Nema fees to push up construction cost in Kenya

Building cost indices increased by 7.5% to 112.05 in Q1 2022, KNBS data indicates.

In Summary

•NEMA has re-introduced the Environmental Impact Assessment (EIA) and related fees, which took effect on Wednesday (June 1).

•Developers now say the move will increase the costs of projects, and slow down the construction sector.

The Pangani Affordable Housing Project, in Nairobi, on January 21, 2022 /
The Pangani Affordable Housing Project, in Nairobi, on January 21, 2022 /

Putting up a real estate project, road or any other major facility in Kenya will cost more as the government moves to charge developers an extra fee.

The National Environment Management Authority (NEMA) has re-introduced the Environmental Impact Assessment (EIA) and related fees, from June 1.

The Environmental (Impact Assessment and Audit) Regulations, 2003,  provides for IEA processing and monitoring fee of 0.1 per cent of the total project cost to a minimum of Sh10,000, graded fees for registration and licensing of IEA experts among other fees.

For instance, a developer putting up a Sh100 million project will pay Sh100,000 as IEA processing and monitoring fee.

Environmental Impact Assessment for a project like the Sh87.9 billion Nairobi Expressway would cost up to Sh87.9 million.

“Environmental Assessment ensures that appropriate safeguards, management and monitoring plans are put in place to protect public health, environment and enhance sustainable development,” NEMA says in the notice.

Developers will have to pay for the EIA processing fees, Strategic Environmental Assessment (SEA) processing and monitoring fee, Environmental Assessment Experts registration, and licensing fees.

“All applications and payments shall be made online through the E-Citizen-NEMA licensing portal. Each EIA application shall be accompanied by a certified Bill of Quantities (BQs) indicating the proposed project cost,” NEMA notes.

The government had in October 2016 directed the suspension of the fees that were the main revenue source for NEMA .

The authority however argues the move has had a negative impact on its working capital, leaving it in financial distress, as funding from the exchequer remained low.

Before the removal of the fees, contractors used to pay between Sh10,000 and Sh40 million for environmental audits, depending on their projects’ risk levels.

Those whose project costs exceeded Sh5 million would also pay 0.5 per cent of the value of the contract to the National Construction Authority (NCA) before starting a project.

With the re-introduction, developers have warned of an increase in the cost of projects, which adds up to the already high construction costs.

It will impact the cost of houses, putting up projects such as factories, institutions, roads, and other infrastructure, industry players say.

The increased costs will also affect the delivery of affordable houses being implemented under President Uhuru Kenyatta’s Big Four Agenda, the Kenya Property Developers Association (KPDA) says.

“Noting that the country is also recovering from the effects of Covid-19, it is unlikely that the economic situation will improve within the short-term to improve the status of the developers,” KPDA chairman Ken Luusu said.

He said the fees add up to the “unparalleled increase in the prices of construction materials”  witnessed in the recent past, depicting the highest prices in history.

“We, therefore, would like to urge the government to rescind this decision that is anticipated to worsen the already unsustainable cost of construction,” said Luusu.

The Architectural Association of Kenya (AAK) has also called on the government to re-think the re-introduction of the fee.

It notes that the construction industry has already been affected by high fuel costs, campaign season, and the re-emerging Covid-19 threat among other issues.

“The decision should be rescinded pending careful evaluation,” AAK Secretary Marylyn Musyimi told the Star on the telephone yesterday.

She said if the fee must be reintroduced, then developers should pay fees based on risk not a one-off for every project. These should be put in bands from low to high risk, the association says.

It has further called on NEMA to improve compliance and enforcement.

“With these fees what are they undertaking to do or improve? We still have a deterioration of the environment despite payment of the fees from noise, air, solid and liquid waste pollution, etc,” AAK said.

Institution of Quantity Surveyors of Kenya president Jennifer Musyimi said: " This move will impact on the cost of construction projects which is already burdened by the pandemic impact and the global crisis. It will also increase the complexity of implementing projects as too many approval requirements are present in the market.

Association of Construction Managers chairman Nashon Okowa however says the fees are minimal in terms of affecting the cost of construction.

"In my personal opinion, the real cost of construction is in land, taxation, and cost of construction," he told the Star.

Developers are currently battling an increase in the cost of construction where according to the Kenya National Bureau of Statistics (KNBS), building cost indices increased by 7.5 per cent from 104.23 in the fourth quarter of 2021, to 112.05 in the first quarter of 2022.

“This was mainly due to increases in the price of BRC wire mesh and steel reinforcement bars, hardcore, paving blocks, and cement,” KNBS director-general Macdonald Obudho notes in the latest update.

The civil engineering cost indices increased by 5.0 per cent from 108.06 in the fourth quarter of 2021 to 113.56, in the period under review.

Notably, the increase is attributed to the increase in the price of BRC wire mesh and steel reinforcement bars, bitumen products, concrete products, and fuel products.

In addition, there were increases in the hiring of rollers and excavators in the first quarter of 2022.

The overall construction cost indices increased by 6.2 per cent from106.12 in the fourth quarter of 2021 to 112.65 in the first quarter of 2022,KNBS says.

The Construction Input Price Indices comprise the building cost indices, civil engineering cost, and the overall construction costs.

WATCH: The biggest news in African Business