Developers could get a major reprieve after President Uhuru Kenyatta ordered a review of the fees charged by two construction sector regulators.
President Kenyatta called for an immediate review of the charges levied by the National Environment Management Authority (Nema) and the National Construction Authority (NCA), terming them prohibitive.
Nema charges 0.1 per cent of a project’s cost for environmental audits while the NCA has a 0.5 per cent levy to run its operations.
“I am directing that the prohibitive levies at the National Environment Management Authority, National Construction Authority, and the Communications Authority be reviewed with immediate effect,” Mr Kenyatta said during his State of the Nation address last week.
The audits, or environmental impact assessment (EIA), are applicable to projects valued at more than Sh10 million and are managed by Nema, the sector regulator.
The EIA fee structure was reviewed in 2013 to a minimum of Sh10,000 or 0.1 per cent of the project cost but without an upper limit, making it more costly for developers of big projects. Previously, the fee had a maximum of Sh1 million.
The NCA construction levy was introduced in 2014 by then lands Cabinet Secretary Charity Ngilu and is payable for all projects worth more than Sh5 million.
At current rates, a developer with a project worth Sh1 billion, for example, has to part with Sh6 million to the two agencies.
The two levies are among several introduced in the construction sector in the last three years.
From September 2013, the mining ministry started collecting a two per cent royalty on construction materials, leading to an increase in the cost of quarry stones, concrete blocks, hard core, ballast and sand.
Counties have also hiked construction permit fees as they seek to shore up revenues.
However, this is not the first time that Mr Kenyatta has addressed this issue and developers will have to wait and see if the agencies will heed his latest call.
In October 2014, the President directed that a maximum cap on EIA fees be introduced, saying that the regime where property developers pay a percentage of the value of a project as fees is punitive.
“I want it to be very clear that there must be a cap. You cannot say that you are making an investment of Sh1billion and then you charge on the basis of the investment,” the President said at the time.
But one-and-a-half years later, that directive has not been implemented, with Nema seemingly reluctant to implement the presidential order.
In September last year, the agency said it had forwarded a proposal for the cap to the Cabinet secretary in the Ministry of Environment and Natural Resources for consideration and gazettement, but the minister has yet to effect techange.
The inclusion of the NCA among the agencies whose charges should be reviewed will be good news for developers but the agency, which is not funded by the Treasury, could find itself struggling to fund its operations.
Kenya’s construction sector continues to grow, buoyed by the appetite for office and residential premises.
Official data shows that cement production last year crossed the six million tonne mark for the first time as manufacturers upped capacity to meet the demand occasioned by a construction boom driven by infrastructure projects and real estate.
Kenya National Bureau of Statistics data show that cement manufacturers produced 6.3 million tonnes, up from the 5.8 million tonnes produced in 2014.
In Nairobi, City Hall approved buildings worth Sh242 billion last year, up from the previous year’s Sh228 billion.
Besides benefitting developers, Mr Kenyatta’s directive will also see the government pay less in regulatory fees as it rolls out multibillion-shilling infrastructure projects like roads and pipelines.