AVCA Conference 2019

Posted on July 16th, 2019

Jacob Ochieng and Cindy Oraro participated in the 16th Annual African Private Equity and Venture Capital Association (AVCA) 2019 Conference. The AVCA conference provides the private equity and venture capital industry globally with a platform to discuss the most pertinent opportunities and issues.

Jacob and Cindy are partners in the corporate and commercial practice group and have advised international and local clients in various sectors including Private Equity and Mergers and Acquisitions. For more about the AVCA, click here

Kosgei Kipkirui

Head of Business Development

T: +254 709 250 000/735

E: gkosgei@oraro.co.ke

Consumer Protection Law in Kenya

Posted on October 17th, 2018

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Prior to the promulgation of the Constitution in the year 2010, there was no specific law dealing with consumer protection in Kenya. However, some aspects of consumer protection were covered in various pieces of legislation including the Trade Descriptions Act, Standards Act, Weights and Measures Act, Restrictive Trade Practices, Monopolies and Price Control Act (now known as the Competition Act), the Foods, Drugs and Chemical Substances Act, the Pharmacy and Poisons Act, the Public Health Act, the Fertilizers and Animal Foodstuffs Act, as well as private law measures in the law of contract and the law of tort.

These and other statutes touching on consumers are criminally oriented as they seek to ban one malpractice or the other and to prosecute offenders for breach of their provisions, but do not empower a consumer to sue the offender to get redress, including compensation, where the said breach affects him or her adversely. Herein lay the major set-back in protection of consumers under these statutes.

It is in this regard that the Article 46 of the Constitution of Kenya 2010 and its enabling statute, the Consumer Protection Act, 2010 are lauded as landmark achievements in the area of consumer protection. These new laws spell out consumers’ rights and obligations vis-a-vis product and service liability; they make provisions  for  the  promotion  and  enforcement of consumer rights as well as empower consumers to seek redress for infringement of their rights as consumers; and also provide for compensation.

Part II of the Act gives consumers a wide range of rights including the right to commence legal action on behalf of a class of persons in relation to any contract for the supply of goods or services  to  the  consumer.  This  right  cannot be ousted by any agreement between the parties. Other consumer rights provided for in the Act include the right to full pre-contractual information for the consumer to make an informed choice, the right to complain with regard to quality, delays in provision of rectification, quantity and price of such goods or services as are offered, the right to a reasonable notification of termination of service – particularly in relation to the provision of basic telecommunications services and/or internet access, among other rights.

The Act prohibits ‘unfair practices’ and proceeds to provide for radical sanctions against a supplier who engages in ‘unfair practices’. Such practices  include  representing  that  goods or services have a sponsorship, approval, performance or characteristics that they  do not  have; or representing that goods or services are of a particular standard, quality, grade, style or model, if they are not, and so on.

Therefore where a consumer enters into an agreement, whether oral or written, after or while a person has engaged in an unfair practice, the Act provides that the consumer has the right to terminate the agreement and seek any remedy available to them in law, including a suit for damages.

Undoubtedly, the Consumer Protection Act is a far-reaching piece of legislation that will affect different sectors of our economy including real estate, e-commerce, manufacturing, agriculture, banking and finance, aviation, among many others. In this connection, the Act establishes the Kenya Consumers Protection Advisory (CPA) Committee that shall aid in the formulation of policy related to consumer protection, accredit consumer organisations, advise consumers on their rights and responsibilities, investigate complaints and establish conflict resolution mechanisms amongst other duties. A breach of any regulation made by the CPA, will make a person liable to a fine not exceeding five hundred thousand shillings or imprisonment for a term not exceeding two years or both such fine and imprisonment.

In conclusion, although consumer protection law within Kenya is very much in its infancy, there have been several significant developments in this area over the last three years, namely the promulgation of the new  Constitution  in  2010 and the subsequent enactment of the Consumer Protection Act, which came into effect in 2013 as well as enactment of the Competition Act, 2010. The Competition Act protects consumers from unfair and misleading market conduct.

Indeed the increased consumer protection has seen the formation of the Consumer Federation of Kenya (COFEK) which was registered on 26th March, 2010 and whose mandate is:

“to defend, promote, develop and pursue consumer rights as guided by Article 46 of the Constitution of Kenya 2010, the Consumer Protection Act, 2012 and the Competition Act, Cap 504 and make it possible for the consumers to get value for money.”

COFEK has been at the forefront in acting as a watchdog in various consumer protection matters with the most recent being the institution of a suit against a leading retail supermarket for the alleged overcharging of items on its shopping tills brought about by the shelf and till price discrepancies at its outlets.

Special Economic Zones Act

Posted on September 12th, 2018

Introduction

The Government has proposed to set up Special Economic Zones (SEZs) in key urban areas; this establishment of SEZs is a flagship project under the national development blueprint of Vision 2030., the country’s development program 2008-2030 Launched by former President Mwai Kibaki. SEZs are to contribute towards the transformation of the country’s economic base in order to realise higher sustained growth, employment creation and poverty reduction.

Background to the legislation

The introduction of the Special Economic Zones Act, 2015 (the Act) is intended to facilitate unlimited access to local and international markets. The SEZs are expected to help investors cut down on key cost drivers such as transport and provide benefits in terms of tax exemptions.

Principal objectives of the legislation

The purpose of the Act is to establish SEZs and to create incentives for economic and business activities in designated areas as well as removing impediments to economic and business activities that generate profit for enterprises in these zones.

To whom does the legislation apply?

The Act applies to any persons seeking to carry on business as a SEZ developer, operator or enterprises. The zones are currently undergoing a pilot programme in Mombasa (the nation’s second largest city, on the Kenyan Coast), Lamu and Kisumu.

How does the legislation apply?

A person must apply for a licence permitting them to operate in a SEZ. The licensed SEZ enterprises (SEZEs), developers and operators enjoy numerous exemptions. For example, they are exempt from existing taxes and duties payable under the Customs and Excise Act, Income Tax Act, East African Community Customs Management Act and Value Added Tax Act.

Future review/revision and steps required in regard to the legislation

There needs to be clear transition provisions with respect to the fate of Export Processing Zones (EPZs) it has been suggested that the government plans to freeze new investments within its EPZs before the end of 2015 as it takes up the SEZs model.

Related Practice areas

Kenya’s Energy Sector: 2015 Highlights

Posted on September 12th, 2018

By Geoffrey Muchiri | Cindy Oraro

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2015 started with some good news for Kenya’s renewable energy sector; M-Kopa, a system that has helped increase access to affordable solar energy across East Africa, won the 2015 Zayed Future Energy Prize. M-Kopa is a pay as you go system allowing users to access a solar power system that includes a panel, three lamps, radio and mobile phone charging kit at a minimal fee. Most Kenyans are able to pay for the whole system in 1 year.

Geothermal power’s contribution to the national energy mix increased to 51% in early February 2015 following the commissioning of two new plants with a combined capacity of 280 MW, Olkaria 1 and Olkaria 4 in the Rift Valley. Geothermal power is a renewable source of energy that is generated from natural steam from the earth from as far as 3 kilometeres underground and, unlike hydro, its output is not affected by the vagaries of the weather. Supported by the World Bank, Olkaria 1 is one of the largest single geothermal investment projects in the world. Other partners in the Olkaria project include the Japan International Cooperation Agency, the European Investment Bank, Agence Française de Développement and Germany’s KFW. Kenya aspires to produce at least 1900 MW of geothermal energy by 2017 and 5,000 MW by 2030, presenting great investment opportunities.

Towards the end of February 2015, Amu Power, a company formed by a consortium of Centum and Gulf Energy, announced plans to construct a coal-fired thermal power station in Lamu County. The 981.5 MW power plant is projected to cost USD 1.7 billion and will be the biggest single producer of energy in Kenya. It will also be the most cost-effective and efficient power plant in the country. Construction was expected to begin in September 2015 and last 21 months but is now expected to commence at the start of this year. The delay was occasioned by an objection from the losing bidder in the tender who challenged the tendering process but the Public Private Partnership Committee has confirmed that the tendering had followed due process. The bodies involved include the Ministry of Energy and Petroleum (MoEP), the National Land Commission (NLC) and the National Environment Management Authority (NEMA).

In late June 2015, Kenya Power (the country’s main power utility company) announced that it would for the first time reduce tariffs across the board for households consuming between 51 and 1500 KWh per month. The price cuts are the direct result of Kenya’s prioritization of renewable energy sources, including the launch in late 2014 of KenGen’s 280 MW Olkaria geothermal power plant, the largest facility of its kind in the world. KenGen is currently responsible for 80% of the country’s electricity generation.

President Uhuru Kenyatta met with investors led by world renown entrepreneur Sir Richard Branson, Founder of Virgin Group at his Harambee House office in Nairobi on July 11, 2015. The meeting explored how to make the most of Kenya’s abundant potential for green energy. The proposed renewable energy projects aim at displacing a percentage of diesel generation in off-grid stations and raise the supply of clean energy for productive use in support of Vision 2030 (the country’s main development blueprint).

Still in July, the President officially launched the Lake Turkana Wind Power Project. The project is expected to be the largest such project in Africa, generating 310 MW of electricity equivalent to 20% of Kenya’s current generation capacity. The USD 694 million project achieved full financial close in December 2014. It is expected to generate USD 150 million a year in foreign currency savings to Kenya. An international consortium of lenders and producers, including the African Development Bank, British Company Aldwych International and Standard Bank, aims to install 365 wind turbines. The 52-metre blade span windmills will take advantage of high winds in the remote area.

Kenya Power, which remains the country’s sole electricity distributor, announced in July 2015 that it had installed 170 new dedicated lines to ensure steady power supply for industrial customers. Kenya Power also plans to build 98 new substations and refurbish 12 others by the end of 2016 to create a greater degree of flexibility on the national grid.

At the July 2015 Global Entrepreneurship Summit held in Nairobi, the Ministry of Energy signed a KES 220 billion (USD 2.2 billion) deal with a North American company, SkyPower, to develop 1000 MW of solar energy in the country.

The East African Power Industry Convention (EAPIC) was held in Nairobi in August 2015 and gave delegates a chance to share knowledge, pinpoint investment opportunities and explore best practical solutions. The EAPIC aims to look into the energy industry’s challenges and find solutions to ongoing issues such as failing infrastructure and rising electricity demand.

In October 2015, global tech-giant Google announced its intention to invest KES 4 billion (USD 40 million) in the Lake Turkana Wind Power project for a 12.5 per cent stake.

Zambia, Tanzania and Kenya signed an Inter-Governmental Memorandum of Understanding in December 2015 to guide them in the implementation of the ZTK project, which creates opportunities for the reinforcement of grids in the three countries and the application of economies of scale in the development and exploitation of renewable energy resources.

Sources

Amu Power confirms construction of coal fired power plant in Kenya, Construction Review Online

Big investors eyeing Kenya’s energy sector meet Uhuru Kenyatta,  Daily Nation

Energy Bill 2015, Energy.co.ke

Kenya’s fast-growing energy industry powers on, and is hungry for more, Mail & Guardian Africa

Kenya’s Geothermal Investments Contribute to Green Energy Growth, Competitiveness and Shared Prosperity, World Bank

Kenya looks to greater generation capacity, Oxford Business Group

Kenya Power to compensate users for blackouts under new Bill, Business Daily

Kenya, SkyPower Plan Signing 1 Gigawatt Solar Deal, Bloomberg

New Energy Bill in Kenya table – the good and the bad, Polity.org.za

New Kenyan Law to Regulation Oil, Gas Exploration, Business Daily

Petroleum (Exploration, Development and Production) Bill 2015, Energy.co.ke

Positive outlook for power in Africa despite challenges – PwC survey, The New Times

Renewable energy as a catalyst of economic development in Kenya, Blue & Green Tomorrow

SkyPower signs US 2.2 billion agreement to develop and build 1 GW of solar energy projects in Kenya, SkyPower.com

Will Africa’s biggest wind power project transform Kenya’s growth?, CNN

Work on Lamu coal plant set to begin in December, The Star

Zambia-Tanzania-Kenya Power Interconnector (ZTK) Project, Energy.co.ke

Finance Act, 2015: Key Changes Made to the Insurance Act (IA)

Posted on September 12th, 2018

The insurance sector in Kenya is another sector that has recorded substantial growth and development; it is among the most developed in Sub-Saharan Africa. It is therefore not surprising that the Government has seen the need to amend certain provisions in the IA through the Act to foster more growth and to ensure that the regulatory framework is in line with the developments in the global insurance sector. Evidently, the amendments to the IA that the Government seeks to give more regulatory authority to the Insurance Regulatory Authority(IRA) and not the Minister of Finance(now known as the Cabinet Secretary for National Treasury(see below)). Some of the other amendments to the IA are highlighted below:

Capital adequacy ratio

The IA has been amended by an introduction of the definition of the term “capital adequacy ratio”. The term refers to a measure of the available capital in relation to the required capital and is applied in the margin of solvency requirement prescribed by the IRA.

Minimum capital requirements and holding by Kenyan citizens

The minimum capital requirements specified in the Schedule could previously be amended by order of the Minister but this function has now been transferred to the IRA.  Under the amendments, the IRA has the discretion to issue a directive requiring the insurer to increase its paid-up capital to an amount higher than the minimum specified in the Insurance Regulations 2015(the Regulations) or a directive increasing the minimum capital adequacy requirement applicable to an insurer to a higher sum than that specified in the Regulations.

Minimum admitted assets in Kenya

The minimum admitted assets specified in the Second Schedule of the Act could previously be amended by an order of the Minister. This function has now been transferred to the IRA. It is noteworthy, that this order is not subject to parliamentary approval prior to the amendment.

 Application for registration

In addition to the documents currently required to be presented by an insurer for registration, the insurer is also now required to provide an investment plan for the following period of not less than three years.

Solvency margin requirements

There is no longer a distinction in the solvency margin requirements of an insurer carrying out general insurance business and an insurer carrying out long term insurance business. Both are now required to keep total admitted assets of not less than the total admitted liabilities and the capital adequacy ratio, as may be determined by the IRA. In addition, the IRA has the discretion to prescribe the method of determining admitted assets and liabilities.

Minister vs. Cabinet Secretary

The word “Minister” as used in section 47 of the Act on assets to be in the name of insurer has been removed and substituted with the phrase “Cabinet Secretary”.

Investment of assets

Previously, the Act provided that the assets of the insurer shall be invested in Kenya, in such a manner as the insurer thinks fit. The amendment now provides that the assets will be invested in accordance with the provisions of such investment guidelines as may be issued by the IRA; thereby limiting the discretion of the insurers.

Specified investments

The extensive provisions with respect to specified investments have been repealed; there is now no difference in the investment specification for insurers carrying out general insurance business or long term insurance business. Every insurer is now required to invest its assets in accordance with the investment guidelines, issued under the amended provisions with respect to investment assets.

Intermediaries, risk managers, motor assessors, insurance investigator.etc – Application for registration

Where a person registers as an agent, they are no longer required to provide a document under the hand of the principal officer of the insurer i.e for whom the person proposes to act for certifying that the person has been appointed as an agent by the insurer. This is through an agreement or appointment letter. Also, that the insurer is satisfied that the applicant has the knowledge and experience necessary to act as an agent. The IA now only requires that a registered agent seek to be appointed by an insurer before transacting business on their behalf.

Minimum capital requirements

The entire Second Schedule with respect to minimum capital requirements has been substituted with new provisions. These requirements not only increase the required monetary value but also introduce additional components, such as risk-based capital or a percentage of net-earned premiums or liabilities. The Schedule’s requirements are that:

  1. Insurers dealing with general insurance business - paid up capital of KES 600 million(an increase from KES 300 million in previous Schedule)or risk-based capital determined from time to time or 20% of the net-earned premiums of the preceding financial year, whichever is higher
  2. Insurers dealing with long term insurance business - paid up capital of KES 400 million or risk-based capital, determined by the IRA, from time to time or 5% of the liabilities of the life business for the financial year, whichever is higher
  3. Insurers dealing with re-insurance business(general business) - paid up capital of KES 1 billion(an increase from KES 500 million in the previous Schedule)or risk-based capital determined by the IRA, from time to time, or 20% of the net-earned premiums of the preceding financial year, whichever is higher
  4. Insurers dealing with re-insurance business(long term business) - paid up capital of KES 500 million(an increase from KES 300 million in previous Schedule) or risk-based capital determined by the IRA from time to time or 5% of the liabilities of the life business for the financial year, whichever is higher
  5. The amendment provides that this minimum capital shall consist of government bonds and treasury bills, deposits and cash with a minimum of 10% in any bank or group of banks and cash and cash equivalent in the case of a new company

Any insurer registered before commencement of the Schedule is to comply with these requirements by 30th June 2018

Full of Activity: A Review of Developments in Kenya’s Energy Sector (Q1-2016)

Posted on September 12th, 2018

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Co-authored by Angela Ogang

• The Royal Court of Jersey made a confiscation order in February 2016 to seize approximately USD 4.7 million and USD 540 thousand from Jersey-registered Windward Trading Ltd, which was owned by former Kenya Power and Lighting Company ((KPLC), now Kenya Power)) Chief Executive Samuel Gichuru after Windward pleaded guilty to four counts of money laundering between 1999 and 2001. The Attorney-General of Jersey expressed optimism that Kenyan authorities would conclude the ongoing extradition proceedings of Gichuru and former energy minister Chrysanthus Okemo so that they are handed over “to face money laundering charges in connection with Windward’s activities.”

• Kinangop Wind Park (KWP), which is owned by Norway’s Norfund and the African Infrastructure Investment Fund II (and managed by African Infrastructure Investment Managers), announced in February 2016 that development of its 60.8 MW wind farm would cease implementation after nearly two years of delays due to persistent civil unrest which ran down the funds available for the project. The pair had invested USD 66 million in equity, to cover project costs. In a statement, KWP said that local groups opposed to the project first caused construction to be halted in May 2014.

• In February 2016, New York Stock Exchange-listed Ormat Technologies announced that it had reached commercial operation of Plant 4 in the Olkaria III geothermal complex in Kenya, increasing the complex’s total generating capacity by 29 MW to 139 MW. The company said that Plant 4 will sell its electricity to Kenya Power under a 20-year power purchase agreement, which was amended in October 2015 to allow for the future increase in phases of capacity at Plant IV to 100 MW. Ormat brought the first phase of Plant I online in 2000 and the second phase in 2009.

• Kenya’s president, Uganda’s president and oil company executives met on 21st March 2016 to hold further discussions on a route for a proposed pipeline to transport the two countries’ oil. Resolving the route of the pipeline is crucial to helping oil companies involved in Uganda and Kenya to make final investment decisions on developing oilfields. However, the discussions were deferred to the technical teams of the two countries after President Uhuru Kenyatta and his Ugandan counterpart Yoweri Museveni failed to agree after a lengthy meeting. In March 2016, the Tanzanian and Ugandan governments announced that the pipeline would go via Tanzania to the port of Tanga and that Total had raised the funds it needed to finance it. After recent talks, however, both options still seemed to be on the table, along with a third route through southern Kenya that passes further from Somalia than the Lamu option. The two countries seem to concur that the least cost solution for construction of the pipeline remains the best option. The cost breakdown shows that the most expensive route is Hoima to Tanga, whose cap stands at about USD 5.5 billion, while a joint one with Kenya through the southern route will cost USD 4.4 billion. Kenya favours the northern route through Lokichar, which will cost USD 4.2 billion, because as part of the Lamu Port, South Sudan, Ethiopia Transport (LAPSSET) project, it would transform infrastructure and the way of life of the people in the towns and counties across its path. However, Total has raised security concerns about the Kenyan route because sections of the Kenyan pipeline could run near Somalia, from where militants have launched attacks on Kenya. It has recently emerged that Uganda is also uneasy about the Kenyan government’s ability to acquire the land needed for the pipeline. In March 2016, Kenya and Japan signed a KES 41 billion (USD 408 million) loan agreement that will go towards building a 140 MW geothermal power plant. The Olkaria V power plant will be built by Nairobi Securities Exchange-listed Kenya Electricity Generating Company (KenGen). Construction is expected to begin in July 2016, with the plant arriving on the grid by the end of 2018. The plant is part of KenGen’s plans to add 720 MW of electricity to the grid between this year and 2020, at a cost of just over USD 2 billion.

• The Lake Turkana Wind Power Project will face delays in supplying electricity to the grid when Africa’s largest wind farm goes live in October 2016 because transmission lines may not be in place, the company said. State-owned Kenya Electricity Transmission Co. Ltd has begun construction of the 428 kilometers of power lines. However, wayleave challenges in Nyahururu and upper Naivasha and security issues in Samburu are delaying completion. The developers of the 40,000-acre site in Marsabit county, northern Kenya, plan to have the first 90 turbines installed by September 2016 and begin generating power the following month. The Business Daily announced on 2nd March, 2016 that the first batch of turbines for the 310-megawatt Lake Turkana Wind Power Plant have arrived at the Mombasa port. The shipment of the 30 turbines lays the ground for the expected injection of the first 50 MW of wind power to the national grid in September 2016. UK-based company Aldwych International is the single largest investor in the KES 70 billion wind project with a 30.7% stake. Google has a 12.5% stake after pumping in KES 4 billion last October. Lake Turkana Wind Power Limited, the company developing the wind farm, will sell electricity to Kenya Power at KES 8.6 per unit under a 20-year power purchase agreement.

• Mkopa Investments, a Kenyan company has sued Safaricom, a leading mobile network operator in Kenya, M-Kopa Solar and its parent firm Mobile Ventures Kenya Limited, claiming the firms have infringed on the trade name it has owned since December 1997. Patrick Kimani Kamau, who owns Mkopa Investments, wants Safaricom and Mobile Ventures stopped from using the M-Kopa Solar name. The businessman also wants Safaricom and M-Kopa to pay him all profits they have made by using the disputed name in the course of business. However, Safaricom in its response says Kamau’s company did not raise an objection when Mobile Ventures registered M-Kopa Solar as a trademark, and that the businessman is simply trying to cash in on the multi-million shilling solar energy business. Furthermore, Safaricom says it is not in the same line of business with Mkopa Investments, which deals in import and export of leather, macadamia and groundnuts and that it has never passed itself off as Kamau’s firm. Safaricom in its filings reveals that it has made KES 314 million between 2012 and 2014 from its partnership with Mobile Ventures Kenya in the M-Kopa Solar project.

• The World Bank is seeking bids from consultants to help Kenya’s Ministry of Energy and Petroleum prepare a national geothermal strategy. According to the World Bank, Kenya has an estimated geothermal potential of between 7,000 MW and 10,000 MW. Geothermal is the country’s least-cost base load option. The current least-cost power development plan has set an ambitious target of over 5,000 MW by 2030 as part of Kenya’s Vision 2030 economic development program.

• A USD 2 billion coal-fired thermal power station is set to be constructed at the small village of Kwasasi in Lamu County. It will be Kenya’s first coal-powered plant and is expected to add 985 MW to the grid. However, the project has been opposed by community-based organizations, such as Save Lamu (a coalition of several community groups), whose concerns regarding the plant include environmental and health hazards. The county government’s head of health, sanitation and environment, Mohamed Abubakar, is hoping that an environmental and social impact assessment will lay out how Amu Power, a company formed by a consortium of Centum (a leading Kenyan investment company listed on the Nairobi Securities Exchange and the Uganda Securities Exchange) and Gulf Energy, will mitigate against the damaging effects of the plant.

• Kenya’s Geothermal Development Company is inviting bids for the provision of various services for the Menengai Geothermal Phase I project.

References

African leaders urge passage of Electrify Africa Act , The Hill

Aldwych International and Partners sign the Lake Turkana Wind Financing Agreements , Aldwych

Amu Power , Amu power

African infrastructure investment fund 2 , Old Mutual Investment Group

African Growth and Opportunity Act (AGOA) , International Trade Administration

Cement Sustainability Initiative (CSI), Cement Esia

Chinese firm CMEC to build Sh 30bn wind farm in Kenya , Kenya Business Review

China firm wins Sh22.6bn tender to build Kipeto wind power plant , Business Daily

Details of collapsed Kenya, Uganda pipeline talks emerge , Citizen TV

East Africa: Kenya Doubles Power Exports to Uganda, Tanzania , The East African

Google to invest Sh4bn in Lake Turkana Wind Power project , Daily Nation

Gichuru firm found guilty of graft , The Standard

Gesto signs contract for geothermal power plant with kengen , Gesto Energy Consulting

Inside Gichuru’s Sh20bn empire , Daily Nation

Japan loans Kenya Ksh 41 Billion towards KenGen’s Olkaria V Project , Kenyan Wall Street

Kenya and Uganda presidents to meet oil companies over crude pipeline , Reuters Africa

Kenya and Uganda stall on talks over oil pipeline route , Energy Global

KETRACO , Kenya Electricity Transmission Company

Lake Turkana Wind Power of Kenya Sees Electricity Supply Delayed , Bloomberg

Lake Turkana Wind Power receives first turbine shipment , Business Daily

Locals oppose plans to build first coal-fired power plant in Kenya , The Guardian

Menengai Geothermal Development Project , Climate investment Funds

Ormat Begins Commercial Operation of Plant 4 of Olkaria III Geothermal Project , Renewable Energy World

Ormat Announces Commercial Operation of Plant 4 in Olkaria III in Kenya, Expanding Complex Capacity to Nearly 140 MW , ORMAT

Sh15bn Kinangop wind park halted as land protests swirl , Business Daily

Sh15bn Kinangop wind farm succumbs to severe political headwinds , Construction

Safaricom drawn into dispute between solar firm and trader over M-Kopa name , Business Daily

Tenders , Geothermal development Company

The Overseas Private Investment Corporation , OPIC

US President Obama signs Africa electricity plan into law , BBC

UK now moves to seize Gichuru and Okemo hidden cash , Business Daily

World Bank request for EOI: consulting work on Kenya Geothermal Strategy , Think Geo Energy

Centum

Geothermal development Company

Gulf Energy

Kengen

Kenya Power

Lake Turkana Wind Power

Ministry of Energy and Petroleum 

M-Kopa Solar

Kenya Vision 2030

Millennium challenge corporation

Save Lamu

USAID

US Trade and Development Agency

On Matters Energy: A Review of Some Key Developments in Kenya’s Energy Sector (Q2-2016)

Posted on September 12th, 2018

By Walter Amoko | Cindy Oraro

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As is now well-known, Kenya has signed on to the multi-lateral framework for the sharing of financial information that enables tax authorities detect those seeking to use international borders to avoid paying tax. The Multilateral Convention on Mutual Administrative Assistance in Tax Matters established the Common Reporting Standards (CRS) that were approved by the Organisation for Economic Co-operation and Development (OECD) in July 2014, and which have made it possible for tax authorities of participating countries to access financial information of their tax residents.

While it has been a great international success story, CRS’s full potential is still being undermined by tax-payers who, with assistance of their advisers, are still able to hide their assets and income under various cross-border devices, taking advantage of gaps within CRS to avoid detection. For example, CRS is limited to financial institutions that are located in participating jurisdictions. It is therefore easy to avoid its ambit by restricting one’s dealings to financial institutions located in nonparticipating countries which are not required to report any financial information in regards to a reportable person – a boon to aggressive tax planners hatching tax avoidance schemes.

The Model Rules

In line with their continuing programme of improving mutual disclosure requirements which are uniform but sensitive to local needs, on 9th March 2018, the OECD published the Model Mandatory Disclosure Rules for Common Reporting Standard Avoidance Arrangements and Opaque Offshore Structures (the Model Rules) which specifically target all categories (compendiously referred to as intermediaries) tax advisers. The OECD recognises detecting and deterring offshore tax avoidance schemes “is key both for the integrity of the CRS and for making sure that taxpayers that can afford to pay advisors and to put in place complex offshore structures do not get a free ride.”

As with other rules by the OECD on collection and access of relevant financial information for tax purposes, the Model Rules were developed so as to give a shared model for countries on the contents and structure of their own local regulatory framework in respect to professional service providers such as accountants, tax and financial advisors, banks, lawyers “to inform tax authorities of any schemes they put in place for their clients to avoid reporting under the OECD/G20 Common Reporting Standard (CRS) or prevent the identification of the beneficial owners of entities or trusts.”

The Model Rules are targeted at CRS Avoidance Arrangements or Opaque Offshore Structures. The former is ‘...any arrangement where it is reasonable to conclude that it has been designed to circumvent, or has been marketed as or has the effect of circumventing CRS legislation...” while the latter “…a passive offshore vehicle that is held through an opaque structure” and passive vehicle defined as “legal person or legal arrangement that does not carry on a substantive economic activity supported by adequate staff, equipment, assets and premises in the jurisdiction where it is established or is tax resident.” Whilst not exactly crystal clear from the various examples provided, it is possible to get a sense of what activities and/or structures the Model Rules have in mind. CRS avoidance relates to efforts to exploit gaps within the relevant legislative or administrative framework to avoid disclosure of the information required under CRS.

An opaque structure may also be described as the application of the well known commercial purpose test of an entity to CRS. The idea here is to isolate genuine financial arrangements serving an identifiable commercial purpose from those designed for concealing income and assets and thus avoid disclosure under the CRS regime.

Inquiry is directed at whether the structure has the effect of not allowing the accurate identification of the beneficial owners and specifically identifies well recognised tax planning techniques that can be used to achieve this outcome, such as the use of nominee shareholders, indirect control arrangements or arrangements that provide a person with access to assets held by, or income derived from, the offshore vehicle without being identified as the beneficial owner.

Intermediary’s Role

The Model Rules define “intermediaries” as those persons responsible for the design or marketing of CRS Avoidance Arrangements and Opaque Offshore Structures “promoters” as well as those persons that provide assistance or advice with respect to the design, marketing, implementation or organisation of that Arrangement or Structure “service providers”.

The knowledge and actions of an intermediary include those of their employees acting in the course of their employment, as well as contractors working for an employer, and the disclosure obligation and the penalties for a failure to disclose are imposed on that employer.

To be subject to the obligations imposed by the Model Rules, intermediaries must have a connection – “sufficient nexus” – with the reporting jurisdiction which extends to intermediaries operating through a branch located in that jurisdiction as well as one who is resident in, managed or controlled, incorporated or established under the laws of that jurisdiction.

An intermediary is required to file disclosure in respect of a CRS Avoidance Arrangements or Opaque Offshore Structures at the time the Arrangement is first made available for implementation, or whenever an Intermediary provides services in respect of the Arrangement or Structure. This ensures that the tax administration is provided with early warning about potential compliance risks or the need for policy changes as well as ensuring that it has current information on the actual users of the scheme at the time it is implemented.

Disclosure Obligations

There may be certain instances where the user of a CRS Avoidance Arrangement or Opaque Offshore Structure may have disclosure obligations under the Model Rules. More specifically, in instances where the intermediary is not subject to disclosure obligations as well as those cases where the intermediary is unable to comply with its disclosure obligations under the Model Rules either because it has no nexus with that jurisdiction or because it is relying on an exemption from disclosure such as professional secrecy.

The information required to be disclosed includes the details of the Arrangements or Structures, as well as the clients and actual users of those Arrangements or Structures, and any other intermediaries involved in the supply of the Arrangements or Structures. The requirements under the Model Rules are designed to capture the information that is likely to be most relevant from a risk-assessment perspective and to make it relatively straight forward for a tax administration to determine the jurisdictions with which such information should be exchanged.

The Model Rules do not require an attorney, solicitor or other recognised legal representative to disclose any information that is protected by legal professional privilege or equivalent professional secrecy obligations but only in respect to the scope of such protected information.

All relevant non-privileged Arrangements or Structures that are within the legal representative’s knowledge, possession or control should still be provided. While understandable and correct for legal professional privilege is now accepted as a component of the fundamental right to privacy, this might limit the Model Rules’ efficacy as more and more reliance is placed on practitioners in respect to whom such privilege attaches i.e. lawyers. Efforts by accountants to have legal professional privilege extended to them while giving legal advice, have thus far failed.

Striking a Balance

The information requirements of the model rules seek to strike a balance between the compliance burden on intermediaries to a minimum and still capturing the information that is likely to be most relevant. The requirement to separately identify the jurisdictions where the scheme has been made available for implementation and to specify the tax details of all the intermediaries, clients and reportable taxpayers in connection with that arrangement is intended to make it relatively straightforward for a tax administration to determine the jurisdictions for whom the disclosed information will be relevant for information exchange purposes.

Enforcement

The rules have put in place punitive measures for non-disclosure in the form of penalties. However the same are not cast in stone but are to be determined by each jurisdiction depending on its unique circumstances. However it is expressly stipulated that such penalties are to be set at a level that encourages compliance and maximises their deterrent effect.

Conclusion

The Model Rules are a continuation of concerted international efforts to tighten the noose around tax cheats or dodgers seeking to exploit international borders. As Arthur Vanderbilt remarked “taxes are the lifeblood of government and no taxpayer should be permitted to escape the payment of his just share of the burden of contributing thereto.” While the problem of crossborder tax avoidance affects most countries, the less developed countries are, by a significant factor, the most affected and disproportionately so. It will therefore come as no surprise if Kenya adopts the Model Rules as part of its CRS regime.

Even as the Government moves to implement CRS, a national debate on our entire tax system may well be warranted. It is a recurring question on which no answers are available and, as far as we can tell, has never fully engaged us as citizens despite the constant complaint that we are being overtaxed. It may well be possible that our tax system is inhibiting economic activity and thus, ironically, undermining rather than boosting revenue collection.

 

Further a Field: Proposed Changes in Kenya’s Natural Resource Laws

Posted on September 12th, 2018

By Geoffrey Muchiri | Cindy Oraro

Kenya’s Parliament recently debated a new law to regulate oil and gas exploration. If the Petroleum (Exploration, Development and Production) Bill 2015 (Petroleum Bill) is passed, the national government will retain 75% of the profits from commercial oil and gas produced, with the county governments hosting the deposits getting 20% and the local community 5%. The Petroleum Bill, which was prepared by a technical committee of the Ministry of Energy after reviewing the Petroleum Exploration and Production Act of 1986 that was deemed too oil-centric, also requires the National Government to create a conducive environment for exploration of crude oil and natural gas. The Petroleum Bill proposes the establishment of the Upstream Petroleum Regulatory Authority (UPRA) and National Upstream Petroleum Advisory Committee (NUPAC). UPRA will regulate the industry while NUPAC comprising a panel from the Ministry of Energy & Petroleum and the National Treasury as well as the Kenya Revenue Authority will advise the Cabinet Secretary responsible for petroleum. UPRA will also manage a national centre for storage, analysis, interpretation and management of petroleum data and information from sedimentary basis and field operations on behalf of the Government. The Bill proposes awarding of exploration blocks through competitive tendering. The proposed law requires the Cabinet Secretary to develop a framework for reporting, transparency and accountability in the sector. This will require publication of agreements, records, annual accounts, reports of revenues and fees.

To read a copy of the proposed Bill, please click here

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“May as Well”: Additional Renewable Sector Updates for May 2016

Posted on September 12th, 2018

By Walter Amoko | Cindy Oraro

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May 2016 saw flurry of activity in Kenya’s renewable energy sector. We have set out below some of the industry’s key highlights:

• The Kenyan government signed a Memorandum of Understanding (MOU) with the government of the UK to bolster Kenya’s renewable energy sector. A press release disseminated from the British High Commission in Nairobi and published on 17th May 2016, stated that UK Export Finance has, as an integral part of the MOU, “affirmed its interest in considering requests for export financing or insurance for eligible renewable energy projects in Kenya, drawing on a risk appetite of up to at least GBP 250 million (USD 323.7 million)”. No information has been released as yet on what constitutes an eligible project.

• The African Development Bank indicated that the construction of the first phase of the Menengai Geothermal Power Plant will be complete by July 2016. The first phase of the project is expected to produce up to 400 MW. The overall project has a potential of producing 1600 MW once fully commissioned.

• The Cabinet Secretary for Energy, Charles Keter relayed the government’s enthusiasm for the participation of private investors in the geothermal space at a geothermal consultative forum held in Nairobi on 22nd May 2016. He emphasised the importance of fast-tracking the Energy Bill 2015, currently before the Senate. The proposed law includes enabling regulatory structures for the participation of independent power producers.

Summary

Kenya’s vast renewable energy resources remain largely untapped. One of the principal reasons for this is the financing gap in projects conceived by the government. To remedy this, the government has sought to both collaborate with friendly countries, such as the UK and the overhaul of the country’s energy regulatory structure to make it more attractive to investors. The Energy Bill will end Kenya Power and Lighting Company’s electricity distribution monopoly and create a leeway for independent power producers to participate in the sector.

References

Menengai geothermal power plant to be unveiled in July this year, The Standard

Solar firm seeks nod to challenge Kenya Power monopoly, Business Daily

State keen on ending KPLC’s monopoly, The Star

State moves to woo geothermal investors, Mediamax.

UK & Kenya Sign MoU For Renewable Energy Cooperation, Planetsave

UK and Kenya sign MoU for renewable energy cooperation, GOV.UK

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Building a Strong “National” Foundation: Local Content in Kenya’s Construction Industry

Posted on September 12th, 2018

By Walter Amoko | Cindy Oraro

Co-authored by Loise Machira.

Background to the legislation

The construction industry in Kenya is regulated by the National Construction Authority Act (No. 14 of 2011) (the Act). Though the Act does not expressly make reference to the term “local content” it does have provisions that provide for both local and foreign contractors.

Categories of registration of contractors

National Construction Authority Regulations of 2011 (the Construction Regulations) provides for different categories of registration. Registration of contractors under NCA-1 category is open to both local and foreign contractors. On the other hand, any registrations that fall between NCA-2 to NCA-8 are restricted to local contractors only. This provision has the effect of restricting the type of work that a foreign contractor may undertake.

Registration of foreign contractors

The Construction Regulations define a “foreign contractor” as:

  • a firm incorporated outside Kenya; or
  • a firm incorporated in Kenya in which 51% of the shares are held by a non-Kenyan.

A foreign firm is required to make an application to the National Construction Authority before undertaking work under category NCA-1. The application must be accompanied by an undertaking in writing that the foreign contractor shall:

  • subcontract or enter into a joint venture with a local person or firm for not less than 30% of the value of the contract work for which temporary registration is sought; and
  • transfer technical skills not available locally to a local person or firm in such manner as the National Construction Authority may determine from time to time;

The National Construction Authority may register such joint ventures that a foreign contractor enters into with a local firm or person.  The Construction Regulations further require that the employees of such a joint venture be competitively recruited from the local labour market. Recruitment or employment of foreign technical or skilled workers on such contract shall only be done with the approval of the National Construction Authority where such skills are not available locally. It is important to note though that contractors may be exempted from this provision by the National Construction Authority.

Conclusion

Although the Act does not make express reference to “local content”, restrictions contained in the Act regarding local and foreign contractors could be argued to be an adaptation of local content policies because they give local contractors an opportunity to maximize on specific projects.

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