The Kenyan government has withdrawn Sh46 billion in funding for 41 energy sector projects in the current financial year and transferred them to the newly established National Infrastructure Fund (NIF). This move has triggered doubts about the implementation of these projects. The Parliamentary Budget Office (PBO) revealed that the government excluded these projects under five agencies and the State Department of Petroleum for the 2026/27 budget in anticipation of the NIF rollout.
The affected projects include 12 Kenya Power projects worth Sh18.8 billion, 15 Kenya Electricity Transmission Company projects worth Sh8.8 billion, and five projects under the State Department for Petroleum worth Sh6.8 billion. Additionally, Sh6.46 billion was cut from three projects being implemented by the Geothermal Development Company (GDC), Sh3.97 billion from four projects under the Kenya Electricity Generating Company (KenGen), and Sh1 billion from two projects under the National Oil Corporation of Kenya.
The PBO notes that the transition of these projects to the NIF presents an opportunity to diversify their financing, but the sudden transition exposes them to risks of delay. The office observes that transitioning the projects to NIF will involve repurposing of exchequer funding to other sectors, leaving them to wholly rely on funding by agencies implementing them. This poses risks to the projects' unhindered continuity since some of the agencies lack sufficient cash to finance them on their own.
The PBO warns that the transition will also entail restructuring of existing contractual agreements with external financiers, which may take some time and adversely affect implementation of energy projects that are significantly dependent on donor funding. The office cautions that projects risk stalling as they wait for review, which is likely to cause cost overruns due to penalties for delayed payments to contractors and commitment fees from approved but undisbursed development financing from lending agencies.
The National Infrastructure Fund (NIF) is at the centre of President William Ruto's plan to mobilise private capital for infrastructure development, with the government targeting up to Sh5 trillion in investments over time by using public capital to crowd in private investors. The NIF Act, 2026 provides for the development of an investment policy to guide on what projects can be bankrolled by the fund.
The PBO urges MPs to scrutinise affected projects to ensure their contractual agreements with development partners are not breached to the detriment of taxpayers. The office also notes that while an investment policy for the NIF has been developed and approved by MPs, its annual business plan is yet to be developed. With the establishment yet to be fully operational, review and approval of the energy and petroleum projects is likely to be delayed, and this may lead to implementation challenges.
The NIF currently has Sh350 billion in capital from the Sh106 billion proceeds from the government's sale of a 65 percent stake in the Kenya Pipeline Company (KPC) and Sh244 billion proceeds from the government's sale of a 15 percent stake in Safaricom. To ensure the successful implementation of the energy and petroleum projects identified for transition to the NIF, the National Assembly should keep an eye on timely operationalization of the NIF, and policy and legal alignment for project migration.
Key points
- The Kenyan government has withdrawn Sh46 billion in funding for 41 energy sector projects.
- The projects have been transferred to the newly established National Infrastructure Fund (NIF).
- The transition poses risks to the projects' implementation due to changes in funding structures.
