Treasury reveals Sh2.28 trillion price of scrapping Ruto's projects

President William Ruto’s infrastructure agenda could become a costly commitment for successive governments, with the state facing potential compensation claims of up to Sh2.28 trillion if major projects are discontinued before their contracts expire.

Details contained in a new National Treasury report show that cancelling the agreements could trigger enormous payments to private contractors, leaving taxpayers to finance projects that a future administration may no longer consider a priority.

The financial exposure is expected to reach Sh2.28 trillion by the 2029-30 financial year, bringing into focus the long-term costs attached to the government's Public-Private Partnership (PPP) programme.

Of this amount, approved projects yet to reach the next stages of implementation account for potential termination payments of Sh1.67 trillion. A further Sh217.7 billion is linked to projects that are still awaiting government approval.

The figures emerge at a time when political opponents of the Kenya Kwanza administration have indicated that they could revisit or abandon some of President Ruto's flagship deals if they secure power in next year's election.

Such a move, however, could come with substantial financial consequences because the agreements contain clauses requiring the government to compensate investors when contracts are ended prematurely.

The Treasury classifies these obligations as contingent liabilities, which arise from contractual and legal commitments, as well as expectations that may require government intervention under certain circumstances.

While the liabilities are not necessarily reflected in the regular national budget, they can become actual financial obligations when the conditions outlined in the agreements are triggered.

The government has cautioned that the risks could place additional pressure on the economy by affecting revenue collection, economic growth, fiscal stability and the country's ability to sustain its debt.

“Contingent liabilities arising from government guarantees to StateOwned Enterprises (SOEs), as well as commitments under Public-Private Partnerships (PPPs), may expose the government to fiscal risks if the underlying obligations materialise,” Treasury says.

“Materialisation of such liabilities could increase public debt and debt service costs.”

The potential claims are not limited to outright cancellation of projects. Government guarantees, letters of support and other contractual provisions could also expose the state to payments if specified events occur.

The amount payable could further change depending on inflation and movements in foreign exchange rates, with the final cost determined by the individual terms negotiated with contractors.

Kenya has already experienced the financial implications of terminating major infrastructure agreements. The Kenya Kwanza administration came under criticism after paying Sh7 billion to a French contractor following the cancellation of its deal to build the Rironi-Mau Summit road.

According to the Treasury, the 13 PPP projects that are already operational, being constructed or have reached commercial close carry a combined termination liability of Sh414 billion.

The amount rises sharply when projects that have received approval and are expected to reach commercial close within the medium term are considered, taking their potential compensation costs to Sh1.67 trillion.

Projects that have not yet secured approval present an additional risk of Sh217.7 billion, further increasing the government's possible financial obligations.

The proposed Nairobi-Mombasa Expressway accounts for the largest single exposure, with the government potentially required to pay Sh467 billion if the agreement is terminated.

Other major road projects also carry substantial cancellation costs. The Rironi-Naivasha-Gilgil and Rironi-Mai Mahiu-Naivasha highways, together with the Gilgil-Mau Summit road, have a combined termination exposure of Sh180 billion.

The Nairobi Expressway agreement carries a potential cancellation bill of Sh72 billion, while terminating the contract with Selu Limited could cost the government another Sh13 billion.

The estimates show that changing the country's infrastructure priorities could come at a steep price, with contractual obligations potentially limiting the choices available to future administrations.