The government has officially terminated the multi-billion shilling Nairobi-Nakuru-Mau Summit Highway concession agreement, a deal that would have locked Kenyan taxpayers into annual payments of about Ksh23 billion for decades to come.
National Treasury Cabinet Secretary John Mbadi announced the cancellation on Thursday, revealing that a comprehensive review found the original project posed significant long-term fiscal risks to the country.
The decision comes after months of negotiations with the project company failed to produce a commercially viable framework that would protect public finances.
Speaking in a statement, Mbadi explained that changing economic conditions between 2020 and 2022, including global inflation, the weakening of the Kenya shilling, shrinking fiscal space, and rising public debt obligations, made the original Nairobi-Nakuru Highway agreement financially unsustainable.
"These findings informed the government's decision to engage the project company in a structured commercial restructuring process directed at strengthening affordability and fiscal sustainability," Mbadi stated.
Why the Original Deal Had to Go
Under the terminated concession, the project operated under what is known as an Availability Payment Public-Private Partnership model. This meant that regardless of how many motorists used the road, the government would still be required to make regular payments to the private operator.
The numbers were staggering. The review identified that the government would have been required to make annual availability payments of about Ksh23 billion to the concessionaire.
Even worse, these payments would have been subject to adjustments arising from inflation and foreign exchange fluctuations, potentially increasing the burden on public finances even further.
But that was not the only problem. The Treasury discovered that under the original arrangement, the government would have retained demand and revenue risks.
This means that if traffic volumes failed to meet projected levels, Kenyan taxpayers would have ultimately borne the consequences.
The Treasury further projected a cumulative funding deficit of up to Ksh200 billion during the first 15 years of the concession period alone, raising serious concerns about the long-term sustainability of the road financing model.
"The reassessment undertaken by the government established that the original project agreement no longer aligned with the fiscal objectives necessary to support sustainable infrastructure financing," the Treasury statement read.
Negotiations That Led to Termination
Following these alarming findings, the government engaged the project company in negotiations to restructure the agreement.
The goal was to improve affordability and ensure fiscal sustainability. However, the discussions failed to produce a framework that met the government's objectives.
According to the Treasury, the restructuring process did not produce a commercial framework capable of achieving the ministry's objectives, a move that could have been a recipe for disaster for the whole project.
This failure led to the termination of the original Nairobi-Nakuru Highway concession agreement.
How a New Proposal Emerged
During the same period, the Kenya National Highways Authority received an unsolicited proposal based on a revised commercial framework.
This proposal proceeded through the statutory approval processes prescribed under the Public Private Partnerships Act and culminated in the signing of new project agreements in May and June this year.
What the New Deal Looks Like
The revised arrangement adopts a completely different approach a User-Pay Toll PPP model. This shifts the responsibility for generating revenue to motorists using the road and transfers demand and revenue risks to the private investor.
Under this new model, private investors will recover their money directly from road users, not from public coffers.
Motorists will pay a toll fee of Ksh8 per kilometre once the road becomes operational. The concession will run for 30 years, after which the project assets will be handed over to KeNHA.
Unlike the previous deal, the revised concession does not require annual government availability payments, eliminating what the Treasury described as a major recurring obligation on taxpayers.
Big Savings for Taxpayers
The numbers tell a compelling story of fiscal prudence. While the original concession had a comparable investment cost of approximately USD 1.93 billion (Ksh249.7 billion), the current agreement has a comparable investment value of USD 1.342 billion (Ksh173.5 billion).
The difference represents a reduction of USD 588 million, which translates to Ksh76.2 billion in savings.
The government also confirmed that the projected funding deficit of up to Ksh200 billion identified under the terminated agreement has been addressed through the revised commercial structure.
Revenue Sharing That Benefits Kenyans
One of the most attractive features of the new agreement is the revenue-sharing mechanism. The government will receive 60 per cent of all revenues generated above an agreed 16 per cent equity internal rate of return threshold.
This means that once the private investor has earned a reasonable return on their investment, the government and by extension, the Kenyan people will begin to benefit directly from the toll revenues.
What This Means for Kenya's Infrastructure Future
Mbadi said the revised framework strengthens the government's infrastructure financing policy by mobilizing private capital, reducing long-term fiscal exposure, and preserving fiscal space for other development priorities.
He added that lessons learned from the terminated concession had reinforced the government's commitment to infrastructure financing models that uphold fiscal sustainability, protect public finances, and deliver long-term economic value.
According to the Treasury, the new arrangement is expected to support continued investment in strategic infrastructure while reducing reliance on public resources and transferring commercial risks to the private sector.
A Lesson in Fiscal Responsibility
The cancellation of the original Nairobi-Nakuru Highway deal serves as a powerful reminder of the importance of fiscal discipline in managing public resources.
The government could have easily proceeded with the original agreement, but the numbers simply did not add up.
Annual payments of Ksh23 billion, subject to inflation and exchange rate adjustments, would have placed an enormous burden on taxpayers. Add to that the projected Ksh200 billion deficit in the first 15 years, and you have a recipe for fiscal disaster.
By terminating the deal and adopting a more sustainable model, the government has demonstrated that it is willing to make difficult decisions to protect public finances.
The new User-Pay Toll PPP model ensures that those who use the road contribute to its maintenance and operation, rather than placing the burden on all Kenyan taxpayers.
The Road Ahead
The Nairobi-Nakuru-Mau Summit Highway remains a critical infrastructure project for Kenya. It is one of the country's busiest trade corridors, and its upgrade to a dual carriageway will ease congestion, enhance safety, cut travel time, and expand economic opportunities.
Under the new agreement, motorists using the expanded highway will pay a toll of Ksh8 per kilometre, with the project expected to be completed before August 2027.
The road will be developed through a public-private partnership, with private investors financing, constructing, and operating the road in exchange for toll income.
The project remains a public asset wholly owned by the Government of Kenya. Upon expiry or termination of the concession, all project assets will revert to KeNHA.
A New Chapter for Kenyan Infrastructure
The cancellation of the original Ksh249.7 billion Nairobi-Nakuru Highway deal and the adoption of a new toll-based model marks a significant shift in how Kenya approaches major infrastructure projects.
The government has learned valuable lessons about the dangers of committing taxpayers to long-term financial obligations without fully considering the risks.
By shifting to a user-pay model, the government has ensured that the burden of financing major infrastructure projects falls on those who benefit directly from them, rather than on all Kenyan taxpayers. This is not just good economics—it is basic fairness.
As Kenya continues to develop its infrastructure, the principles demonstrated in this deal fiscal sustainability, prudent management of public resources, and private sector participation will serve as a guiding light for future projects.
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