The Chinese road firms lined up to build and operate the Rironi-Mau Summit toll road will share excess revenues with the government, a move aimed at limiting the private operators’ potential for excessive profits during the concession period.
The Public-Private Partnerships (PPP) Directorate has disclosed that the State will enter into a revenue cap agreement with the two firms awarded the contract, requiring them to share with the government any revenues generated beyond an agreed threshold.
The arrangement will allow part of the toll proceeds to be reinvested in the maintenance and upgrading of the 236-kilometre highway, while also enabling the State to earn from the project’s proceeds during the concession period.
‘There will be no minimum revenue guarantee, but we will agree that once the revenues surpass a particular point, they will be shared with the government,’ Kefa Seda, Director-General at PPP Directorate, told the Business Daily.
A minimum revenue guarantee (MRG) would have required the government to compensate the operators if toll collections fall below an agreed level, effectively insulating the project from demand risk.
The revenue cap model, by contrast, allows the State to benefit only from excess collections beyond the agreed threshold, without bearing the risk of underperformance.
Mr Seda did not disclose the revenue threshold that would trigger the sharing arrangement, saying negotiations with the contractors are ongoing and a final agreement has yet to be signed.
The approach marks a departure from the demand-risk model used for the Nairobi Expressway, where the Chinese operator absorbs losses if traffic volumes fall short of projections, but retains all excess revenue when usage exceeds expectations.
Nairobi Expressway has not earned a profit since its launch, with operational costs exceeding toll revenues. However, this will not affect the pre-agreed 27-30 year concession period, as per the demand-risk model.
Motorists, for instance, paid Sh7.16 billion in toll fees in the six months to December 2024, falling short of the Sh9 billion required to cover loan repayments, operations and maintenance, according to the Treasury.
Over those six months, about 12.5 million vehicles passed through the Nairobi Expressway.
Its net loss widened to Sh1.84 billion in the six months to December compared to a Sh1.2 billion loss in the year to June last year.
The government, last month, made a last-minute decision to split the contract for the Nairobi-Nakuru-Mau Summit toll road to avoid scrutiny and lengthy approval from the Chinese government.
In a U-turn, the Kenya National Highways Authority (KeNHA) reinstated the runner-up from the original bids and gave it a section of the 236-kilometre road network, while the initial contract winner will handle the remaining portion.
This follows revelations that the winning bidder-China Road and Bridge Corporation (CRBC)-would require a lengthy internal review from Beijing, which demands its approval for overseas projects exceeding $1 billion (Sh129 billion) that are handled by state-owned Chinese companies.