LCIA African User’s Council Symposium

Posted on July 16th, 2019

Oraro & Company Advocates participated in The London Court of International Arbitration (LCIA) symposium held on 23-24 May 2019 at the Villa Rosa Kempinski Hotel - Nairobi.

Our very own Managing Partner, Chacha Odera, and Noella Lubano, Partner were among the East African panellist speakers. Also, in attendance was Geoffrey Muchiri, a Partner in the Dispute Resolution practice area. The Symposium covered a variety of issues related to the current and future practice of international commercial arbitration and ADR in Africa.

Kosgei Kipkirui

Head of Business Development

T: +254 709 250 000/735

E: gkosgei@oraro.co.ke

Housing Fund Levy Set to Take Effect Next Month

Posted on April 16th, 2019

By Geoffrey Muchiri | Georgina Ogalo-Omondi

The Principal Secretary in the Ministry of Housing and Urban Development has today announced the coming to effect of the Housing Fund Levy (the levy) introduced, under the Finance Act, 2018.

The employer and the employee shall each be required to contribute 1.5% of the employee's monthly basic salary to a maximum of Kenya Shillings Five Thousand (KES 5000). Voluntary contributions will also be accepted to the scheme at a minimum of Kenya Shillings Two Hundred (KES 200) per month.

According to the notice, the levy shall fall within other payroll statutory deductions such as PAYE, NSSF and NHIF that are deducted by an employer every month. The first contribution shall be due by May 9th 2019.

The purpose of the levy is to finance the Affordable Housing Scheme under the Big 4 Agenda which will enable employees to purchase a home under the scheme, transfer the contributions to a pension scheme, transfer the contributions to another person under the scheme or, as cash to self, spouse, or a dependent child.

We shall update you as this matter unfolds.


Should you require further information on this subject please contact Geoffrey Muchiri (Partner) or Georgina Ogalo-Omondi(Partner).

Anti-Money Laundering: Enhanced Customer Due Diligence

Posted on October 23rd, 2018

By Noella Lubano | Geoffrey Muchiri

Overview

The Proceeds of Crime and Anti-Money Laundering Act, 2009  (POCAMLA) provides for the offence of money laundering and introduces measures for combating the offence. One such measure is that financial institutions, estate agencies and designated non-financial businesses or professions such as casinos and dealers of metals and stones (collectively, the reporting agencies) are under duty to verify customer identity and to undertake customer due diligence on existing customers or clients. Parliament has now raised the bar of this duty.

Enhanced Customer Due Diligence 

Through the Finance Act, 2018, the reporting agencies shall  apply enhanced customer due diligence on business relationships and transactions with any person or company originating from countries identified by the Financial Action Task Force (FATF) as high risk of money laundering.

Further, the reporting agencies shall apply appropriate counter measures, proportionate to the risk profile of the countries subject to FATF or as advised by the Cabinet Secretary for Finance. These countermeasures include:

  • limiting or terminating business relationships or financial transactions with persons or companies, legal arrangements, or financial institutions located in high risk countries;
  • prohibiting reliance on third parties located in the high risk countries to conduct customer due diligence;
  • applying enhanced due diligence measures on correspondent banking relationships with financial institutions located in the high risk countries;
  • when considering the establishment of subsidiaries, branches or representative offices of financial institutions from high risk countries, reporting institutions shall take into account whether the financial institution is domiciled in a high risk country; and
  • submit a report listing customers and legal arrangements, originating from high risk countries to the Financial Reporting Center on an annual basis.

Conclusion

POCAMLA demonstrates the government’s commitment to enforce measures in sealing the gaps in the legislation with the increase of innovative financial startups and money remittance systems. The increased compliance procedures, due diligence requirements and counter measures will ensure both compliance with the law and maintain growth of the Kenyan economy.


Should you require further information on the POCAMLA, 2017 please contactNoella Lubano or Geoffrey Muchiri

Taxation in the Upstream Oil and Gas Sector

Posted on September 14th, 2018

By Geoffrey Muchiri

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26th May 2012 is a date that will forever remain etched in the minds of Kenyans as it is the day when the announcement was made that vast quantities of oil had been discovered in Turkana County. Commercial viability of those discoveries had not been determined but from that date Kenya became a new petroleum province of great interest to all in the global oil and gas industry. It is in the context of this discovery that Kenya’s numerous oil blocks are seeing a renewed interest from International Oil Companies(IOC) (be they: small independents or the oil majors/seven sisters and their successors in title) or National Oil Companies from other countries.

The exploration and production of oil and gas is a very expensive capital intensive undertaking as the preliminary shooting of seismic and the drilling of exploratory wells in an oil block in accordance with the work programme agreed with any Government in any country may cost between US$1 million to over US$ 15 million and Kenya is no exception (this is coupled with the attendant risk that there is always a great possibility that the oil(if any that is found) may not be in commercial quantities). The development and production phase may involve the construction of the infrastructure necessary to transport the oil from the wellhead to the port of Mombasa or Lamu and may cost hundreds of millions of dollars.

For that reason any IOC that  seeks to sign a Production and Sharing Contract (PSC) with the Kenyan Government in respect of the available oil and gas blocks (be they onshore or offshore) would like to ascertain up front what taxes if any are applicable during the exploration phase as well as the production before the IOC can proceed to make any contractual commitment by signing and sealing the PSC. This accords with what Lord Mansfield stated in 1774, that in all mercantile transactions the great object should be certainty. This aphorism holds true to this day especially in the oil and gas sector.

The taxes applicable to the oil and gas company undertaking exploration and production of oil in Kenya are as follows:

  1. Corporation tax on the profits during the production phase (with an allowance being given for amongst others: production costs (recovered from the cost oil within a period of between 4 and 5 years), intangible drilling costs, payments to the government under the PSC, executive and general administrative expenditure incurred in Kenya ( as well as outside Kenya with special exception in the sense that those expenditures although incurred outside Kenya relate to Kenya), management fees, interest paid on loans(provided tax on the interest has been deducted and paid). The corporation tax rate is 37.5% for non-resident companies and 30% for resident companies.N/B: Since many IOCs which happen to be oil majors are vertically integrated there is a likelihood they may sell oil to their subsidiaries involved in marketing and for that reason there are rules that govern and ensure that such sales are done on an arms- length basis.
  2. A tax on any transfers of any interest in the property and/ or shares of an oil company was introduced in This attempts to cover: take-overs and farm-outs as well as outright sales of the whole interest. This tax was introduced as a result of a battle that the Kenyan Government lost when it tried to call for its share of taxes when an international take-over of a company had the effect of resulting in the acquisition of stakes in some oil blocks in Kenya.
  3. Government share of profit oil is also a tax from the IOC’s. The Government share of profit oil is calculated on a sliding scale with the government share increasing dependent on how many barrels of oil are produced from a particular oil block (akin to the sliding scale that applies to an individual person’s income in Kenya whereby the government take/tax increases with  each  increasing level of income). The Government share of profit oil is a negotiable variable and this is a factor which ought to be taken into consideration as one engages the Government in  negotiations leading up to the signing of a PSC.
  4. Windfall profits tax may be included in some concluded Production Sharing however, in light of the continued sharp price decline in the global oil prices. This might not be a very attractive tax model.

Ring-fencing is applicable to the upstream oil and gas sector in Kenya. This means that losses from one oil block cannot be used to reduce the taxable income in respect of another profitable oil block.

The Kenyan Government is currently at an advanced stage of concluding the preparation of new legislation that will govern the upstream oil and gas sector in Kenya.

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

The Companies Act, 2015

Posted on September 12th, 2018

By Pamella Ager | Geoffrey Muchiri

The Companies Act 2015 (the Act) is amongst a suite of new laws intended to streamline business in Kenya, by making it easier for entities to establish a presence and operate. Although quite voluminous, the Act takes into consideration, developments in technology and procedure, to boost the ease of doing business. In addition, the Act codifies and gives life to the now generally accepted principles of corporate governance.

Below are some of the more salient features of the Act:-

  • The introduction of sole membership of private companies; entrepreneurs will no longer be required to incorporate a company with at least two members(as required under the previous Companies Act (Cap 486). This takes into consideration the Government’s intention to increase and facilitate entrepreneurial activity in Kenya
  • Several provisions that remove previous procedural technicalities for compliance have also been codified. These include:-
  1. No obligation for a private company to have a company secretary, where it its paid-up capital, does not exceed Kshs. 5 million
  2. Private companies are allowed to have only one director, while public companies must have at least two
  3. The minimum age of a director is now 18 years, down from the previous 21 years, with no prescribed maximum age
  4. A company’s objects are now not deemed to restrict its capacity; a company may transact only subject to its own limitations
  5. The members of a private company may pass written resolutions circulated in hard copy or electronic form
  • A company may notify shareholders of notices and announcements through its website
  • Sector-Specific model articles of association shall be prescribed
  • The Act codifies directors’ fiduciary duties, as stipulated under common law. These include: duty to exercise reasonable care, skill and diligence, duty to act within powers and duty to avoid conflicts of interest In respect of accountability and transparency, the following provisions have been introduced:-
  1. Private companies must file financial statements within 9 months of the accounting period with the Registrar of Companies (RoC)
  2. Resolutions, written memorandum and agreements affecting the company’s constitution are to be filed at the Companies Registry within 14 days of their passing
  • Directors’ fixed term service contracts in excess of two(2) years will require shareholders’ approval
  • The requirements for valid execution of a document by a company have been changed to signing by 1 director in the presence of an attesting witness
  • The RoC is to be informed of changes in a company’s directorship or directors’ addresses within 14 days of effecting the change
  • Transfer by the company of a substantial non-cash asset to director shall only be by resolution. A non-cash asset is considered substantial where its value exceeds 10% of the company’s assets and is more than Kshs 5 million, or one that exceeds Kshs 10 million
  • An application may be made to the AG or the Official Receiver for a disqualification order against a director or company secretary, where he/she is unfit to hold office, or where the company becomes insolvent. The duration of such an order is between 2 to 15 years
  • Takeovers and Mergers will now be governed by the Act(once it comes into force), as opposed to the previous position, where takeovers were governed by the Capital Markets Act (Cap.485A) and the regulations made thereunder
  • The introduction of comprehensive Financial Reporting requirements in line with International Accounting Best Practice(developed after Enron and Parmalat) which includes amongst others setting out the functions, remuneration terms and extent of liability of Auditors (exemption of liability is proscribed)
  • Golden parachutes which are common place during the exit and/or ouster from office of any director, are subject to approval by the shareholders.
  • Winding Up (which was previously governed and available under the old Companies Act 1948) is now repealed as a whole and replaced with legal concepts such as administration, liquidation and moratorium which are governed by the Insolvency Act 2015
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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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A “Right” to Light: A Look at the Key Provisions in Kenya’s Proposed Energy Bill, 2015

Posted on August 13th, 2018

By Geoffrey Muchiri & Cindy Oraro

If passed, the Energy Bill, 2015 (the Energy Bill) will see Kenya Power (the country’s national electricity utility company) compensate consumers for financial losses and physical injuries due to power outages. The Energy Bill provides that “a licensee shall be liable to compensate a consumer due to power outages or surges…that exceed a cumulative three hours within a 24-hour period”. Furthermore, “where a consumer incurs financial loss, the licensee shall compensate the consumer by incorporating the compensation into the consumer’s bill by way of a subsidy which shall, be an equivalent amount to the loss incurred as presented by the consumer and agreed by the licensee.” This is intended to spur a faster response from Kenya Power in the event of blackouts. The Energy Bill also seeks to establish the Energy and Petroleum Tribunal as the successor of the Energy Tribunal (established by the Energy Act No. 12 of 2006).

To get a copy of the Energy Bill, click here

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Delving Deeper: A Closer Look at Local Content in Kenya’s Growing Mining Sector

Posted on August 13th, 2018

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Background to the legislation

Kenya intends to overhaul its mining laws currently contained in the Mining Act (Cap 306 of the Laws of Kenya) by passing the Mining Bill, 2014 that is currently being debated in Parliament. The Mining Bill, if passed in its current form, will introduce a range of new provisions among them being those on local content.

Principal objectives of local content regulations in the mining sector

Currently, the Mining Act does not make provision for local content. The rationale behind local content in the proposed Mining Bill lies in the need to develop the economy of a host nation and its surrounding region through mining activities.

(a) Local Equity Participation
The Mining Bill states that where a company whose planned capital expenditure is over the prescribed limit it shall, within 4 years after obtaining a mining licence, offload at least 20% of its equity at a local stock exchange. It should be noted, however, the Cabinet Secretary may extend the required period if he deems it fit after consulting with the National Treasury.

(b) Preference for Local Product
The Mining Bill requires for mineral right holders who are in the conduct of prospecting, mining, processing, refining and treatment operations, or any other dealings in minerals, to give preference to the maximum extent possible to:

  • materials and products made in Kenya;
  • services offered by Kenyan citizens; and
  • companies or businesses owned by Kenyan citizens.

(c) Employment
As a general requirement, mineral right holders will be under an obligation to give preference to Kenyan citizens when it comes to employment. The Mining Bill provides that before one is granted mineral rights in Kenya, one will be required submit for approval to the Cabinet Secretary responsible for mining a detailed programme for the recruitment and training of citizens of Kenya. This is aimed at ensuring skills transfer to and capacity building for the citizens.

The Cabinet Secretary will be required to make regulations to provide for:

  • the replacement of expatriates;
  • the number of years such expatriates shall serve;
  • the number of expatriates per capital investment; and
  • the collaboration and linkage with universities and research institutions to train citizens.

It is important to note that the Bill has categorized mining activities into large scale operations and small scale operations. Mineral rights for small scale operations will only be granted or be entitled to Kenyan citizens or a body corporate wholly owned by Kenyan citizens. On the other hand, when it comes to large scale operations, a holder of a mineral right will be required to:

  • only engage non-citizen technical experts in accordance with such local standards for registration as may be prescribed in the relevant law;
  • work at replacing technical non-citizen employees with Kenyans, within such reasonable period as may be prescribed by the Cabinet Secretary in charge of mining;
  • provide a linkage with the universities for purposes of research and environmental management;
  • where applicable and necessary facilitate and carry out social responsibility to the local communities; and implement a community development agreement

It is important therefore that interested parties confirm from the outset whether their mining activities would fall under large scale of small scale operations in order to be in a position to ensure compliance as the requirements for approvals in each of these operations are different.

Brand New: Kenya’s Newly Enacted Mining Act

Posted on August 13th, 2018

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The Mining Act, 2016 (the Act) came into force on the 27th of May, 2016 thereby repealing inter alia, the previous Mining Act (Cap.306) which was enacted in 1940, the Trade in Unwrought Mineral Act (Cap.310) and the Diamond Industry Protection Act (Cap.311). The Act is a progressive piece of legislation which is meant to give effect to the provisions of Articles 60, 62(1) (f), 66(2), 69 and 71 of the Constitution of Kenya, 2010. The Articles generally include provisions on principles of land policy, public land, regulation of land use & property, obligations in respect of the environment and finally, agreements relating to natural resources. The coming into force of the Act certainly marks a new dawn in Kenya's mining industry for local as well as foreign direct investors in the sector. A more detailed analysis of the Act will follow in the weeks to come.

To get a background of the Mining Bill which preceded the Act, click here to read our recent analysis - Delving deeper: a closer look at local content in Kenya’s growing mining sector and The "big" deal about the Mining Bill: Key highlights.

For additional insights on land rights issues in Kenya's extractive industry, read a previous article in our latest newsletter (pages 4-5) by one of our natural resource lawyers, here

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About Us

Oraro & Company Advocates is a full-service market-leading African law firm established in 1977 with a strong focus on dispute resolution and corporate & commercial law. With a dedicated team of 10 partners, 4 senior associates, 10 associates, 1 lawyer and 36 support staff, the Firm has been consistently ranked by leading legal directories such as Chambers Global, IFLR 1000 and Legal 500 as a top-tier firm in Kenya.

Oraro & Company Advocates is an affiliate member of AB & David Africa.

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