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Why land is now a liability to mega projects

Land speculators keen to harvest hefty way leave compensations now present the biggest threat to mega projects with huge economic consequences due to delays and inflated costs.

So serious is the matter that investors are now cautious in committing to projects for fear that they could be entangled in protracted court cases.

With possibilities of acquiring parallel title deeds and with the financial muscles to obtain legal representation, the land cartels now threaten even the governments major infrastructure projects most of which are financed by foreign investors.

Some of these concerns were raised at the recently convened Land Summit at State House Nairobi.

Billionaire investor Manu Chandaria told participants at the summit that the possibility of land changing hands illegally is a big threat to investment in Kenya. “Investors are very worried whether their land is safe and we need to find a solution for this.  We need to be sure that once someone is holding a title, they have confidence about the land ownership,” Mr Chandaria, who is the USIU Chancellor, told the summit.

“Now we are dealing with a case for the United States International University (USIU) where the land title changed hands more than twice before we discovered.”

Transport and Infrastructure cabinet Secretary James Macharia told Smart Company that the land speculation has sometimes made the way leave compensation even more expensive than the project.

Cartels, who are invariably well connected to top government officials, are always privy to possible routes a project will take. They therefore rush to acquire chunks of land along the route after which they demand hefty compensation, minting quick millions in the process.

Standard gauge railway

Already, taxpayers face a Sh2.8 billion extra bill on the way leave acquisition for the first phase of the Standard Gauge Railway after the compensation demands surpassed the National Land Commission’s projection of Sh30.2 billion to Sh33 billion. The land commission had indicated that the amount was enough to acquire the 4,616 hectares needed for the wider railway line.

“Actually it is a very big problem and it happens in two ways; one is the cost and the other is delay. It makes these projects very expensive. You may find in some cases, the land compensation if we were to do it commercially, is more than the cost of the project,” Mr Macharia said in an interview.

Apart from the SGR, road and power projects have also experienced challenges related to land acquisition. This has led to massive cost inflations as loans for the projects attract high interests when they go beyond schedule. Also, the government is sometimes compelled to spend money in litigation as well as re-allocation and compensation of the affected individuals who make ridiculous demands when they realise the project has little options left.

The ongoing expansion of Outering Road in Nairobi has been delayed with the Sh8.5 billion project barely moving at half the projected pace due to way leave tussles.

Mr Macharia said in addition to financial implications, the anticipated commercial value for a project will be delayed as demands for compensation sometimes drag in court.

“In the case of Outering Road, we are barely 35 per cent complete, when it should be at 60 per cent because of the delays associated with resistance to reallocation. This is the biggest worry and we hope the new Land Bill will mitigate all that,” Mr Macharia said.

The Outering Road project involves creation of two-lane passages on each side of the road and a nine-metre Bus Rapid Transit (BRT)  connecting the Eastern bypass to Thika superhighway

And when the projects do not pass the area where they had anticipated, the cartels still have a few tricks up their sleeves. For instance, they could form a powerful lobby and use their connection with the system to compel the government to take the projects in their desired directions.

This is what happened with the second phase of the SGR to Kisumu from Naivasha. Speculators rushed to buy land along the anticipated route but the rail was later re-routed and now, insiders in government revealed to Smart Company, the group has been behind the complaints that Nakuru was ‘sidelined’ by the project.

The SGR construction will now take the Southern route going through Narok, Bomet then Nyamira to Kisumu.

Another project that has attracted huge interest from cartels is the proposed Special Economic Zone in Naivasha. Already there is a land-buying frenzy around the site of the planned project.

Investors factor in the huge projected land costs when making key decisions. The plan to make the Mombasa-Nairobi highway a dual carriageway under the Public-Private Partnership will for instance see the investors demand longer periods to recoup investments when land acquisition inflates the costs of the project.

With the government planning to use tolls to repay loans for the road, the users will bear the burden for many years when the cost of the project shoots up thanks to the speculative cartels.

The dent on integrity of land records and documents is also another major hurdle to development and investment in the country.

“What investors are looking at is the need for sanctity of the titles. It raises a lot of question when you only discover there are issues with the land when you have already started investing. The information system must be reliable,” said a participant at the State House land summit.

The use of land as the most secure asset to guarantee financing will also be diluted when authenticity of titles is in doubt. Experts say the problem of land ownership and administration has led banks to be circumspect in using title deeds as collateral to loans. This, the State Summit, heard has adversely affect the mortgage industry.

Lands Cabinet Secretary Prof. Jacob Kaimenyi warned cartels and speculators at the summit that their days were numbered saying the government had introduced a system to tame inflation of land, especially along project lines.

“We have come up with the Land Value Index which is now before a departmental committee of the National Assembly. This has a rough estimate of the value of each piece of land in the entire nation,” Mr Kaimenyi said during the State House summit.

According to the World Bank, Kenya needs to formulate a single legal framework that streamlines land acquisition meant for public investments. The global lender said Kenyans do not enjoy gains made from public investments since projects take longer than planned and overshoot their initial budgets in the wake of land acquisition challenges.

“Kenya is spending half of its development budget on infrastructural development, transport, energy and ICT but gains made have stagnated due to costs and numerous arbitrary interruptions,” WB said in her latest Kenya  Economic Update  titled Beyond resilience-Increasing Productivity of Public Investments.

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