The Kenyan government has paid KSh4.09 billion in termination costs to investors and contractors after cancelling a planned road project in the country’s northeastern region, according to disclosures by the Controller of Budget.
The payout — formally approved on 12 November 2025, by the Kenya National Highways Authority — settles obligations stemming from the now-scrapped annuity deal for the 143-kilometre Modogashe-Habasweini-Samatar/Rhamu-Mandera road, originally contracted in November 2016 under the Roads Annuity Programme.
The figure, recorded as “KSh4,093,106,803 to cater for the termination cost of the annuity project Lot 3,” appears in the Controller of Budget review of government expenditures and represents a direct charge to the public purse — money spent not on tarmac or bridges, but on unwinding a deal that never made it past the financing stage.
Why the government walked away from the deal
The 143-kilometre stretch, linking Garissa, Wajir and Mandera counties in Kenya’s arid north, was designed under the Roads 10,000 Programme — a Cabinet-approved initiative from 2015 that sought to pave 10,000 kilometres of roads through public-private partnerships. Under the annuity model, private investors would finance construction upfront, with the government repaying them in equal instalments over eight to 10 years once the road was certified complete.
But by 2024, a government-commissioned value-for-money analysis and affordability review concluded the Lot 3 project was financially untenable. Officials determined the long-term repayment obligations did not justify the fiscal burden — particularly as Kenya grappled with mounting public debt and tightening budget constraints. The conclusion was stark: the deal offered poor value for taxpayers and had to go.
“The project did not offer a compelling value for taxpayers.”
— Controller of Budget assessment, Kenya National Highways Authority value-for-money review, 2024
To avoid protracted legal battles with the consortium of contractors and financiers who had already invested time, resources and planning in the project, Kenya National Highways Authority moved to pay the agreed termination penalty. Without the payout, the government risked facing court-ordered damages that could far exceed the settlement cost — a calculation officials cited as justification for the disbursement.
The Lot 3 cancellation is not an isolated case. Kenya Roads Annuity Programme has become a source of escalating fiscal pain. The Illasit-Njukini-Taveta Road (Lot 32), a 63-kilometre project, was scrapped earlier under similar circumstances, costing taxpayers KSh436.9 million in termination penalties. Adding that figure to the latest KSh4.09 billion payout brings the total cost of abandoned annuity deals to KSh4.53 billion — money paid for roads that were never built.
The broader programme, which had promised a decade of road-building momentum, was ultimately scrapped entirely in April 2025 as the Roads Principal Secretary told lawmakers the government would shift to direct budget financing. Critics had long flagged the annuity structure as opaque, costly, and prone to disputes — concerns that proved well-founded. Even as it functioned, Kenya was paying out KSh30.89 billion to contractors and lenders for roads that were completed across 11 counties.
What comes next for the Mandera road corridor
The cancellation of Lot 3 does not mean the road itself has been abandoned. Kenya has pivoted to an entirely different financing model for the broader Isiolo-Mandera highway corridor. Backed by a World Bank loan of approximately KSh98 billion, the government is now pursuing an Engineering, Procurement and Construction approach — where contractors bear greater design and delivery risk, and the state is not locked into long-term private repayment obligations.
The full 740-kilometre Isiolo-Mandera road has been divided into 11 sections spanning Isiolo, Meru, Garissa, Wajir and Mandera counties. Seven contractors have been awarded sections of the project. President William Ruto and Deputy President Kithure Kindiki have each publicly committed to completing the corridor by 2027 — a timeline that would mark a major infrastructure milestone for one of Kenya’s most historically underserved regions, home to nearly three million people.
Still, the KSh4.09 billion cancellation fee stings. On social media, Kenyans were quick to point out the opportunity cost of the payout — what else that money could have funded, from hospitals to classrooms to other roads across the country. The frustration reflects a deeper anxiety about governance: that the state keeps signing deals it later cannot honour, leaving ordinary citizens to foot the bill. For communities in Garissa, Wajir and Mandera who have waited decades for a paved road, the revolving door of cancelled contracts and new promises is a familiar and exhausting cycle.
Whether the Engineering, Procurement and Construction model will deliver where the annuity programme failed remains to be seen. What is already certain is that walking away from the old deal cost Kenya KSh4.09 billion — and the road itself has yet to be built.
