Construction Ltd at a cost of Kshs 1,449,831,592.65 after the Evaluation Committee gave a detailed explanation recommending the second lowest evaluated bidder. The lowest evaluated bidder, Victory Construction Company had just been awarded the Kitui – Kangonde (B7) Road and Kangare-Ndunyu-Gitugi Factory–Kairuthi-Othaya-Mumbuini-Kairo Road. It is therefore unclear why Victory Construction Compant would bid for the Ruiri – Isiolo (D490)/Isiolo – Muriri (D485)/Amos Loop Roads Project when, according to the evidence presented, the contractor’s capacity in terms of finances, personnel and equipment was clearly overstretched? The PAC also heard that although the original contract did not have provision for advance payment, an addendum was procured after following due process. When Charterhouse Bank, the guarantor for the advance payment was later placed under statutory management, the MoR sought clarification from the Governor of the Central Bank and the Attorney

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General on the status of the guarantee. Interestingly, both gave the assurance that the order for statutory management had no effect on the validity of the guarantee.

Despite the explanations and assurances, progress of works was observed as having been very slow and the contractor had been notified of his poor performance and given a termination notice. While noting that the Accounting Officer had taken precautionary measures to protect public interests, the PAC deplored the speed at which the Contractor had been working, risking the project not being completed within the 30 months stipulated period. To control for likely damages, PAC recommended that the Accounting Officer closely monitor progress of work and ensure that unavoidable delays and cost overruns are minimized.

SIDA Roads 2000 Programme – Nyanza Province

The SIDA Roads 2000 Programme in Nyanza Province covers 11 districts, namely Kuria, Migori, Gucha, Kisii, Nyando, Suba, Homabay, Rachuonyo, Kisumu, Bondo and Siaya. The total budget for the programme was Kshs. 1.829 billion of which SIDA contributed Kshs. 1.233 billion while the balance of Kshs.596 million was funding from the Government of Kenya. Audit inspection and examination of the project found that, contrary to laid down procedures the District Works Office did not maintain cash books to record transactions of payments made against cheques drawn. As a result, monthly bank reconciliation statements for the whole year were not prepared and it was therefore not possible for the PAC to confirm bank transaction and balances for the year. An examination of the bank statement as at 31 May 2006 revealed a credit balance of Kshs. 678,383.60. However, examination of the vote books for payments made against AIEs received indicated a bank balance of Kshs. 1,054,207.70. The discrepancy between the two sets of records could not be explained since no monthly bank reconciliations had been prepared (parag. 554-5 ibid)

Further evidence of weaknesses in management of road finance emerged at the PAC Hearing. For example, the cash book for the project was maintained at the Kisumu District Treasury by the District Accountant who also did monthly bank reconciliations. At the time of audit, bank reconciliation was not yet ready and therefore could not be inspected. The PAC further heard that the District Works Officer maintained the vote book recording AIEs only and related transactions. The cash book, which records exchequer transactions, was maintained by the District Accountant, a manifestly flawed arrangement creating opportunity for rent extraction.

However, the audit also identified flaws in disbursement from the Treasury. The actual AIEs received for the SIDA Roads 2000 Programme was Kshs. 10,700,000, but the money credited to the account was Kshs. 9,585,000 meaning AIEs of Kshs. 1,115,000 were never financed by the Treasury. The difference between the Cash Book Balance and the Vote Book Balance was mainly attributable to unfunded AIEs. Consequently, the PAC recommended that the Accounting Officer should enforce

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financial discipline at the District level and emphasize through circulars the need for maintaining proper and accurate accounting records. Additional measures are reported to have also been taken to open memorandum cash books by the Ministry’s District AIE holder as a control measure to the main cash book maintained by the District Accountant.

Repair of Kamandura Bridge on Road A 104 (Nairobi - Nakuru - Road)

In the case of Kamandura Bridge Project, the contractor was awarded a tender sum of Kshs. 8,641,560 for repair works on the bridge following approval of the Ministerial Tender Board. The works commenced on 14 December 2002 and were due for completion on 14 June 2003 after a six month contract period. The primary task in this contract was to repair the damaged main beams of the bridge. However, the contractor proceeded to repair the beams before the installation of the gates which would protect the beams from further damage contrary to the approved programme of works that had been submitted. This irregularity on performance was noted and pointed out to the contractor before the work began but no action was taken. Audit findings further revealed that two of the repaired beams have had been damaged by high trucks due to lack of protection rendering the repair ineffective (parag. 556-7 ibid).

The PAC report goes on to note that in spite of these glaring flaws, the contractor was paid a total of Kshs. 5,719,331 against Certificate No.1 of Kshs.1, 435,071, Certificate No.2 of Kshs.2, 663,014, and Certificate No. 3 of Kshs. 1,621,246. Even more surprising is the finding that Certificate number 3 of Kshs. 1,621,246, which brought the total payments to Kshs. 5,719,331 or 66 percent of the tender sum, was paid five months after the contractor had deserted the site. The contractor was unable to complete the remaining works even after being granted an additional four months in order to do so. He simply abandoned the site when the extension time lapsed without completing the project (parag. 558-9).

Although the contract had been terminated due to the contractor’s non performance, the audit noted that the incomplete works was still outstanding. Further, there was no evidence of measures being taken to prevent the damage on works already done and there was a risk that the Ministry would have to incur extra expenditure for the completion of the bridge repairs.

The Committee heard evidence given by the Accounting Officer that the Contractor failed to install warning gates and physical barriers in accordance with Cap. 403 of the Traffic Act in order to safeguard bridge beam soffits whose clearance is 4.5m. The contractor proceeded to repair the bridge before installation of the gates since the bridge was at the risk of imminent collapse. Later when the gates and barriers were installed, motorists and especially trailers hauling high containers ignored the gates and barriers leading to further damage to the beams under repair. After an interlude of no activity, the contractor briefly resumed work after warnings issued by the Engineer in letters written on 12 January and 15 April 2004 respectively.

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Upon resumption of work, the contractor installed the steel gates and brought to site the steel work to construct beam casings to hold the special cement used to repair the damaged parts of the beams. Payment certificate no. 3 amounting to Kshs. 1,621,246 was for supply of the materials on site.

Eventually, the contract was terminated due to non-performance. The Ministry decided not to proceed with the bridge repairs under existing design since it has proved difficult to control the height of trucks by merely erecting physical barriers. Attempts to invoke Traffic Act Cap 403 and arrest motorists hauling excessively high loads failed. This being only one out of many similar cases, the PAC registered its concern with the trend where contractors abandon work after being paid over 50 percent of the contract sum leading to loss of time, public funds and expected service. The PAC, therefore, recommended that the Accounting Officer should always ensure that contract documents are tailored towards protecting public interest. It further recommended that any contractor who abandoned work after getting 50 percent of the contract sum should be precluded from future awards of government contracts and should also be prosecuted (parag. 560).

Construction of Processional Way - Contract No. RD 0423

In the Processional Way case, the procurement procedures that led to the award of the contract (No. RD 0423) for the works involving construction of 1.82km on Processional Way Road from Nyerere Road to State House, and 420 m on Cathedral Road were found to be unclear. The advertisement for the tender was placed in only one local daily, the East African Standard of 23 October, 2003 instead of at least three dailies as stipulated in the Exchequer and Audit (Public Procurement) Regulations 2001 Clause 22.1. No explanation has been given for this course of action (parag. 561).

Subsequently, the Ministry repackaged the project to separate roads within State House from the actual Processional Way, leading to cancellation of Notification of Award to the first contractor. The works were retendered afresh after being repackaged through an advertisement in only one local daily, in contravention of the Exchequer and Audit (Public Procurement) Regulations (2001) Clause 22.1 without any explanation being given for such an anomaly. Further the contract was awarded to the second lowest bidder at a contract sum of Kshs. 128,957,803.20 instead of the lowest at Kshs. 120,767,651.04. Had the contract been awarded to the lowest bidder, the Ministry would have saved Kshs. 8,190,152.16. No justification was given for this action (parag. 562-3).

The above contract was to run for 6 months effective from 11 May 2005 and be completed by 11 November 2005. The contractor was given an advance payment of Kshs. 12,895,780 prior to the award. As at May 2006, the project was only 20.3 percent complete while the total amount paid as at 30 June 2006 was Kshs. 48,528,306.80 or about 37.6 percent of the contract amount. In addition to delay in completion, the audit unearthed a number of irregularities. These include failure by

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the contractor to engage a Site Agent contrary to the contract document clearly stipulating that the contractor employs a qualified and competent Site Agent as per item 6 of the qualification criteria. This led to apparent general disorganization and lack of co-ordination of site activities, which negatively affected the project’s completion progress.30 Further, there was no evidence in site of the Engineer’s Representatives office and furniture costing Kshs. 550,000 billed under item 1.02 and 1.03 of the Bills of Quantity.

The PAC further heard evidence given by the Accounting Officer that procurement of construction was initiated through advertisement sent to three local dailies, but that two of them did not carry the advertisement due to outstanding payments. The initial scope of works included re-carpeting of all roads within State House, perimeter fencing, repair and gravelling of a road around the State House and Processional Way. Victory Construction Co. Ltd was initially awarded this contract (including the roads within State House) at a cost of Kshs. 184,019,080 and notified of the award. The award was later annulled vide letter ref. MPW/A/35.08 vol. x (109) of 22 July 2004. The scope of works was reduced to separate roads within State House from the Processional Way because the Office of the President undertook to do some of the works. The works were re-tendered afresh after being repackaged and re-advertised in two local dailies. One newspaper declined to carry the advertisement due to outstanding payments.

Also, the Chief Engineer appointed a Technical Evaluation Committee which recommended award to the second lowest at a tender sum of Kshs. 128,957,803.20. The PAC found that the lowest evaluated bidder, Victory Construction Company, had just been awarded other jobs including Kitui - Kangonde and also had other ongoing projects, including Chilemba - Mwakinyungu (which was already behind schedule). After considering the capacity and previous experience of Victory Construction Company, the Committee recommended that this contractor should not be awarded more projects. The Ministerial Tender Committee concurred with the recommendation and awarded the contract to the second lowest bidder, Nyoro Construction Company.

Evidence presented before the PAC showed that advance payment of Kshs. 12,895,780 was paid vide certificate No.1 which was submitted on 5 August 2005 while the award of the contract was done on 14 December 2004, vide letter MPW/A.35.08 Vol.11/21 against a bank guarantee from the National Bank of Kenya. The payments made as at 30 June 2006 included advance payment of Kshs. 12,895,780 and therefore, the actual work paid for was Kshs. 35,632,514 which is 27.6 percent of the contract sum. This compared favorably with the physical progress of work done at that time. However, the contractor first requested for extension of time of 529 days and was awarded 127 days bringing the new completion date to 18 March 2006. He later applied for a second extension of 200

30 The Contractor appointed a Site Agent in mid 2005 and was approved by the Engineer vide letter R.5512/RD.0423. He left at the end of August 2005 and the contractor was unable to replace him resulting in inadequate site management

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days and was granted 194 days, further pushing the new completion date to 28 September 2006. He could not complete the project and requested for further two extensions which were not granted. The project was eventually completed in early December 2007 and was inspected by a taking over committee on 27 March 2008.

In its Report, the PAC noted that the reasons given by the Accounting Officer for awarding the tender to the second lowest bidder were valid as over-loading contractors with too many projects greatly contributed to the delays in completion and substandard work. However, the Committee noted with grave concern the slow pace at which the project was progressing resulting in a 1.82 kilometer stretch of road taking more than two years to complete. Thus, the Committee recommended that the Accounting Officer should ensure that contractors who delay projects and those hi do unsatisfactory work are not awarded any more government contracts (parag. 564-5 ibid).

Nairobi Eastern By-Pass

The Nairobi Eastern by-pass is approximately 40km long, with a 7km loop that starts from Mombasa Road (A104) and ends on the Ruiru-Kiambu Road (C63). Although the Nairobi Eastern By-Pass was conceptualized in 1972 and reserved in 1974, funding for the project was only initiated three decades later in 2003/2004 with an initial budgetary allocation of Kshs. 9,091,518 provided for in the Supplementary Estimates for 2003/2004 FY. Apart from the massive and costly traffic jams in Nairobi that the long delay in implementing this project is partly responsible for, many developments happened during the almost 30 year delay that made implementing the project difficult and more expensive.31

By 30 June 2006 the project had been allocated Kshs. 199,091,518 as additional Kshs. 130,000,000 and Kshs. 60,000,000 was allocated in the years 2004/2005 and 2005/2006 respectively. However, out of the total allocation at the time of the audit of Kshs. 199,091,518, only Kshs. 155,489,991.80 has been spent resulting in a gross under-expenditure of Kshs. 43,601,526.20 or approximately 22 percent of the amount allocated.

The implementation of the project was slow and uncoordinated. By 30 June 2006, the following activities which should have been completed were still incomplete:- Construction of 2kms between Embakasi Garrison and North Airport road. The

survey works had been completed but the buildings standing on the way of the 2kms section had not been demolished.

Construction of the by pass road to gravel standard. Construction of three major bridges crossing Nairobi, Gatharaini and Kamiti

rivers. Completion of a fence to separate the road and Embakasi Garrison so as to open

the section between Embakasi Garrison and Kangundo roads.31 By the time of implementation in 2003, there was massive encroachment on the road reserves characterized by permanent multi-storied buildings and public utilities.

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Second layer of crusher run was required to make the road motorable to Kangundo road.

Acquisition of land between Kangundo road and Mombasa road.

Records indicated that an AIE for Kshs. 18,711,300.00 was issued on 10November 2004 for roads construction out of which Kshs. 10,403,800 was for construction of bridges and Kshs. 8,307,500 for culverting. But, culverts at Ruiru yard were over procured in 2004/2005 resulting in huge stock balances in the yard as at30 June 2006. There was no proper stock control procedures in place as stores ledgers kept in Thika District Works Office were mixed up with the normal stores stock. The Ministry has not provided justification for the Kshs. 8,307,500 expenditure on culverting (parag. 566-8).

According to the Accounting Officer, the under-expenditure of Kshs. 43,601,526.20 was due to: Late release of the AIEs occasioned by delayed approval of the Revised Estimates

in 2003/2004 and only Kshs 4,129,501 was spent. Slow progress of works, which had not been envisaged.

The implementation was slow because it involved other players such as: Office of the President for security Director of Survey for survey data Director of Physical Planning for guidance Commissioner of Lands for records Department of Defense for authority to open the road corridor which passes

through their land. Hostility, resistance and threats from the communities occupying the road

corridor.

Overall, the PAC noted that the project was implemented as a stage by stage operation depending on the availability of funds and no specific dates were set for completion of the various activities. The Eastern By-Pass was awarded for construction to Bitumen Standards to China Road and Bridge Corporation on 29th January 2008. Since the first budgetary allocation for this project in the 2003/2004 financial year, nothing much happened in terms of actual project commencement although funds were allocated annually for over three years.

The Committee further noted that project implementation had been faced with many challenges and at the time of inspection in 2008, the Accounting Officer had indicated that commencement would be in September 2008. Accordingly, the Committee recommends that the Accounting Officer ensures actual commencement of this project immediately, and all supporting documents on the funds utilized out of the voted provisions in respect to preliminary project preparation be availed to the Committee for audit review (parag. 569).

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Construction of Keroka – Nyangusu Road (C16) and Kiamokama Loop (C16/D208 Junction – D207/B3 Junction)

The construction of Keroka – Masimba – Gesusu – Nyangusu and Kiamokama Loop Roads located in Kisii and Gucha districts was awarded to a construction company at a tender sum of Kshs. 997,796,878.08. The works involved construction of 57 km of roads to bitumen standard, including improvement of access roads to 12 existing markets and was to commence on 16 April 2004 scheduled for completion on 15 October 2006 under the supervision of the MoR. Examination of project records and an audit site inspection carried out by the PAC in June 2006 revealed the following unsatisfactory matters:

1. The project was put to tender based on preliminary designs. The proper engineering designs, which were completed in April 2006, six months to the scheduled completion date, were carried out as the works progressed. This had the weakness of giving room to numerous variation orders which were being encountered.

2. Following the finalization of the project design, a detailed estimate of the final quantities and financial cost appraisal was carried out that revised the contract sum by Kshs. 591,572,295.92 or 59.3 percent from the original contract figure of Kshs. 997,796,878.08 including Kshs. 35,319,314.80 for contingencies and Kshs. 141,277,259.20 for variation of prices (VOP), to a final estimated cost of Kshs. 1,589,369,174. Actual billed items increased by Kshs. 581,502,494, including additional work items amounting to Kshs. 240,745,000.

3. The increase of Kshs. 581,502,494 excluding provisional sums and day works amounting to Kshs. 56,640,000 is about 56.2 percent of the effective contract price (Contract price excluding provisional sums and day works) of Kshs. 933,565,670, which was way above the 15 percent variation allowed under clause 53.2 of the conditions of the contract. Such outrageous variation is primarily attributable to the Ministry’s failure to complete Engineering Designs before putting the project to tender.

4. The proposed new rates for additional work items as recommended by the Resident Engineer had not been approved by the employer while the variation order for the revised cost estimate had not been procured.

5. The progress report of July 2006 indicated that the project was 20.3 months behind schedule, 94.9 percent of the programmed completion period having expired. The production for July for example was reported to be 1.23 percent compared to a programmed production of 2.5 percent. It was also observed that bitumen works had not commenced although they were programmed to start in September 2005.

6. There were frequent breakdown of equipment on site as was evidenced by the Resident Engineer’s supervision. Vehicles were in poor conditions and required comprehensive repairs. There was inadequate supply of automotive diesel fuel. While 120,000 liters of automotive diesel was required, only

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58,000 liters were reported to have been supplied in July 2006. There was also understaffing of staff at all levels of production.

7. A total of Kshs. 414,920,015.54 had been certified and paid on the project for valuation up to 27 June 2006. The expenditure represented 41.58 percent of the contract provisions and did not favorably compare with the progress of work of 27.14 percent, thus far achieved.

The Committee heard evidence given by the Accounting Officer that the Contract was awarded to Kay Construction Company at a tender sum of Kshs. 997,796,878.08. Due to public concern over the condition of the road, it was found necessary to commence the works immediately based on preliminary designs. Detailed designs were carried out on site ahead of the works and the contractor issued with instructions as works progressed and no variations were issued on the project.

The Committee further heard that:

A project appraisal proposing an increase by Kshs. 591,572,295.92 was declined as it could not be accommodated within the contract sum. The sum of Kshs. 997,796,878.08 therefore still remained and no variation order was procured.

The Resident Engineer submitted a revised Bill of Quantities which included all the details the Controller and Auditor General had analyzed but this did not amount to revising the contract sum.

After receiving the Resident Engineer’s submittals, a committee was formed to review the quantities and cost estimates. The committee finalized its work and recommended that the Resident Engineer prepares new Bills of Quantities and prioritizes the road as follows: (1) Keroka – Nyangusu Road (C16) 27.3kms; (2) Gesusu – Nyabisabo Road (D208) 16.7 kms; (3) Keumbu – Igare Road (D207) 10.3 kms; and (4) Igare – Keumbu 5 kms.

The contract sum was not to be exceeded and only Keroka – Nyangusu Road and the township roads, all totaling 30kms, could be covered.

It was also noted that the Keroka – Nyangusu Road (C16) was substantially complete. The rate of progress of works by the contractor was slow due to change of design, excess earthwork quantities and adverse weather conditions, among others. The request for extension of time was evaluated and granted at no extra cost to the employer pushing the new completion date to 15 January 2008. The road has since been completed and a copy of the evaluation report availed to the Auditors.

However, the PAC expressed grave concern over the manner in which this project was executed, starting from the tendering process which was done using preliminary designs, to the revision of the Contract sum, to the many variations and extensions of time requested and granted by the employer. It recommended that the Accounting Officer commence investigations with a view to establishing whether government officers involved in the implementation of this project acted

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in the best public interest and whether government got value for money. The Committee further recommended that officers found to have aided in the mismanagement of this project be severely disciplined. Finally, the PAC recommended that the contractor should be investigated for possible collusion with the officers, and if established, the contractor should be precluded from future award of government contracts (parag. 576-82).

Improvement and Gravelling of Kiburu-Kiandangae-Mururiinikarima/Kiandangae-Gacharo-Githuguya-Access to Kiine Girls Secondary School (E612, E1642 and E1643)

In this case, notification of award of the contract was issued and unconditional acceptance of offer was given by the contractor on 13 May 2005. The actual works commenced on 13 September 2005 with a contract period of 12 months envisaged for completion in September 2006. The road works were in Ndia Constituency, Kirinyaga District of Central Province. The road measured approximately 30 km and the contract was awarded in May 2005 to the contractors at their bid/tender sum of Kshs. 122,810,940 being the lowest evaluated bidder among other five tenderers.

The PAC audit made the following observations:

1. The project was behind schedule and even after the expiry of contract period, only 22 percent of the permanent works were completed and Kshs. 18,870,847.50 or about 15.37 percent of the contract price had been paid against Certificate No. 1 of Kshs. 9,116,719.99, Certificate No. 2 of Kshs. 5,678.24, and Certificate No. 3 of Kshs. 4,075,329.35.2. No extension of time had been applied for, evaluated or granted and therefore it was apparent the contract was being executed outside the contract period. No action appears to have been taken to either recover the liquidated damages from the contractor or terminate the contract.3. The Bill of Quantities had budgetary items that were to run for 12 months of the project cycle. However, with the expiry of this period, there would be cost overruns on the supervisory and other construction activities. It was therefore evident that the planning, management and implementation of the road contract No.RG220-01 project was not properly worked out.

The Public Accounts Committee heard evidence by the Accounting Officer that the tender was awarded to the lowest evaluated bidder, Triple Eight Construction Company. The Project was behind schedule because of poor performance by the contractor and adverse weather conditions. The Contractor had applied for extension of time in September 2006 and was awarded 16 weeks, hence revising the completion date to 8th January, 2007 at no extra cost to the client. He applied for a second extension which was evaluated and awarded bringing the new completion date to 30th April, 2007.The Committee also heard that neither liquidated damages nor termination action was effected at the time as the evaluation process was not complete. Liquidated damages were to be effected in the subsequent interim certificates. However, the

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contractor did not complete the works by the due date hence liquidated damages were levied on account for Certificate No. 13. The BQ and budgetary items were to run for twelve months of the project cycle. However, pursuant to the provisions of Clause 55 of the Conditions of Contract, various items had been reviewed and all budgetary items had been revised to accommodate the new prevailing circumstances on the ground, whose contract implications would not have been foreseen at the initial preparation of the estimates. Due process was applied to ensure the client gets value for money by putting in place a comprehensive review of the works to reflect the condition on the ground while ensuring the contract sum was not exceeded. The road was substantially complete awaiting handover.

However, the PAC noted with concern the perennial problems of delay in completion of projects occasioned by numerous applications for extension of time by contractors, thereby denying beneficiaries use of services. The Committee therefore recommended that the Accounting Officer ensures that the contractor pays liquidated damages before he gets his final payment and officers who were responsible for the mismanagement and poor supervision of this project be disciplined.

Despite such warning, the quality of work carried out on many roads is of concern. For example, a private Engineering Consultant confided to the study team that the Katito-Kendu Bay road, which was recently rehabilitated (project completed in 2008), has almost failed. “Audit of contracted works on this road revealed that the thickness of the overlay was reduced by almost 150mm. Mutilation of design specifications is common in Kenya due to runaway corruption. And, the cost of road projects in Kenya tends to be inflated without necessarily delivering good quality. By comparison, in countries like Rwanda where corruption is controlled, roads are built and maintained to high standards and users therefore get value for money.”

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Annex 9: Container Throughput 1980-2006Year No. of TEUs Year No. of TEUs

1980 30,353 1994 160,293

1981 42,666 1995 200,537

1982 57,645 1996 217,028

1983 83,849 1997 230,698

1984 92,460 1998 248,451

1985 103,362 1999 232,417

1986 119,855 2000 236,928

1987 115,367 2001 290,500

1988 115,445 2002 305,427

1989 129,666 2003 380,353

1990 136,406 2004 438,597

1991 135,541 2005 436,671

1992 135,324 2006 479,355

1993 144,137

Source: KPA

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Acknowledgements

This report is the joint work of Gerrishon Ikiara, Sylvester Kasuku and Kenneth Odero. First, a word about the team: Ikiara is an economist and lectures at the University of Nairobi. He is a leading analyst of reforms in Kenya. He has also served as the Permanent Secretary in the Ministry of Transport. Kasuku is a spatial planner and a infrastructure specialist. He has been involved in formulating infrastructure policy at the national level. He also lectures at the University of Nairobi and is currently Infrastructure Advisor to Prime Minister Raila Odinga. Odero is a regional scientist with a background in infrastructure and institutional analysis. He served as the coordinator of the infrastructure team.

We are grateful to Sahr Kpundeh, the Task Manager for this assignment, for bringing us together in this project and for helping us stay focused right through. We would also like to acknowledge the invaluable support of the Country (Infrastructure) Team led by Josephat Sasia and his colleagues for their initial as well as subsequent insights and critique that helped clarify the nature of our assignment. Equally, we would like to recognize Prof. John W Harbeson for reading our drafts and providing very helpful comments. Similar gratitude goes to Nyaguthii Chege, Betty Maina, and all the staff at the World Bank Country Office in Nairobi and in Washington D.C who provided all logistical support without complaining.

Mention must be made of our comrades – Paul Syagga, Albert Mwenda,Gem Argwings-Kodhek and Paul Mbatia – who were involved in similar projects working on the land sector and maize and fertilizer sub-sectors. Their commitment and effort helped inspire us and thankful. We were all better off working side by side.

Finally, we wish to thank all individuals and institutions, too numerous to call, who volunteered information, material and invaluable knowledge on the two sub-sectors that we reviewed, namely roads and ports. Our anonymous reviewers also deserve recognition. To everyone we say thank you for your support and encouragement. We take full responsibility for all errors of omission or commission.

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a KANU was in power when the road policy reforms were introduced under the Road Management Initiative. Having been in power since independence, KANU grew complacent and had gotten used to doing things its way. It is not surprising that it found the comprehensive roads sub-sector reforms with its far reaching implications on ownership, responsibility, financing and management disconcerting at the very least. Ideas such as “bringing roads into the market place, charging for their use on a fee-for-service basis and managing them like any other business”, or “involving all stakeholders in policy making and in management of roads” threatened to disrupt entrenched interests in the sector. This would explain the slow progress in implementing reforms under Moi.

b In order to strengthen the voice of the private sector in the KRB, the Board of Directors has more private sector representatives than government officials. Thus the Board consists of the Chairman, one of the private sector representatives, the Executive Director, five Permanent Secretaries from relevant Ministries (Roads, Transport, Local Government, Office of the President and Finance), and seven members who are nominated by private sector professional organizations, namely the National Chamber of Commerce and Industry, the Institution of Engineers of Kenya, the Institute of Certified Public Accountants of Kenya, the Institute of Surveyors of Kenya, the Kenya National Farmers Union, the Kenya Association of Tour Operators and the Kenya Transport Association.