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China’s Wu Yi construction company workers pour concrete on the water trench on the Thika super highway in Nairobi in 2011. Photo/FILE
By DAVID HERBLING
Posted Monday, September 5 2016 at 10:02
IN SUMMARY
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[li]“The spirit of the new regulations is to empower local contractors,” Mr Manduku said in an interview with the Business Daily.[/li][li]Local manufacturers have constantly complained of being left out of the Sh327 billion rail line project, accusing CRBC of importing raw materials and ferrying in Chinese labourers for the works.[/li][/ul]
Chinese contractors are the biggest casualty of new industry rules requiring foreign firms to cede at least 30 per cent stake to local investors in all construction projects undertaken in Kenya. The National Construction Authority set August 1, 2016 as the commencement date for the ownership regulations that compel foreign contractors to form joint ventures with locals who must control at least a third of the value of the deal. The new rules apply to all new projects involving foreign firms, the agency said, warning that those who fail to comply risk being debarred and have their names expunged from the register of contractors.
“We are not registering any projects from foreign contractors who do not have the required local component. At the point of registration, we are looking at ownership,” said Daniel Manduku, chief executive at the National Construction Authority.
Chinese firms dominate the list of Kenya’s 60 top-tier foreign-owned contractors that are classified as Category 1. The classification allows the firms to bid for big ticket deals across all construction classes, according to data from the sector regulator. The indigenous ownership requirement is likely to cut Chinese firms’ dominance in Kenya’s construction industry, and hand a lifeline to local contractors who have in recent years been locked out of mega deals. It means that Chinese as well as other foreign contractors will have to share a piece of their well-paying tenders with locally-owned companies, who have been unable to win such deals because they lack the financial and technical muscle. Other big foreign contractors in Kenya are largely from Japan, India, Dubai and a few from Europe. NCA is empowered to register all construction projects and license contractors. The regulator charges a 0.5 per cent levy based on the value of the project, with the minimum threshold set at Sh5 million. Then Land, Housing and Urban Development secretary Charity Ngilu gazetted the regulations requiring local ownership in June 2014.
Mrs Ngilu was, however, forced out of office in March last year over alleged involvement in corruption and was finally sacked and replaced with Jacob Kaimenyi. “A foreign person or firm shall subcontract or enter into a joint venture with a local person or local firm for not less than 30 per cent of the value of the contract work for which registration is sought,” reads the regulations published in a gazette notice dated June 3, 2014.
“The ratio of ownership of a joint venture for construction work between a local firm and a foreign firm shall be at least 30 per cent for the local firm.”
Mr Manduku said the local ownership guidelines will help boost the capacity of Kenyan contractors through skills transfer and give local players a bite of the lucrative big-ticket infrastructure projects.
Empower local contractor
“The spirit of the new regulations is to empower local contractors,” Mr Manduku said in an interview with the Business Daily. The regulator has licensed more than 15,000 construction firms across different classes such as building, civil, mechanical, and electrical and specialist works; and accredited in excess of 5,000 construction workers in Kenya. The NCA said that in large projects such as energy where local contractors are unable to raise the requisite 30 per cent equity capital in the joint venture, a waiver may be granted to provide for gradual compliance.
“For big projects where the capital requirement may not be met, the board has powers to vary and give concessions allowing for gradual compliance,” he said.
Chinese contractors control the majority of Kenya’s multi-billion shilling construction projects such as railway, roads, ports and real estate. The shareholding requirement should come as a boon to local firms such as Civicon, Kirinyaga Construction, S.S Mehta, Nyoro Construction, Ongata Works, Talewa Road Contractors, and Fountain Technologies, who have in the past 10 years struggled to win big ticket deals.
The 495-kilometre Mombasa-Nairobi standard gauge rail line is currently being constructed by the China Road and Bridge Corporation. Local manufacturers have constantly complained of being left out of the Sh327 billion rail line project, accusing CRBC of importing raw materials and ferrying in Chinese labourers for the works. CRBC was also in June awarded a Sh17.3 billion tender to develop the Nairobi western bypass which starts at Ruaka township and passes through Ndenderu, Kihara, Wangige and Kanjeru, and finally joins the Nairobi-Nakuru highway at Gitaru. Nanchang-based China Jiangxi is currently constructing Kenya’s Sh5.8 billion Parliament Tower – a 26-storey office complex for the lawmakers.
China Communications Construction Company is the firm presently developing the first three berths at the new port of Lamu at a cost of about $478 million (Sh47.8 billion) while the 300-kilometre Olkaria - Lessos – Kisumu transmission line meant to evacuate power from Olkaria to Western Kenya is being developed at a cost of Sh8.5 billion by Indian firm Kalpataru Power Transmission, Kinden Corp of Japan, and three Chinese firms namely NARI Group, Sieyuan Electric, and China Construction Civil Engineering Ltd.
The 50.4 kilometre eight-lane Thika superhighway was constructed by three Chinese contractors - China Wu Yi, Synohydro Corporation and Shengli Engineering - at a cost of Sh31 billion. Tokyo-based Japan Port Consultants Ltd was the contractor behind berth number 19 at the port of Mombasa – a Sh5.6 billion facility with a capacity to handle the 250 metres long Panamax vessels, the world’s largest ships.