Master Plan of LAPSSET Highway

Study for LAPSSET Corridor FS & Lamu Port MP & DD JPC & BAC/GKA JV

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25. Master Plan of LAPSSET Highway 25.1 Highway Planning and Design Considerations 25.1.1 Highway Alignment The general route of the corridor was selected and is described in Chapter 23 of this report. The alignment of the highway (both horizontal and vertical) was designed based on existing 1:50,000 or 1:100,000 together with aerial mapping terrain data and is part of the preliminary design.

Figure 25.1-1 Highway Alignment Plan Source: JPC

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25.1.2 Design Standards The highway design guidelines are shown in Table 25.1-1 below. Table 25.1-1 Design Guidelines

Description Design Standard Reference 140 km/hr (except in mountainous Design Speed areas) Design Vehicle WB -15 (semi-trailer) AASHTO (RDM) Superelevation Max e = 6 % RDM Rate of change of Max ∆s = 0.5 % RDM /AASHTO superelevation Min ∆s = 0.3 % Cross fall 2.5 % RDM Horizontal Curve Min radius (R) = 1,400m RDM Stopping = 350 m Sight Distance RDM Passing = 775 m Max grade (g) = 3 % Grade AASHTO/RDM Min grade (g) = 0.5% Stopping sight distance on crest K value = 186 Vertical Curve AASHTO Stopping sight distance on sag K value = 92 Source: JPC The design standards of the Ministry of Roads Design Manuals (RDM) are given higher precedence as they are customised for local conditions with the AASHTO manuals being used in instances where the local manuals are inadequate in regard to urban sections and modern interchanges. 25.1.3 Cross Section Currently, traffic data on the existing segments of the highway are insufficient to make meaningful traffic forecasts. Results of economic analysis indicate that a 2-way single carriageway will adequately cater for traffic generated as a result of construction of Lamu Port up to the year 2030. Table 25.1-2 shows the cargo forecast for the critical section between Lamu and Garissa. Table 25.1-2 Cargo Forecast for Lamu-Garissa Section Unit: million tonnes Description Year 2020 (ton/yr) Year 2030 (ton/yr) Imports 2.9 4.3 Exports 2.8 5.2 TOTAL 5.7 9.5 Source: JPC Using a conversion factor of 3.5 the traffic volume at the year 2030 will be 7,120 pcu/day. According to RDM 3 a dual carriage should be considered when traffic volumes exceed 8,000 pcu/day. Based on the projected traffic at year 2030 it will be necessary to expand the Lamu-Garissa section into a dual carriage (4-lane 2-way). A typical 2-lane single carriageway is shown in Figures 25.1-2, 25.1-3 below. In urban centres along the corridor urban design standards shall apply with the provision of appropriate service lanes, Non- Motorized Transport facilities and lighting.

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Figure 25.1-2 Typical Single Carriageway Cross-section (Fill) Source: JPC

Figure 25.1-3 Typical Single Carriageway Cross-section (Cut) Source: JPC

Cut and embankment slopes may vary depending on particular site conditions. 25.1.4 Junctions It is inevitable that the highway will cut through different classes of roads and therefore the need for junctions. All the junctions are planned to be at-grade with the exception of Lamu Metropolis where it is proposed to construct interchanges on two locations in the year 2030. 25.1.5 Bridges and Major Drainage Structures An inventory was carried out using the acquired aerial photography of the selected route. From the analysis it is noted that 56 bridges will be required, with spans ranging between 30m and 140m. Construction of more than 160 box culverts will also be required in addition to installation of pipe culverts. Majority of these structures will be located on the rugged section between Isiolo and Lokichokio. The choice between use of bridges or culverts shall be determined by the hydrology and geology at each site. Typical bridge and culvert sections are shown in Figure 25.1-4 below.

CL ROAD FILL MATERIAL 300.0 300.0 WINGWALL 2000.0

SCOUR PROTECTION TOE BEAM SCOUR PROTECTION 300 CROSSSECTION SECTION

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CL CULVERT FINISHED ROAD LEVEL

FILL MATERIAL

ELEVATIONSECTION

C C C L ABUTMENT L PIER L ABUTMENT

3000.0 3000.0 3000.0 2000.0 2000.0 2000.0 2000.0 2000.0 2000.0 2000.0 2000.0 2000.0 2000.0 2000.0 2000.0 3000.0 3000.0 3000.0 EXTEND DETERMINED ON SITE EXTEND DETERMINED ON SITE FINISHED ROAD LEVEL

END DIAPHRAM BEAM END DIAPHRAM BEAM

FILL MATERIAL FIXED BEARINGS MAIN BEAMS H.F.L FREE BEARING FILL MATERIAL PRESTRESSED EXISTING GROUND LEVEL EXISTING GROUND LEVEL

ABUTMENT WALL ABUTMENT WALL

WEEP HOLES WEEP HOLES RIVER BED

BRIDGEBRIDGE ELEVATION ELEVATION

GI PIPE HANDRAIL GI PIPE HANDRAIL 50MM DIAMETER 50MM DIAMETER

FLEXBEAM CL BRIDGE FLEXBEAM GUARDRAIL GUARDRAIL

WALKWAY WALKWAY 2.5% 2.5%

DRAIN PIPE DRAIN PIPE

BRIDGEBRIDGE DECK ELEVATION ELEVATION Figure 25.1-4 Typical Box Culvert and RC Bridge Source: JPC

25.1.6 Preliminary Sub-grade Classification The LAPSSET corridor study does not cover the investigation of engineering characteristics of in situ soil or pavement construction materials. However to be able to generate preliminary cost estimates, a conceptual pavement design has been carried out using data generated from previous studies carried out by the geological and agricultural sectors such as the exploratory soil map of Kenya carried out in 1980 by the ministry of agriculture and the geological Mapping of Kenya as done by the Geological department in 1962. Although the proposed corridor traverses different geological areas from Lamu to the two border crossings of Nakodok and Moyale, broad distinctions can be made of the areas that are likely to bear the same characteristics in terms of in situ soil and material availability. The Segment between Isiolo and Moyale is currently being upgraded and is under various stages of design or construction. This study has broadly adopted the design standards for this segment and shall only consider the Lamu to Southern Sudan section. The section between Lamu and Isiolo can be taken as being homogenous with the remaining segment to Nadapal having two discernable geological regions as follows Isiolo to Lokori, Lokori to Nakodok. Table 25.1-3 Preliminary Subgrade Classification Section Geological Classification 1 Lamu to Isiolo Quaternary Sediments 2 Isiolo to Lokori Tertiary Volcanic 3 Lokori to Nakodok Quaternary Sediments Source: JPC

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Road development projects have been undertaken in the recent years which lie in the same regions as outlined above, in which intensive soil investigation was carried out and thus the engineering characteristics are likely to be similar to what is encountered along the corridor. These projects are outlined below. Table 25.1-4 Soil Investigations from other Projects Geological Subgrade Project Year Soil Type Classification Classification 1 Lamu – Witu - 2008 Silty sand Quaternary Average CBR is 13; S3 Kiunga1 Sediments 2 Loruk- Tot (B4) 2009 Clay soils Tertiary Volcanic Average CBR is 8; S2 Road2 Source: JPC

For the preliminary designs, the subgrade classes for the three segments are thus assumed as shown in Table 25.1-3 and Table 25.1-4 above. Pavement Material Similar to the subgrade material, material sources for pavement layers are also distributed according to the geology of the area. In the Lamu -Witu - Kiunga road, the most readily available construction material was sand as no hard stone or gravel sites could be located. However suitable gravel sites can be located along the corridor from Garissa to Nakodok. The corridor also traverses regions that have no major permanent rivers to provide construction water. To this end, proper construction planning should enable damming of some seasonal rivers during the rainy season as well as sinking of boreholes. 25.1.7 Pavement Structure (1) Traffic Classification The table below illustrates the division of traffic classes’ in Kenya. Table 25.1-5 Traffic Class Traffic Class Cumulative No. of Standard Axles *ESA/day in year 1 T1 25 million-60 million 2,500-6,000 T2 10 million-25 million 1,000-2,500 T3 3 million-10 million 300-1,000 T4 1 million-3 million 100-300 T5 0.25 million-1 million 25-100 Source: RDM Part 3; 2.5.2 *ESA: Equivalent Standard Axle

The cumulative standard axles, T, is obtained from the relationship.

Where; t1, average daily number of standard axles in the first year after opening i = annual growth rate expressed as a decimal fraction N = Design period

1 Final Preliminary Design Engineering Report, Howard Humphreys and Stewart Scott, 2008. 2 Final Material Report Loruk-Tot, Abdul Associates, 2009.

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For the proposed LAPSSET highway, the damage is taken to be from Heavy Goods Vehicles (HGV) and Medium Goods Vehicles (MGV) only. Freight forecasts for the first year of opening are 3 million tons between Lamu and Garissa and 400,000 tons from Garissa northwards. It is thus proposed to use two pavement designs for the two sections as the loading is significantly varied. A design life of 15 years has been adopted for the design. Garissa to Lamu The average daily traffic expressed as equivalent number of standard axles expected to use this section in the first year of opening planned as 2015 is shown below. Table 25.1-6 Daily Number of Standard Axles in 2015 (Year 1)

Vehicle AADT 2015 EF ESA/day HGV 540 8 4,320 BUSES 20 1 20 560 4,340 Source: JPC AADT: Annual Average Daily Traffic EF: Equivalence Factor

The cumulative number of standard axles over the design life of the road section considering growth rates of 4%, 6% and 8% is shown below.

Table 25.1-7 Cumulative Number of Standard Axles (CNSA) and Traffic Class

Design Life CNSA/Growth Rate Traffic Class in years 4% 6% 8% 4% 6% 8% 10 19,018,874 20,879,697 27,075,510 T2 T2 T2 15 31,719,365 36,871,464 52,324,456 T1 T1 T1 Source: JPC From Table 25.1-7 above, traffic class T1 is selected for this section.

Garissa to South Sudan The average daily traffic expressed as equivalent number of standard axles expected to use this section in the first year of opening planned as 2015 is shown below. Table 25.1-8 Daily Number of Standard Axles in 2015 (Year 1)

Vehicle AADT 2015 EF ESA/day HGV 75 8 600 BUSES 20 1 20 620 Source: JPC AADT: Annual Average Daily Traffic EF: Equivalence Factor

The cumulative number of standard axles over the design life of the road section considering growth rates of 4%, 6% and 8% is shown below.

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Table 25.1-9 Cumulative Number of Standard Axles (CNSA) and Traffic Class

Design Life CNSA/Growth Rate Traffic Class in Years 4% 6% 8% 4% 6% 8% 10 2,716,982 2,982,814 3,867,930 T4 T4 T4 15 4,531,338 5,267,352 7,474,922 T3 T3 T3 Source: JPC

From Table 25.1-9 above, traffic class T3 is selected. (2) Pavement Type For the selected traffic class and considering site conditions, several pavement types are possible as shown in the table below. Initial studies as described in Section 25.1.6 indicate the subgrade class to be S3. Table 25.1-10 Possible Pavement Types Type Section Sub-base Base Surface Course No. 4 Base quality GCS Cement stabilized gravel AC t = 275mm t = 200mm 100mm 5 Cement/lime improved Cement stabilized gravel AC Lamu - Garissa material (base quality) 100mm t = 225mm t = 150 12 GCS (base quality) DBM AC t = 275mm t = 150mm 50mm 3 Cement/lime improved Cement/lime improved AC material material 50mm t = 200mm t = 150mm 6 Natural material GCS TSD t = 225 t = 200mm 7 Cement/lime improved GCS AC Garissa - material 50mm Northwards t = 175mm t = 150mm 8 Cement/lime improved GCS AC material (base quality) 50mm t = 150mm t = 125mm 9 GCS GCS AC t = 175mm t = 150mm 50mm Source: Road Design Manual, Part 3 The choice of the most suitable pavement type depends on the availability and quality of materials on site. Selection of the appropriate pavement type should be done during the detailed design stage.

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25.2 Construction Plan Construction planning is made to ensure the project is implemented within the expected time and budget. A good construction plan is the basis for developing the budget and schedule for work. Essential aspects of construction planning include the generation of required activities, analysis of implication of these activities, and choice among the various alternative means of performing activities. Planning will also ensure that resources and equipment are deployed only when needed. The following are the considerations while planning for construction: • Choice of technology and construction methods; done to attain the designs while addressing issues of human and equipment deployment, environmental aspects • Establish precedence of construction activities so as to enable monitoring and evaluation of progress • Estimation of time and resource requirements • Segmentation of the highway into homogenous sections to ease and speed up construction Due to the limited accessibility to most of the sections of the proposed corridor, it is recommended to divide the LAPSSET corridor into smaller and more manageable sections with each section running as an independent organization under the Project Employer.

25.2.1 Base Stations for the Construction Purpose for the Base Station The proposed LAPSSET highway to be constructed is approximately 900 km from Lamu to Lokichar (Lokichar to Nakodok is under study through World Bank Funding). Accesses to the corridor construction site from Mombasa and Nairobi (which are the main supply gateways for resources) are limited. The construction bases for each of the sections should therefore be located close to the supply links. Location of the Base From the result of site visits, the following towns are recommended for the construction bases; (1) Lamu (2) Garissa (3) Isiolo (4) Nginyang (5) Lokichar The distance between each of the above towns ranges between 100 to 150 km. Each base shall cover the following area. (1) Lamu to Garissa (250km): 2 Sections (2) Garissa to Isiolo (280km): 2 Sections (3) Isiolo to Kisima (100km): 1 Section (4) Kisima to Nginyang (90km): 1 Section (5) Nginyang to Lokichar (180km): 2 Sections Construction of Base Station The Base Station shall be constructed using available equipment and materials, and shall include management/site office, communication centre, mechanical workshop with all necessary spare-parts, fuel hub-station, fully equipped laboratory, and a first-aid clinic with doctor(s). The construction period for the Base is about 3 months after provision of 5ha of land.

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25.2.2 Area Office Under the management office of each base there shall be several area offices. These area offices shall cover sections of 30 to 50 km and will be tasked with supplying plant, workshop, laboratory, stockyard, and basic workforce under site office with appropriate work volume. The period of construction is expected to be 6 months.

25.2.3 Construction Sequence (1) After establishing the base office, repairs shall be done on the existing road as there will be no more constraint in transportation of resources to the site. (2) Constructing access ways to each of the site from the existing road. (3) Starting of construction Due to the tight construction schedule, the work shall commence starting with the difficult sites or portions such as bridges and deep filling.

25.2.4 Construction Schedule The period necessary for the construction of proposed highway is generally at least 5 years for all segments. However, if the highway construction is packaged into segments, early planning for mitigation measures against possible bottlenecks and unexpected occurrences is done, the period can be shortened to 3 years as shown in the attached tentative construction schedule Figure 25.2-1. The following are the minimum requirements to be provided by the contractor. (1) Providing an optimized construction sequence, (2) Maintaining the access way in good condition, (3) Temporary drainage system that is effective during the rainy season shall be provided, (4) Introduction of suitable and adequate equipment, and stocking of consumable materials for equipment and a full set of spare-parts at the management office to ensure prompt repairs on site, (5) Stocking surplus materials for construction at the site, (6) Employment of full time staff from the commencement and provision of replacements or additional staff where necessary, (7) Direct employment of staff and minimum workforce by the contractor as far as is reasonably possible to avoid lengthy negotiation with subcontractors in case of some modification or changes, (8) Introduction of new or well maintained construction equipment is recommended.

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First Year Second Year Third Year Item Note 12345678910 11 12 12345678910 11 12 12345678910 11 12

1. Establishment of Base 1) Land Acquisition 2. Office and Shop

2. Area Office 1) Land Acquisition 2. Office and Plants

3. Site Office 1) Land Acquisition 2. Office and Shop

4. Temporary Work 1) Repairing of Existing Road 2) Construction of Access 3) Survey and Settingout 4) Maintenance of 1) & 2)

5. Construction 1) Construction of Bridges 2) Construction of Road

Figure 25.2-1 Tentative Construction Schedule of Highway for Each Base Unit Source: JPC Note: Construction Schedule to be confirmed considering the procurement process and implementation strategy. 25.2.5 Owners Responsibility To minimize idle time during project execution, the following items shall be adopted: (1) Prompt and good decisions shall be done against changes or modification of design, (2) Establishment of independent organization for project management, (3) Appropriate measures shall be taken when unforeseen events occur, (4) Controlling and coordination of related authorities which may overwhelm the contractor, (5) Acting as a good supporter to the contractor, (6) Prompt action to payment after receipt of invoice from the contractor for proper execution of the construction works.

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25.3 Economic Evaluation 25.3.1 Cost Estimate Preliminary execution cost of LAPSSET highway is estimated at Ksh. 112.8 billion (USD 1,396 million) exclusive of tax. The length of the road is 900 km. The breakdown of the cost estimate is described hereunder. Table 25.3-1 Breakdown of Cost Estimate Item Amount (Kshs) 1 Preliminary 13,000,000,000 2 Construction Cost 99,800,000,000 TOTAL 112,800,000,000

Source: JPC This estimate does not include the section from Isiolo to Moyale (470km) and the section from Lokichar to Nakodok (330km). As pointed out elsewhere in the report, the Isiolo to Moyale A2 road is currently under development while the section from Lokichar to Nakodok which is part of road A1 is under study by the World Bank. It has been assumed that funding for these sections will be provided by the respective development partners currently engaged in the development. The annual financial requirement over the 5 year development period of the highway in line with the construction schedule is shown in the table below. Table 25.3-2 Annual Financial Requirement Unit: million Ksh Year Item Total 2012 2013 2014 2015 2016 2017 1. Preliminary 2,000 2,900 3,200 2,600 1,800 500 13,000 2. Construction 0 16,900 29,100 32,100 18,400 3,300 99,800 Total 2,000 19,800 32,200 34,400 19,800 3,700 112,800

Source: JPC

25.3.2 Economic and Financial Analysis (1) Economic Analysis

1) General The relevant economic feasibility criteria for economic and financial analysis of the LAPSSET Highway are derived from procedures intended to maximize the overall objectives of the national economy. Economic feasibility is measured by comparing the Economic Internal Rate of Return (EIRR) of the project with the guidelines set out by the relevant authority (the government) and/or the international financial institutions, which stipulate a minimum EIRR of 12 % for infrastructure projects. The discount rate of 12% which is the economic opportunity cost of capital is used to calculate B/C and NPV as well. 2) Common Pre-requisites The common pre-requisites considered for carrying out the computation of economic viability indicators are as follows: a) Investment Plan and Period

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The investment plan period is defined as the total time period between the start of the cost streams and the end of the cost and benefit streams and the cost streams is defined to start with the final engineering design of the Project while the investment plan period for a project normally extends over a period of 30 – 40 years. In the evaluation of this highway Project, forty (40) years are considered applicable taking into account the scale and type of the project and progressive development of the required number of berths in tandem with expected future increases in road freight volumes. During the investment plan period, the costs and benefits are recorded annually over the whole period, but separately for each benefit and cost component. b) Design and Construction Period After the completion of the detailed design of the Project and financial arrangements, the tender will be issued and a contract awarded to the selected contractors to execute the required works. The design and construction period, counted from the date of awarding the contract to the completion of the works, is estimated at 3 years to complete all sections between Lamu Port and Lokichar. c) Project Commissioning Year It is assumed that by the end of 2015 construction works for all sections of the proposed highway will be fully completed and that it will be opened to the public immediately after completion or from the year 2016. If the toll highway operation is designated to be undertaken by a selected qualified private entity, the selection of private highway operators will be conducted competively and the contract will be assumed to have been approved prior to the commissioning of the highway operation and maintenance services. d) Currency The currency used in the economic evaluation is the US Dollar while the exchange rate for the Kenyan Shilling to the United States Dollar is 80.

3) Initial Capital Investment Cost Construction costs of the LAPSSET Highway including contingency cost at 10% of the total capital cost were estimated firstly on the basis of the market price as financial costs as of November 2010 as shown in Table25.3-3. They were then converted into economic costs for purposes of economic analysis, by deducting value-added tax and other taxes. As for the economic analysis, it is assumed that the Project is owned and operated fully by a public entity or by a single project operating body.. 4) Vehicle Operation Cost The vehicle operation costs (VOC) have been converted into economic costs in US$ per 1000 km travelled by type of vehicle for cargo transport and applied to economic analysis as tabulated in Table25.3-3 below. Table25.3-3 Vehicle Operation Cost Unit: US$ per 1000 km Running Speed Medium Size Large Size Truck Car Truck (24 tons) (10 tons) 40 km/hour 338 601 255 70 km/hour 298 532 228 Source: Study Team

5) Maintenance Cost

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The annual maintenance cost of the highway is assumed to be 0.5% of its total initial capital investment cost. 6) Computation of Economic Benefit Economic benefits of the LAPSSET Highway Project are estimated based on the comparison of transportation costs incurred under the conditions of “With Project Case” and those incurred under “Without Project Case”. The economic benefits of the Project are assumed to be derived from the difference in the Vehicle Operating Costs (VOCs) between the “Total VOCs of With Project Case” that uses the larger size truck for transporting goods at a higher speed and the “Total VOCs of Without Project Case” that uses the conventional and smaller truck for transporting goods at a lower speed than the case of “With Project”. The assumptions used in estimating direct benefits derived from the savings in transport costs are as follow: • Saving of Transport Cost by Use of Larger-sized Truck with Higher Speed The annual cost of transporting goods by the LAPSSET Highway is much lower than that of using conventional trucks operating along the existing road. The basic formula for estimating the economic benefit is shown below.

STy1 = (V/Ls x Cs x Ds) – (V/Ll x Cl x Dl) Where:

Sty1 = saving of transport cost in year 1 V = volume of goods to be transported Ls = loading volume of smaller truck Ll = loading volume of larger truck Cs = Vehicle Operation Cost of conventional truck per 1000 km Cl = Vehicle Operation Cost of large-sized truck per 1000 km Ds = transport distance of conventional truck Dl = transport distance of large-sized truck

The truck transport cost is considered as the VOC for a truck with a loading capacity of 10- tonnes travelling at 40 km per hour. The VOC for the larger sized truck is for one with a loading capacity of 24-tonness and travelling at 70 km per hour..

(2) Financial Analysis

1) General The objective of financial evaluation is to assess the overall financial viability of the LAPSSET Highway Project. The project may be operated by the private sector for some aspects of the highway operation such as highway management, highway toll collection, highway maintenance, etc. The Project may be implemented through a mix of public and private investment. It is assumed that the investment cost is borne by public sector and private section equally or at share ratio of 75:25. The overall financial viability is therefore evaluated on the assumption that the investment will include all the required works, procurement of the necessary goods and services for its construction and that it will be designated as a toll road. The cut-off rate of the FIRR is set at 4.0% as a weighted average rate reflecting the low interest rate under financial conditions adopted by the official development assistance (ODA) and the commercial rate for long-term lending. The cut-off rate of the FIRR for the part of

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private investment is set at 10.0% taking into consideration of loan interest from domestic and international financial sources in mixture of both. 2) Costs The costs shown in Table-25.3-1 are estimated as the financial costs based on the prevailing market prices of materials and services. The financial evaluation is carried out based on these costs but at constant (2011) prices. Trucking charges for respective types of cargo were determined taking into account the prevailing relevant charges in Kenya.

3) Revenue The revenues assumed to be derived from the project are will consist solely of highway toll collections. Based on the definitions of costs and revenues mentioned above, the Financial Internal Rate of Return (FIRR) is computed.

25.3.3 Computation of Economic and Financial Viability Indicators (1) Result of Computation on the Economic Viability Indicators Table-25.3-4 presents the results of computations of economic viability indicators namely, EIRR, B/C and NPV for the development of LAPSSET Highway by main segments.

Table-25.3-4 Result of Economic Viability Analysis (Highway)

NPV Segment EIRR B/C (US$ Million)

1 Lamu Garissa 27.9% 3.2 607 2 Garissa Isiolo 8.2% 0.6 -110 3 Isiolo Lokichar Negative 0.2 -396 Total Lamu Lokichar 12.9% 1.1 101 Source: Study Team

As the above Table indicates, the EIRR computed for the respective sections vary. Nevertheless, it is higher for the sections closer to Lamu Port. It also shows that the section closest to Southern Sudan border shows a negative return. However, when these 3 sections are combined as a complete highway connecting Lamu Port with the Southern Sudan border, its computed EIRR is more than 12% which is the opportunity cost of capital, B/C is greater than 1.0 while NPV is positive. The LAPSSET Highway Project is therefore considered feasible and competitive from economic evaluation viewpoint but on condition that the project is evaluated as a sustainable and financially viable development project. (2) Result of Computations on the Financial Viability Indicators The financial viability indicator computations for each section were carried out as follows: a) Lamu-Garissa Section (250km) The cargo volume of import cargo assigned to be transported by road for this section is estimated to be about 3.7 million tons in 2020 and 5.5 million tons in 2030, respectively. The average traffic volume per day is projected by type of vehicle as shown in Table-25.3-5 in AADT.

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Table-25.3-5 Projected AADT of Lamu – Garissa Section Traffic Volume Average Annual Daily Traffic (AADT) Unit Standard Truck Container Trailer Passenger Car Total Nos. of Truck Including Bus Vehicle Vehicle per Day (2020) 1,900 750 120 2,770 Vehicle per Day (2030) 2,770 1,120 610 4,500 Source: JPC Based on this traffic volume projected the revenue arising from the operation of the toll highway for this section was computed. Table-25.3-6 shows the result of computations of financial viability indicators for Lamu-Garissa Section. Table-25.3-6 Results of Financial Viability Indicator Computation (Highway, Lamu-Garissa) Conventional Upper and Lower Separation Unit Factor Public Private All Public (Owner) (Operator) Project Life Year 30 30 30 Total Investment US$ Million 356 267 89 FIRR % 5.1% 4.0% 10.0% Assumed Toll Standard Truck US$ per section 18 Container Trailer Truck US$ per section 36 Passenger Car US$ per section 9 Lease Charge per Year US$ Million 18.4 Source: JPC The results of the financial analysis on the Lamu – Garissa section (250km) shows that the project is financially viable as the level of toll assumed that can make this project financially feasible may be reasonable to the toll highway users. The affordability of these levels of tolls are checked and judged by comparison of transport cost on “Without Project” and “With Project” cases. Table-25.3-7 shows the Vehicle Operation Cost (VOC) saved in financial price. Table-25.3-7 Comparison of VOC in Financial Price

Source: JPC

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Although an approximate transport cost saved by use of newly built Lamu – Nairobi via Garissa section than use of existing Mombasa – Nairobi road can be calculated as shown in the above table which is 14.4% by truck carrying loose cargo, 20.5% by container trailer truck carrying containerized cargo and14.3% by passenger car, the highway users do not understand how much money they were able to save by use of the new highway. As for the detailed study for the implementation of the toll highway for this section, the acceptable level of toll is to be studied carefully through the conduct of the Willingness-to-Pay survey designed specifically for the project taking into account of type of freight to be transported and type of vehicle to be used. Under such circumstance, it may be difficult to impose the collection of toll fee from the users from the commencement of highway operation, however, it may be possible to collect the toll by phase of development of highway. b) Garissa-Isiolo Section (280km) Table-25.3-8 shows the result of computations of financial viability indicators for Garissa-Isiolo Section. Table-25.3-8 Results of Financial Viability Indicator Computation (Highway, Garissa-Isiolo) Conventional Upper and Lower Separation Unit Factor Public Private All Public (Owner) (Operator) Project Life Year 30 30 30 Total Investment US$ Million 400 300 100 FIRR % 6.5% 4.0% 10.0% Assumed Toll Standard Truck US$ per section 180 Container Trailer Truck US$ per section 287 Passenger Car US$ per section 359 Lease Charge per Year US$ Million 20.7 Source: JPC The results of the financial analysis on the Garissa-Isiolo section (280km) shows that the project is not financially viable as the toll assumed is not affordable by the toll road users. This section is recommended to be developed purely by the public sector. c) Isiolo-Lokichar Section (390km) Table-25.3-9 shows the result of computations of financial viability indicators for Isiolo-Lokichar Section. The results of the financial analysis on the Isiolo-Lokichar section (390km) shows that the project is not financially viable as the toll assumed is not affordable by the toll road users. This section is recommended to be developed purely by the public sector. Table-25.3-9 Results of Financial Viability Indicator Computation (Highway, Isiolo-Lokichar) Conventional Upper and Lower Separation Unit Factor Public Private All Public (Owner) (Operator) Project Life Year 30 30 30 Total Investment US$ Million 642 482 161 FIRR % 6.6% 4.0% 10.0% Assumed Toll Truck US$ per section 748 Container Trailer US$ per section 1,197 Passenger Car US$ per section 1,496 Lease Charge per Year US$ Million 33.0 Source: JPC

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Table-25.3-10 summarizes the results of financial analysis.

Table-25.3-10 Result of Financial Analysis (Highway) Section FIRR Toll Fee in US$/section Lease From To Distance Public Private Truck Container Car US$ Million Lamu - Garissa 250 km 4.0% 10.0% 18 36 9 18.4 Garissa - Isiolo 280 km 4.0% 10.0% 180 287 359 20.7 Isiolo - Lokichar 390 km 4.0% 10.0% 748 1,197 1,496 33.0 Lamu - Lokichar 920 km 6.2% Source: JPC The result of analysis tabulated in the above table explains that only the Lamu – Garissa section is financially viable since the toll rates of each type of vehicle can be considered at affordable for the highway user. The financial viability of the other sections is negative although their economic viability is high enough for justification of public investment.

(3) Highway User Charge Assuming that the LAPSSET Highway (Lamu-Garissa-Isiolo-Lokichar) is developed, owned, operated, maintained and managed by the public entity fully, the cost of highway maintenance can be covered by collecting the user charge. The rate of such charge or levy by type of vehicle and by section was computed. Table-25.3-11 summarizes the rate of highway user charge to cover only the highway maintenance cost. Table 25.3-11 Highway User Charge (Fully Owned and Operated by the Government) Section Distance Unit Container Truck Car Average Trailer Truck

Lamu - Garissa 250km Ksh/trip 442.3 221.2 110.6 112.1 US$/trip 5.20 2.60 1.30 1.32 Garissa - Isiolo 280km Ksh/trip 844.0 422.0 211.0 761.8 US$/trip 9.93 4.96 2.48 8.96 Isiolo - Lokichar 390km Ksh/trip 4,109.4 2,054.7 1,027.3 3,460.2 US$/trip 48.35 24.17 12.09 40.71

Source: JPC These charges are considered as reasonable for Lamu-Garissa section and for Garissa-Isiolo section or Lamu-Isiolo section combined.

25.3.4 Risk Analysis (1) Risks Identified The role of highway in the LAPSSET Corridor is quite important especially for the achievement of seamless and effective transport linkages with least transport costs in moving goods, not only between the New Lamu Port as a terminal port of the transport corridor and production / consumption center of relevant countries such as Ethiopia and Southern Sudan, but also as an alternative route for cargo plying between the production / consumption centers in Kenya and Uganda. Although the evaluation of the LAPSSET Highway Project confirms that it is economically and financially viable, the project’s success will depend substantially on proper management and the efficient development sequence as well as coordination among the three countries that will benefit from it,, namely Ethiopia, Southern Sudan and Kenya. The following critical issues will need to be addressed if the project is to be successfully implemented.

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(2) Sequence of Highway Development is Essential To avoid the risk of ineffective investment in the highway, its links with international road network should be carried out in stages as follows: 1st step: Development of highway between Lamu and Garsen. The three berths of the New Lamu Port is planned to be constructed first. However, the access road to Lamu is weak and is needed to be prepared as the first step of highway development program. C112 connecting Garsen with Lamu is to be rehabilitated and upgraded to make traffic between Mombasa and Lamu possible so as to handle and transport the port cargo between the port and hinterland by 2016 the year of opening the New Lamu Port. 2nd step: Development of highway between Lamu and Garissa It is expected that the cargo traffic of the Northern Transport Corridor will be diverted to and from the Nairobi – Lamu route. Indeed this segment of the Corridor will be quite important in stimulating development, especially along the eastern parts of the Tana River basin where it will facilitate massive investment in cash crop production and agro-based industry. As indicated in the section on financial analysis, the financial return on this segment is sufficiently high enough to attract participation of the private sector, unlike the other highway segments that do not ensure a proper level of financial return unless very high and unacceptable toll rates are charged to the road users. The rehabilitation and improvement of road surface for Nairobi – Garissa section shall be carried out prior to the completion of Lamu – Garissa section. The toll highway section can be extended from Garissa to Nairobi. 3rd step : Realization of highway connecting Garissa and Isiolo The cargo traffic to and from Lamu and Moyale will become possible via Isiolo. 4th step: Development of the Highway connecting Isiolo with Nakodok at the border with Southern Sudan: The development of this highway segment is closely related to the execution of road construction between Juba and Nakodok in the Southern Sudan. Unless an agreement is made between Kenya and the Southern Sudan that Southern Sudan will promptly build this road, the development from the Kenyan side should be suspended. As the results of Economic Viability Indicators show that the margin of EIRR is slim, implying high risk and vulnerability against changes in various factors such as decreases in cargo volumes, increase in the initial investment cost as well as increases in maintenance cost. (3) Heavy Financial Burden for Road Maintenance The proper maintenance of the highway is needed especially for the section between Lamu and Garissa because of its considerable traffic volume and the average axle load of vehicle run through this section. It is anticipated that the need of road surface maintenance would give a considerable financial burden to the highway owner namely KeNHA. The fee collection for highway maintenance purpose is recommended to be exercised after several years from the year of commissioning since for 3-4 years from the commissioning of the highway would not require much cost for road repair and maintenance but beyond 5 years form the highway opens its traffic the recurrent cost for maintenance will increase sharply. Taking into account the need of fee collection to cover its maintenance cost the involvement of private entity is recommended to be started for operation and maintenance of highway. And this formation of partnership will be expanded to an ultimate goal of PPP scheme that is to put financial responsibility or obligation of the repayment of credit which is needed initially to develop the highway, to the private entity involved.

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Recommendations: (1) The Lamu-Garissa section of the Highway can be implemented as a toll highway through partial investment and toll collection operation as well as road maintenance by the private sector. However, this can be made possible after several years from the commissioning of this section as fully owned and managed by the public sector entity namely KeNHA. Until such time that the daily traffic would be built up no investor may show interest to provide or to share the investment cost under PPP scheme based on concession agreement. The phased development of highway operation and management is summarized in Table-25.3-12 below: (2) In view of these factors, it is recommended that the highway project should be developed in phases and that, in particular, the implementation of the Isiolo-Nakodok segment should be delayed until Southern Sudan is in a position to implement its segment of the same road (Juba-Nakodok segment). (3) The existing state road connecting Mombasa and Garissa via Garsen along the left bank of the Tana River is recommended to be repaired to a certain level to complete the road link along the Tana River for the section of Lamu – Garissa so as to provide the alternative route for road transport. However, the highway section between Lamu and Garissa is to be of higher standard with maximum speed of 140 km or average speed of 100 km per hour to meet with the requirement of cross-border transportation. The existing road will serve mainly for domestic road transport services to support and enhance the development of local economy especially along the Tana River or in the Tana River basin. Table-25.3-12 Phased Development of Highway Operation and Management

Phase-1 z Fully Public Funding (80% by loan, 20% by budget) z KeNHA owns and manage all section z KeNHA employ Private Entity for maintenance work Phase-2 z Toll collection will start. z Private entity employed by KeNHA undertakes maintenance work and collection of toll fee but it aims to meet with the requirement of road maintenance cost. z Toll fee is received by KeNHA Phase-3 z Private entity share the capital investment z Private entity pay to KeNHA a concession fee z Private entity operates, maintains and manages the toll fee collected. z Private entity pay fixed annual charge (like lease charge) to KeNHA and/or a part of revenue as agreed between two parties.

Source: JPC (4) The financial viability especially for the private toll road operator for the section between Garissa – Isiolo and Isiolo – Lokichar is low and these section are not attractive enough to invite the private sector participation. However, if the right of real estate development along or directly connected to the highway the private investor may be able to participate into the development of these highway sections. The private entity who would take an investment risk to the highway development for these sections may be given the right to invest and develop the truck terminal, logistic service centre, or ICD even housing project in and around Isiolo. In such a way, the highway can be developed as the toll highway. (5) Even when the LAPPSET Highway is developed fully and solely by KeNHA (government) the highway maintenance cost is possible to be covered by collecting the highway user

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charges. The rate of such user charge or levy to the highway user by type of vehicle and by section as shown in Table 25.3.3-8. It is recommended to operate the Lamu-Garissa section or Lamu-Isiolo section by public sector as toll highway from Phase-2 mentioned above however the aim of collecting highway charge will be solely to cover the cost of highway maintenance.

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25.4 Environmental Considerations (Highway) The development of the highway sector of the corridor expects a variety of environmental issues during the construction and operational phases. 25.4.1 Key Environmental Issues along the Highway Alignment Prior to implementation of the different segments of the highway sector, an Environmental Impact Assessment study will be carried out and will require approval from the National Environmental Management Authority. The following are a list of key issues to be studied. Table 25.4-1 Key Environmental Issues No. Item Source of Impact/ Issues 1. Habitat Disruption/ Clearing of vegetation for highway and construction site. Loss Fragmentation of National Park, National Reserves, Endangered Ecosystems, etc. Soil Erosion Siltation 2. Protected Areas Indirect impacts of construction on nearby protected area. Indirect impacts of operations to nearby protected area. 3. Wildlife Migration Blocking of Migration Routes. Accidents with migrating animals 4. Water and Wastewater Change in Hydrology through change in topography Quality Construction related pollutants – oil, grease, asphalt, etc. Flooding 5. Air Quality Construction Generators. Stockpiling, Backfilling, Excavation. Construction Equipment and Vehicles Traffic Pollutants – SOx, NOx, PM, CO. 6. Noise Construction activities Traffic – Steep slopes 7. Vibration Construction activities. Traffic 8. Waste Management Solid waste & Liquid Waste – Garbage, refuse, sludge, engine parts, batteries, oil, grease etc. Hazardous waste – petroleum , fertilizers 9. Land Acquisition Physical Displacement Economic Displacement 10. Heritage National Museums & Sites Cultural artefacts Intangible Heritage 11. Safety Accidents Road kill 12. Social HIV/AIDS Prevalence due to migrant workers Urban Growth – Loss of agricultural land Source: JPC

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A summary of key environmental issues in each section to be considered along the Highway is shown in Table 25.4-2 below: Table 25.4-2 Preliminary Scoping Matrix (Highway) Environmental Issues

Segment

y Habitat Disruption Disruption Habitat Areas Protected Routes Migration Wastewater Water & Qualit Air Quality Noise Vibration Management Waste Land Acquisition Archaeological HIV/AIDS Prevalence Segment 1: A AABBBCBAA B Lamu – Garissa Segment 2: A AABAABBAB B Garissa - Isiolo Segment 3: A AABAABBAB B Isiolo – Lokichar Source: JPC A = Serious Impact is expected B = Some Impact is expected C = Little impact is expected or easily prevented or mitigated 25.4.2 Special Considerations (1) Wildlife Migration in Isiolo Area The Isiolo area is a rich area for wildlife migration including elephants. Appropriate mitigation measures should be designed in cooperation with the Kenya Wildlife Services (KWS) in the detailed designed. Wildlife overpasses and underpasses should be considered in the detailed design of the highway as shown in Figure 25.4-1 and Figure 25.4-2. 25.4.3 Environmental Management and Mitigation Measures Prior to implementation of each segment, an EIA should be carried out during the detailed design stage and approval should be sought on the same from NEMA prior to construction. The EIA study should look at mitigation measures against the predicted impacts of construction and operation. Table 25.4-3 below shows common mitigation measures anticipated for implementation of the highway:

Figure 25.4-1: Wildlife Overpass and Fences Figure 25.4-2: Animal Underpass Source: US Department of Transportation Source: US department of Transportation

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Table 25.4-3 Common Mitigation Measures No. Issue Common Mitigation Measures 1. Habitat Disruption/ Replantation and Afforestation Schemes Loss Species relocation 2. Protected Areas Species Relocation Buffer Zone 2. Migration Routes Wildlife underpass/ overpass 3. Water and Wastewater Best Practise and Management. Quality Waste water management controls. Pre-treatment of wastewater. Drainage 4. Air Quality Stockpile covering Water suppression Low sulphur fuels. 5. Noise Noise barriers, acoustic fencing, other screens & insulation. Buffer zone (land) 6. Vibration Anti-vibration mountings. Buffer zone (land) 7. Waste Management Waste Management Plan (WMP). Reuse and Recycle initiatives Using licensed waste collection company 8. Land Acquisition & Compensation Resettlement Resettlement Livelihood Restoration 9. Hazardous Cargo Secondary containment e.g. Bunds Spill control protocols. 10. Heritage Archaeological Impact Assessment – by NMK 11. Soil Erosion Slope control 12. Safety Crossings - Bridges and Tunnels Signage Rail Maintenance Source: JPC

25.4.4 Environmental Requirements (1) Environmental Impact Assessment (EIA) Studies. The Environmental Coordination and Management Act (EMCA) 1999, requires any proponent of a construction project as listed in the schedules to undertake an EIA study and submit a proposal in the prescribed form to NEMA for approval. The project may only proceed once terms and conditions of the EIA Licence are adhered to by the proponent. Environmental Impact Assessment studies should be carried out for each segment of the highway alignment. Approval of an EIA report goes through a prescribed process which can take up to six (6) months. Commencement of the studies should be carried out approximately one year prior to the anticipated start of construction. (2) Archaeological Impact Assessment (AIA) Similar to EIA study, AIA should be studied prior to implementation of corridor phases and components as approval will be required to allow for construction to start. (3) Land Acquisition Economic and physical displacement is anticipated along the preferred route alignment. In such a case, a Resettlement Action Plan should be carried out. The RAP will should the following principles: • Involuntary resettlement should be avoided.

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• Where involuntary settlement is unavoidable, all people affected by it should be compensated fully and fairly for lost assets. • Involuntary resettlement should be conceived as an opportunity of improving the livelihoods of the affected people and undertaken accordingly. • All people affected by involuntary resettlement should be consulted and involved in resettlement planning to ensure that the mitigation of adverse effects as well as the benefits of resettlement is appropriate and sustainable. • Establish Grievance Redress system. • Monitoring and Evaluation system should be implemented.

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25.5 Investment Plan, Institutional, and Legal Frameworks 25.5.1 Investment Plan The initial capital investment cost of highway network composing the LAPSSET Corridor in total is estimated at US$ 1.4 billion. The priority highway section is Lamu – Garissa judging from the result of traffic demand forecast and its connectivity with the Northern Corridor or its function to serve as the alternative transport link connecting the inland part as well as lake countries with the Indian Ocean. The transport demand forecast between Garissa, Isiolo and Nakodok is not sufficient to make this section financially viable in short-term as well as medium-term development plan periods. The form of highway operation and management organization is discussed in details in subsequent sub-section. As discussed therein, the PPP investment mode is recommended to be considered. Broadly speaking the highway infrastructure is recommended to be owned and maintained, and the highway operation as well as maintenance is recommended to be undertaken by qualified and selected private highway operation company who owns and operates the toll collection system their assets. The section of highway operated in the form of PPP is to be started from the first highway section to be developed namely the highway section between Lamu and Garissa and this system will be extended further to the north namely Garissa – Isiolo and Isiolo – Nakodok at later stage, respectively. The prominent funding source of this highway project could be the international financial institutions and / or by donor country under bilateral financial arrangement.

25.5.2 Institutional and Legal Framework (1) Executing Agency in Kenya The Executing Agency in Kenya will be the Kenya National Highways Authority (KeNHA), the state corporation responsible for the development and maintenance of classified roads (Classes A, B, and C). KeNHA was established pursuant to the Kenya Roads Act of 2007 which also saw the creation of two other roads organizations i.e. the Kenya Rural Roads Authority (KeRRA) to be in charge of rural roads (primarily Classes D and E), and the Kenya Urban Roads Authority (KURA) to be responsible for urban roads. An important related agency is the Kenya Roads Board (KRB) which manages a road fund primarily for road rehabilitation and maintenance. KRB’s role will be especially critical in the early years of road concessioning as tolling will not, at that point, generate adequate funds to finance road maintenance. For this reason, it will be important for KeNHA and KRB to ensure that the LAPSSET highway is included in KRB’s investment programme. (2) Executing Agencies in Other Countries In the other two countries, roads authorities will act as the executing agencies for roads connecting with the LAPSSET highway. These include the Ministry of Transport and Roads in South Sudan, and the Ethiopian Roads Authority (ERA). Notably, South Sudan has a substantial roads programme financed by USAID, with a focus on links to Uganda and Kenya. Other support has come from JICA, for road maintenance and rehabilitation. As for Ethiopia, the country has for more than a decade been implementing the Road Sector Development Program with an annual budget of USD 1.5 billion and this is expected to continue over the coming years. Institutional restructuring of ERA was mooted in 2010 requiring the Authority to be unbundled into a regulatory body and a business-driven corporation to be in charge of construction. (3) Concessioning Structure In view of Government’s budgetary constraints, the potential should be fully exploited of financing highway development by means of PPPs. This approach is consistent with Government’s road

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------transport policy which seeks, among other things, to promote this type of innovative funding and risk sharing. Financial analysis of the different sections of the LAPSSET highway reveals that the Lamu-Garissa section could be tolled at levels that are likely affordable by the road user and profitable to the investor. Therefore, this section of the highway is a good candidate for capital financing by the private sector under an appropriate concessioning arrangement. As the rest of the highway has limited traffic its potential to generate revenue would not be high in the early years. However, there is room for involving the private sector in Operations and Management (O&M), consistent with government’s policy to concession sections of its road network to private operators as toll roads. A concessioning structure for this purpose has been proposed below. 1) Phasing for PPP Concession Even if the highway were tolled, the revenue generated would not be sufficient to fully cover the operation and maintenance cost of the highway service, with the possible exception of the Lamu- Garissa sector. Therefore, the form of private sector participation should be adapted to the growth of the level of profitability. Thus two phases – and forms -- of PPP are proposed as illustrated in Figure 25.5-1.

Figure 25.5-1 Phased PPP Structure for Highway Development Source: Study Team

2) PPP Structure for Phase I In Phase I, KeNHA will construct the highway infrastructure and other required facilities (most probably phased into several sections (such as Garissa to Isiolo) by utilizing public funding, including funding from development partners such as the cross-border lending facility of the African Development Bank. A private sector O&M company could then be selected based on a competitive tender for a medium term, performance-based O&M contract. The highway should be tolled, with the cash flow deficit covered by funding support from the Road Maintenance Levy Fund managed by the Kenya Roads Board (Figure 25.5-2)

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Figure 25.5-2 PPP Structure for Highway Development (Phase I) Source: Study Team 3) PPP Structure for Phase II When the traffic builds up and reaches a level sufficient to cover the operation and maintenance cost of the highway service and stable traffic growth can be predicted, KeNHA would issue a PPP tender for a long term PPP concession (20-30 years) for the concessionaire to collect a toll and operate and maintain the highway. An up-front concession fee could then be paid by the winning concessionaire to the public sector, based on monetization of the future cash flow value of the project. In this way, the Ministry of Roads could obtain the funds with which to pay back the donor loan used to construct the highway in the first place (Figure 25.5-3)

Figure 25.5-3 PPP Structure for Highway Development (Phase II) Source: Study Team (4) Funding Sources Funding sources are proposed as follows: • The Lamu-Garissa sector might attract capital funding from the private sector under a PPP arrangement because of its higher financial internal rate of return. But it would be necessary for government to provide viability gap funding or a revenue guarantee to contain the risk that traffic volumes will not reach the levels assumed in the financial analysis; • For the rest of the LAPSSET highway capital funds will be required from Government and its development partners (e.g. the World Bank and the African Development Bank). • During the operation of the highway, Kenya Roads Board could act as the source of subsidies to the private O&M company for the years that toll revenue will not (a) adequately meet the

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costs of road operations and maintenance; and (b) provide the expected return on capital for the private investor; • Infrastructure bond issues by KeNHA. Table 25.5-1 summarises the main sources of funds. Table 25.5-1 Main Sources of Funds Source of Capital Source of Operations & Remarks Funds Maintenance Funds Lamu- Private sector under PPP • Toll revenue collected by • Viability Gap Funds (see Garissa concessionaire; or pre-requisites) would be an • Availability-based funds actual budgetary transfer by paid by Government3 Government to the project whilst the Revenue Guarantee would be a contingent liability. • Recovery of investment costs by private investor could also be via direct payments by grantor (shadow tolls, subsidies etc.) Pre- • Financial and requisites economic viability • Availability of firms to bid for long-term concession (~30 years) • Viability Gap Funding and/or Government Revenue Guarantee to the investor during ramp-up period when costs exceed revenue. Rest of Government/Developme Toll Revenue collected by • For capital funding, LAPSSET nt Partners Concessionaire infrastructure bond issues Highway by KeNHA could be used to complement Government’s budgetary sources; • When O&M cashflow turns positive it could be monetized upfront to recover initial capital costs Pre- • Economic viability • During early years (Phase requisites I), Govt/Kenya Roads Board to provide subsidy to private O&M Company to meet deficit; • Availability of firms to bid for O&M concession. Source: JPC

3 This refers to the remuneration for the private partner, not based on charges (tolls) paid by the users of the road, but on regular payments by the public partner based on the level of service provided. The road user would not pay a toll.

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