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ls, financed from the fuel levy, could be feasible on roads with an ADT of 500 or higher. This finding implies that a very large proportion of the main road network in Kenya is potentially feasible for maintenance concessions.

In Light of the constraints on public finances and in recognition of the role of the private sector in roads investment, in March 2009, the Government of Kenya (GoK) eventually took a concrete step towards a successful PPP program by passing the PPP Regulations as a subsidiary legislation to the Public Procurement and Disposal Act. Among other things, the PPP regulations establish a steering committee, a special agency of the cabinet that will establish PPP guidelines and procedures, review fiscal liabilities (both direct and contingent) to the GoK, approve proposed PPPs, and generally spearhead the PPP process. The regulations also outline the general guidelines and principles on the implementation of PPPs in Kenya.

While the PPP regulations are valuable as a first step towards addressing the overall fiscal constraints in the roads sub-sector in Kenya, it is worth noting that several other steps are necessary to build a successful PPP program. PPP is important because of; the limited availability of public funds in Kenya; it provides an opportunity to improve the procurement process and final result with; less risk for the government, performance based payments, cheaper whole life costs and better services through innovation due to competition. Since the various categories of PPP work with different levels of success owing to institutional and structural peculiarities of various countries, a critical step towards successful implementation of PPP is the identification of the most appropriate versions of it for a given scenario. This study suggests a new and innovative PPP variant of concessions to supplement the traditional models already in use.

4.1 The Annuity Concession Model
Developed by the National Highways Authority of India, the annuity concession model is a variant of the BOT model in which the private operator is remunerated via fixed, periodical payments (annuity) from a government agency such as the Kenya Highways Authority, rather than through toll proceeds. Under these contracts, the private operator is responsible both for constructing the road and for operating and maintaining it for a fixed period of time (typically ten years).

This model is suitable for use in Kenya for a number of reasons. The World Bank estimates that the break-even point for the private operator under this model does not occur until late in the contract (typically in the seventh year in a ten year contract). This implies that the model transfers responsibility for both bridge financing and performance risk to the private operator. Since the annuity payments in this model are not indexed, the private operator therefore retains any risks associated with higher than anticipated operations and maintenance costs, a typical problem in Kenya that often leads to countless cost variations over the lifetime of a roads project.

In Kenya private operators shy away from PPP because of the level of risks they are expected to shoulder. Annuity concessions are particularly attractive because they transfer certain risks to the private operator while keeping the revenue risks with the government (which retains the right to set and collect tolls). They also carry favou