Thika road construction overlooking the Githurai round-about intersection. Photo/LIZ MUTHONI
A steep increase in the cost of oil and key construction materials have added an extra Sh2.7 billion to the Sh27 billion price tag earlier placed on the building of the Nairobi-Thika Highway.
Roads ministry officials said they were expecting a cost variation of not less than 10 per cent, citing the rise in the price of crude by more than 30 per cent since construction work began two years ago.
“We are looking at a price variation of about 10 per cent because the volume of crude-based products used in the project, including fuel for earth-movers and other machinery, is quiet significant making any price movements critical,” Roads permanent secretary Michael Kamau said.
“We started the project at a time when crude oil was priced at an average of $70 a barrel, but that has since climbed to about $105. This is huge in terms of the cost for a project of this magnitude.”
The huge variations in costs bear the risk of delaying some projects, especially where the required adjustments surpass the legal limit.
Burden
In Kenya, the standard variation of prices (VOP) allowable for most projects is 7.5 per cent.
Any variations exceeding this limit must be approved by Parliament before allocation of extra funds.
“We set the limit of variation of price for this project at 15 per cent. This means that we are still on the safe side even with the 10 per cent increment,” Mr Kamau said.
People familiar with the details of the tender agreement said the government alone will bear the additional cost – placing the burden squarely on the taxpayers’ shoulders.
The price of crude oil has risen sharply since January, partly fuelled by political upheaval in the key oil producing North Africa and the Middle East.
Crude price volatility has hit the roads construction sector, which consumes tonnes of oil-based material, hardest.
The sector is one of the biggest consumers of diesel that is used to fuel the heavy earth-movers and uses large quantities of oil-based material such as bitumen.
Since March, diesel prices have climbed faster than prices of lighter fuels such as petroleum in what is being mainly attributed to a new phenomenon dubbed “the diesel take-off”.
A recent report by the Organisation of the Petroleum Exporting Countries (OPEC) said that globally, a bigger chunk of cars are now running on diesel as part of the big shift from petrol.
The oil cartel expects the increase in demand growth for middle distillate (diesel) to account for about 60 per cent of the forecast 20 million barrels per day (bpd) rise in global oil demand by 2030.
OPEC said that by end of 2008, the difference in demand for gas oil/diesel was around three million bpd.
That is expected to rise to 6.5 million bpd by 2020, higher than for petrol.
Ongoing work on the Nairobi-Thika road is meant to transform the four line highway into an eight-lane superhighway.
The project includes construction of interchanges, flyovers, box culverts and standard pipe culverts.
Construction of the highway has been split into three sections totalling 50.4 km each.
The first section runs from Uhuru Highway in the city centre to the Muthaiga roundabout while the second segment covers Muthaiga roundabout to Kenyatta University.
The final stretch covers the section between Kenyatta University and Thika town.
Mr Kamau said the project is 50 per cent complete despite the long delays caused by relocation of key infrastructure such as power lines and water pipes.
“Much of the work on structurals such as bridges and underpasses is progressing well and we are so far satisfied with the pace,” he said. “We hope to be done with the Museum Hill and Forest-Limuru roads roundabouts by July”
A key setback to the speed of construction of the new highway has been a tussle between the Kenya Power and Lighting Company (KPLC) and the contractor over the cost of relocating power lines on the project path.
The power utility firm presented a budget of Sh500 million to relocate all power lines on the entire project path but the government was slow to pay the amount.
“That is no longer a problem now because we only have Sh20 million owed to KPLC for the purpose and we are ready to commit to pay so that work can progress,” Mr Kamau said.
“We have about Sh774 million lying in our account that can be used to offset such obligations. The only problem that we can only access that money after the next budget because it was not factored for in the current one,” he said.
Relocation
The PS said as part of efforts to expedite work on the road, the government had picked new contractors to handle the relocation of the water and sewer lines on the project path.
The Athi Water Services Board (ASWB) had initially been picked to handle the relocation of water and sewer facilities along the path through its selected contractors.
A slow job, however, saw it removed and replaced with three firms —Machiri Limited, Motor Ways and Nakuru Express.
“The new contractors and they are so far doing a good job,” Mr Kamau said.
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