2018 in review - citadel law africa€¦ · quarterly journal page 9 page 13 page 17 what’s...

1 December 2018 Edition

2018 IN REVIEWQ UA RT E R LY J O U R N A L

PAGE 13PAGE 9

PAGE 17

WHAT’S INSIDE

December 2018 Edition

2018 IN REVIEW CASE REVIEW

PAGE 25 PAGE 54

RETHINKING OF BANKABLE COLLATERAL

PAGE 21

THE CHALLENGES OF FINANCIALLY CLOSING PPP PROJECTS IN KENYA

THE QUAGMIRE OF OIL AND GAS REVENUE SHARING

BLOCKCHAIN TECHNOLOGY. THE DIGITAL REVOLUTION

2 3 December 2018 Edition2018 IN REVIEWQ UA RT E R LY J O U R N A L

As we come to the end of 2018, we can look back with pride into what we have been able to achieve for our clients and for the firm this past year. It has not been a single story – but varied experiences of highs and lows, met and unmet expectations, successes and failures. The only constant has been our continuous need to change – looking constantly at how we can do things differently and better, always making choices that we hope and expect will safeguard our future. This continual improvement and change is what we can look back to with pride. It is what set us apart.

The practice of law as with many other sectors of our society is in flux, constantly evolving and challenging all set norms and practices. This demand that we be bold enough to leave behind the past and embrace

the future. The future requires that we are agile and flexible enough to relieve the legal pain points of a diverse range of clients in whatever forms they are presented. We need to live up to our ambitions of being an African International Law firm with global expertise and achieve them. for us this means broadening our footprint by combining our practices in different jurisdictions in our region, expanding the range and depth of our services and living to our vision of a truly agile 21st century law firm. We have taken concrete steps to achieve this in 2019. We have established Citadel Law Africa (CLA) which has brought together best in class legal expertise in Kenya, Uganda, Rwanda and Ethiopia to offer seamless and integrated practice capable of providing solutions to clients in countries with over 200 Million citizens. We have also implemented a best-in class IT Platform supported by the latest innovations including Blockchain, Artificial Intelligence

and Data Analytics to provide better insights in addressing our clients’ needs. Lastly we are implementing an agile organizational structure that is aligned to expertise rather than hierarchy to ensure we provide the best advice in the most efficient way

In the year ahead, we have set for us as simple but fundamentally critical task; to develop a great firm with clients that value us, with committed colleagues, with a powerful brand, and with solid financial results that enable us to invest in our people, our quality and our services.

Happy & Successful 2019!

Crispine Odhiambo

Managing Partner

From TheManaging Partner

Our continual improvement and change is what we can look back to with pride. It is what set us apart.


INSIGHT

Practice Areas 7

The quagmire of oil and gas revenue sharing 9

Blockchain Technology. The digital revolution 13

Rethinking of bankable collateral 17

The challenges of financially closing PPP projects in Kenya 21

2018 IN REVIEW

Corporate and finance 25

Technology media and IP 31

Projects 36

Dispute Resolution 45

FIRM NEWS 2018 IN REVIEW 51

CASE REVIEW 54

CLOSING THE ENERGY INFASTRUCTURE GAP IN AFRICA 57

CO

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ABOUT KO ASSOCIATESKiptinness & Odhiambo Associates (‘KO Associates’) is a Regional Law practice providing high quality specialist and customized legal advisory services. We are the window to the region because we provide world class legal services in the local market.

We advise our clients on high profile and ground breaking transactions and have an excellent and varied client list that includes leading local and regional corporations, financial institutions and the Kenyan Government.

We are renowned for our commitment to excellence and for our ability to find innovative solutions to the most complex, multi-national and at times, first-of-its-kind legal problems.

Our goal is to be the firm of choice for clients with respect to their most challenging legal issues, most significant business transactions and the most critical disputes.

Our success is driven by that of our clients. Our clients are at the heart of how we work. We always anticipate what they will face next, adapt to the changes and provide them with the very best team, processes and solutions.

Our ApproachThree key features of our approach differentiate us; our client focus, innovativeness and our regional strategy. Understanding, anticipating & satisfying the client’s individual legal needs is, for us, a priority.

We offer excellent, seamless service across the full spectrum of disciplines required to execute multi-faceted transactions successfully. We counsel clients on increasingly intricate transactions with ingenuity & efficiency.

We are continually looking for innovative ways to leverage emerging technology to improve client service and advocacy. We keenly follow changes and global developments in Technology and the law to give our clients innovative, effective and timely solutions. We are actively involved with regulators, government agencies and policy making institutions to ensure the policies that affect the sector are legally sound and create an environment for the Technology sector to thrive in Kenya.

The KO team shares a commitment to providing our clients with the highest quality and most cost effective legal services in an atmosphere emphasizing teamwork, creativity, responsiveness and diversity. This commitment combined with our indepth knowledge and experience in each of our practice areas allows us to deliver the highest level of service.

AwardsK&O has distinguished itself as a highly rated commercial law firm and consistently achieves the

highest rankings.

CONTRIBUTORS Becky OmondiEditor

Crispine OdhiamboManaging Partner

Alex OduolAssociate

Alvin AttaloAssociate

Joyce MainaAssociate

Wilson WahomeAssociate


KEY CONTACTS

STEPHEN KIPTINNESSSenior Partner; Head Tech and IP [email protected]

CRISPINE ODHIAMBOManaging partner; Head Projects, Energy and [email protected]

MARTIN OBUOPartner; Head Dispute Resolution [email protected]

NZILANI MWEUPartner, Tech and [email protected]

PRACTICE AREASTECHNOLOGY, MEDIA & TELECOMMUNICATIONS

Global technology firms, major media houses and telecommunications companies and financial institutions rely on our TMT team to provide specialist legal services. This is because we bring the right mix of industry practice, Government networks and experience to their most challenging and complex legal, regulatory and compliance issues. We invest time to understand our client’s strategic objectives, offering relevant and practical advice. We have distinguished ourselves as one of the leading TMT law firms in Kenya.

We offer our clients high quality, innovative and solution-oriented advice which aligns with their goals. We pride ourselves on our understanding of the TMT sector, and place great emphasis on maintaining proximity and developments in the industry. We are able to anticipate and advise on any commercial and technical issues that may arise in a transaction.

Key Contact: Stephen Kiptinness

PROJECTS, ENERGY AND INFRASTRUCTURE

Energy and infrastructure are more than just sectors. They are fundamental drivers of economic, political and social progress across the globe and particularly in emerging economies like Kenya and the East African Region. KO is at the forefront of developments in these industries in this region.

KO advises a wide variety of multinational clients, including oil and gas companies and state corporations, power and utility firms, private equity funds, banking

and insurance companies, real estate developers, Development Finance Institutions (DFIs), Multilateral Finance Institutions (MFIs) and the government on projects and projects financing. We provide our clients with a totally integrated service on all aspects of the projects work, drawing on the projects team specialist skills in all the relevant parts of the law.

Our broad experience advising the full range of market participants means we are able to anticipate and understand issues and problems that may arise during the course of a project and find constructive solutions to them.

KO lawyers provide industry experience along with technical and practical insight in sectors throughout the project development cycle & finance.

Key Contact: Crispine Odhiambo

CORPORATE & FINANCE

Our corporate and finance practice focuses on providing practical and innovative legal solutions to a wide range of clients including financial institutions, global technology firms, SMEs, SACCOS, large national corporations, multinationals, and multi-lateral financial institutions, public and state corporations. We regularly advise on a range of complex transactions including mergers and acquisitions, equity and debt financing, infrastructure development and privatizations, conveyancing and legal and regulatory compliance.

We offer excellent, seamless service across the full spectrum of disciplines required to execute multifaceted transactions successfully. We offer our clients high quality, innovative and solution-oriented advice which aligns with their goals.

We pride ourselves on our understanding of the corporate sector, and place great emphasis on maintaining proximity to the industry, with our partners having worked in the sector whether at regulator or service provider levels. Through this proximity, we are able to anticipate and advise on any commercial and technical issues that may arise in a transaction.

Key Contact: Crispine Odhiambo

DISPUTE RESOLUTION

Our Lawyers are experts in the conduct of complex and high value litigation, arbitration, alternative dispute resolution and mediation matters. We are committed to resolving disputes as efficiently as possible and are focused at offering solutions that are practical and make commercial sense.

We advise on a wide range of contentious matters, including shareholder disputes, contractual claims, insolvency, real estate, environment, employment, intellectual property, fraud, and regulatory compliance.

The resolution of specialist industry disputes whether in Technology, Intellectual Property, Media, Energy or Financial Services often require specialist knowledge and a range of skills which we achieve through our business knowledge and diverse experience in litigation and arbitration. We are ultimately able to represent our clients in any court or tribunal.

Key Contact: Nzilani Mweu


INSIGHT

THE QUAGMIRE OF OIL AND GAS REVENUE SHARINGINSIGHTThe Government of Kenya discovered a commercially viable quantity of oil in the Turkana region in early 2012 renewing the debate on resource sharing post 2010 in a devolved system and raising questions on oil & gas revenue sharing as well as its role in socio-economic development in the Country.

Revenue sharing pertains the equitable distribution of natural resources revenues between different levels of Government in order to ensure a transformative economy for all. Revenue sharing in the Oil and Gas Sector across the globe relies on several revenue sharing models unique to the particular economy. These models range from those that favor the derivation principle i.e. each devolved unit of Government’s revenue share is linked to the oil revenue originating in its territory to those that are more like intergovernmental transfers. Intergovernmental transfers use criteria such as population, needs or tax capacity to determine revenue shares. Some models provide relatively large amounts of revenue to the devolved Government units while others provide relatively small amounts.

Some of the Revenue sharing models adopted in fragile and conflicted economies such as Kenya’s include:

a. Asymmetric Revenue Sharing Model

Indonesia has adopted an asymmetric revenue sharing model. The asymmetric approach is geared towards increasing revenue shares for the resource-rich conflicted areas in an attempt to discourage them from seceding. The model arrangement has fulfilled its aim but it has not succeeded in achieving the anticipated levels of equality within the regions projected at its design stage.

b. Formula-Based Revenue Sharing Model

Countries such as Nigeria adopted a formula-based revenue sharing model that has been in place for some years. The model involves the use of a pre-defined formula in the sharing of oil revenues. Nevertheless, the model has proven to be inefficient and oil revenues have resulted in widespread corruption. In addition, the revenue sharing approach has not spurred economic development in the oil producing Niger Delta.

c. The Rentier State Model

The rentier state model is particularly adopted by the oil-wealthy nations in the Arabian Gulf. In a rentier state system, the Government collects oil revenues and distributes the proceeds to their population. Income accrued

from oil revenues is distributed to the citizens in the form of food subsidies, employment opportunities, healthcare and all the basic necessities. The Government in such a model takes the role of a benefactor and as a result, citizens become hesitant to demand an entirely new system of governance that is one with increased representation. The Arab Absolute Monarchies such as Bahrain, Oman, Qatar, Jordan, Kuwait and Saudi Arabia continue to enjoy relatively unchallenged support as they have adopted the rentier system. Nevertheless, the rentier system is finite, large Government welfare packages are unsustainable in the long term as such luxuries lead to increased costs.

Kenya’s Controversial Petroleum (Exploration, Development and Production) Bill

The latest version of the Petroleum (Exploration, Development and Production) Bill published on December 6, 2017 has further escalated the problem of revenue sharing concerns. The Bill proposes to half the share of oil revenue for local communities from a paltry 10% to 5%. Looking back, this is the third version of the Bill that was initially published in the last Parliament where it lapsed and was republished in September 2017. The Bill was taken through


the first reading before Hon. Aden Duale withdrew it in accordance with Standing Order 140 of the Parliament of Kenya. The Member of Parliament’s reasons for withdrawing the Bill were that it contained typographical errors and some sections had been omitted upon republication.

The sharing of oil revenues sparked political debate in the run up to the August 8 elections in 2017. The Turkana communities through their leaders felt shortchanged in the sharing of oil revenues. MPs from Turkana County had aggressively lobbied for the doubling of local oil revenue share in the Bill and the current proposed Bill is going to immensely undermine their efforts. In addition to reduction in revenue sharing for local communities, there are proposals in the Bill to cap oil revenues due to a county at 20% of the National Government ‘s share. There is also a provision to the capping in the Bill which states that “provided that the amount allocated…shall not exceed the amount allocated to the County Government by Parliament in the financial year under consideration”. The net effect of this provision in the Bill is that if a County Government has been allocated Kshs. 5 billion in a financial year, its share of the oil revenues would not exceed Kshs. 5 billion. The Bill is likely to be passed in the 12th Parliament considering the numerical strength of the current regime in the 12th Parliament.

There is considerable pessimism about Kenya’s petrodollars future. This is based on a full assessment of exploration and appraisal data that revealed the Country’s recoverable crude in South Lokichar basin stands at 560 million barrels and not 750 million barrels as earlier

anticipated. Nevertheless, Kenya has sunk only a few explorative wells and has great potential in opportunities for greater oil capacity findings. Early oil project plans have been set in motion. The Ministry of Petroleum has already procured Dubai based El Mansoura Petroleum Company to accelerate the installation of the Early Product Facility (EPF). The facility includes temporary equipment rented at the cost of Kshs. 100 million that will enable Tullow Oil to connect all its 40 wells and achieve targets of extracting 2000 barrels of crude every day in line with Early Oil Pilot Scheme (EOPS) projections.

Summary

Apart from the controversial revenue sharing clauses the Petroleum Bill proposes the following:

i. Companies to give priority to Kenya in terms of employment, legal services and insurance services and that they provide for succession plans for positions not held by Kenyans;

ii. Profits from oil exports to be held in Petroleum Fund;

iii. Exploration licenses be issued by the Upstream Petroleum

Regulatory Authority established under the Act;

iv. The discovery of further oil deposits be notified to the Cabinet Secretary within 48 hours;

v. The Bill recognizes land rights as it provides that where a contractor intends to enter upon any land for purposes of conducting upstream petroleum operations access to such lands shall be governed by the Constitution and the relevant land laws. The import of this is that land owners of the affected lands must be promptly and adequately compensated, and the land can only be compulsorily acquired following the laid out procedure in the relevant land laws.

The Bill will be instrumental in providing a contemporary legal framework for oil exploration, exportation and production in Kenya. There is need to expedite enactment of the Petroleum Bill but also for the National Government to address the revenue sharing disagreements with local leaders in Turkana and reach a compromise to ensure successful implementation of the Early Oil Pilot Scheme.

Lessons Learnt in Oil and Gas Revenue Sharing

• It is necessary to have a clear understanding of exactly which natural resources are to be shared and which mechanisms will be used to determine the sharing allocation. Strict regulatory frameworks are particularly fundamental for ensuring this and should expressly assign revenue bases to each level of Government. Agreed formulae should be detailed for revenue transfer systems.

• Ownership and management of resources need to be addressed.

Kenya has sunk only a few explorative

wells and has great potential in opportunities for

greater oil capacity findings. Early oil

project plans have been set in motion.

It is critical to be aware of how decisions about granting exploration and exploitation rights will be made and who will be making them.

• Issues that are deliberately left open in revenue sharing agreements or that are negotiated separately should be taken into account from a political perspective to avoid tensions.

• Transparency and accountability are fundamental in successful implementation of revenue sharing models. This is because they serve as safeguards against corruption and inefficiencies ensuring that the state does not conceal revenues or make false claims on utilizing the revenues for development.

• Making provision for enabling legislations and institutions to monitor production. The purpose of this is to ensure that local actors are not exceeding production quotas or selling illicit production outside revenue sharing agreements.

• Availing Sector-based and finance experts during the early stages of a negotiation process can be beneficial. It facilitates a shift away from the politics of resource governance to the technical aspects of resource governance. Experts provide stakeholders with a realistic assessment of the issues involved and can deal with unrealistic expectations especially regarding money. Similarly, creating information about the value and future prospects of natural

resources ensures that all parties are equally well-informed.

• Institutional quality is vital in ensuring successful management of resource revenues. In particular, technical capacity in public institutions responsible for managing resource revenues is a necessity. A strategic approach in institutional reforms geared towards creating sound resource revenue management systems will particularly be instrumental in the successful implementation of a revenue sharing model.

Contributor

Alex Oduol Onyango is an Associate in the firm’s Projects, Energy & Infrastructure practice

Transparency and accountability are fundamental in successful implementation of revenue sharing models.


INSIGHTINSIGHT

BLOCKCHAIN TECHNOLOGY; THE DIGITAL REVOLUTIONARY

TECHNOLOGY AND IP

Blockchain technology will undoubtedly revolutionize the world we live in over the next few years. Much like the telephone or the television or even the light bulb when they first invented, naysayers were quick to pass judgment and predict Blockchain’s downfall even before it had picked up any sort of momentum. Satoshi Nakamoto (a pseudonym), is the developer or developers of this undoubtedly ingenious invention which has evolved into something great and which will no doubt grow even further. The technology was originally developed specifically for Bitcoin but users have identified another potential use for the novel technology.

How Will Blockchain Affect the Future?

Blockchain technology has been aptly named a new type of internet. Whether that is because of the effect it will have compared to the internet when it was first developed is yet to be seen. At the heart of this technological development is a simple method that will allow people to distribute digital information without copying it. The blockchain is a public ledger that works by recording and storing transactions and information across numerous computers so that any such

transaction or information cannot be altered without affecting other blocks. Consequently, anyone participating in the transaction to verify and audit the transactions can do so independently and at a fairly low cost. The database is managed freely using a peer-to-peer network comprising of computers referred to as nodes as well as a distributed timestamping server.

The veracity of such information is validated by different users all of who have an interest in the said transaction. The verified transaction can involve records, contracts, cryptocurrencies or any other information. Once the data has been ascertained, the transaction is then merged with other transactions to create a new block of data for the ledger. The new block is subsequently added to the chain, forming a blockchain. This addition is done in a manner that cannot be altered and one that is permanent. In doing all this, any risk regarding data security that the transaction might occasion is minimized. This process ensures that every unit of value is transferred only once and by having information across peer to peer networks, the risk of having such information in a central location is largely minimized. Essentially, hacking into such a network would prove to be almost impossible.

Again, this makes security one of the outstanding features of Blockchain.

At the heart of this technological

development is a simple

method that will allow people to distribute digital

information without copying

it. The blockchain is a public ledger

that works by recording and storing transactions

and information across numerous

computers so that any such transaction or information

cannot be altered without affecting

other blocks.


As with any new technologies there are bound to be questions surrounding various core concepts and Blockchain is no exception. The biggest worry that potential users have is with decentralization of records. Blockchain seems to leave people guessing as to what will happen to the more common centralized system of placing or storing records. The simple answer is that it will no longer exist. Users will be responsible for the maintenance of data quality and authenticity through massive database replication. There will be no such thing as a central copy as none will exist and no user will be trusted more than the other. Any user who wishes to transact will send a message across the network and anyone who is interested will initiate the transaction.

Practical Illustrations

In a situation where person X wishes to open multiple bank

accounts with different banks. Blockchain can also be used for identity management. The details of all Kenyan citizens or those who open a bank account with one bank should be captured in a Blockchain which can be made accessible to all financial institutions. This would avoid repetition as if person X moves from Bank A to Bank B, he/she will not be required to provide a copy of his/her ID, KRA Pin, Passport photo among others again. This information will be captured in the Blockchain accessible by Bank A and Bank B. If the information is available to other lending institutions as well as the Credit Reference Bureau, assessing the credit worthiness or lack of thereof becomes easier.

Blockchain can also be used to store land records, record transfer of property and verify ownership of property. There have been numerous cases in Kenya of duplicity of titles. This can be done away with the adoption of Blockchain. Information that

is captured on Blockchain is not easily manipulated. It would thus minimize if not eliminate the falsification of land documents.

Accountability and Reduction of Errors

Blockchain is indeed a revolutionary technology. However, that does not even begin to describe it. At its best, the novel technology is expected to heighten accountability by eliminating human errors coupled with missed transactions. It is also expected to have a massive impact in the ascertainment of just how valid transactions are. This is because it is not only the main register but a system of interconnected registers.

Contributor

Wilson Wahome is a Legal Assistant in the firms Technology, Media and IP Practice

Fig.1. Illustration of how Blockchain works.

TECHNOLOGY AND IP

Blockchain is expected to have a massive impact in the ascertainment of just how valid transactions are. This is because it is not only the main register but a system of

interconnected registers.


INSIGHT

RETHINKING OF BANKABLE COLLATERAL:THE MOVABLE PROPERTY SECURITY RIGHTS ACT

INTRODUCTION

For a long time in Kenya, access to credit facilities by small and medium enterprises (SMEs) and persons who did not own any immovable property was an uphill task. Loans would only be availed to those who owned land upon the successful registration of a charge (or a mortgage under the former land laws) in favor of the Lender. This therefore meant that SMEs and citizens who did not own land could not access loans as they did not possess what was regarded as bankable collateral. As a result, many of these were constrained to borrow from shrewd shylocks who charge exorbitant interest rates and who remain unregulated.

The Movable Property Security Rights Act, 2017 (MPSRA)marked 16th February 2018 as the deadline for all commercial banks to register initial notices for pre-existing securities held on account of all outstanding loans failure to which, the banks would be unable to effect the security against third parties competing for similar rights.

THE MOVABLE PROPERTY SECURITY RIGHTS ACT, 2017

The MPSRA was assented to on 10th May 2017 and came into force on 16th May 2017. The Act brought about a paradigm shift in what is regarded as bankable

security as it expanded the scope of what can be used to secure borrowing. The Act provides for the use of movable property as collateral for credit facilities. Movable property is defined under the Act as any tangible or intangible asset.

The Act goes further to define what is a tangible and an intangible asset. A tangible asset means all types of goods and includes motor vehicles, crop, machineries, livestock among others. An intangible asset on the other hand includes receivables (amounts which are owed to a business and are regarded as assets), choses in action (includes a right to sue for damages for an injury, the rights of a beneficiary to an estate of a deceased and rights of an employee to unpaid wages), deposit accounts, electronic securities (these are securities not represented by a certificate) and intellectual property rights (includes copyrights, trademarks, industrial property rights and any other related right).

To obtain financing, a security right is created over the movable property. The security right is

created by a security agreement which is entered into by the grantor and the creditor. For the security agreement to be valid, the grantor must have rights in the asset to be encumbered or the power to encumber the asset. The security agreement should be in writing and signed by the grantor. The agreement should also identify the secured creditor and the grantor, describe the secured obligation and describe the collateral provided.

To be able to enforce the security right created, the MPSRA requires the registration of an initial notice and not the security agreement. The MPSRA and the MPSR (General) Regulations 2017 provide that an initial notice should provide the identity card number or the passport number or the company registration number as the case may be of the grantor, the address of the grantor, the name of the grantor, the identity card number or the passport number or the company registration number as the case may be of the secured creditor, address of the secured creditor or its representatives, a description of the collateral, the period of

To be able to enforce the security right created, the MPSRA requires the

registration of an initial notice and not the security agreement

CORPORATE AND FINANCE


effectiveness of the registration, an indication if the registration relates to a right of a non-consensual creditor, an indication if the registration relates to a prior security right and any other information for statistical purposes.

Upon the successful registration of an initial notice, the notice remains effective for the period indicated in the notice, which period should not exceed ten years. The period of effectiveness may be extended for another maximum period of ten years. This therefore means that under the MPSRA, the security right can only be for a maximum period of twenty (20) years. The contents of the initial notice may be amended by way of an amendment notice or cancelled by way of a cancellation notice.

During the existence of the security right, various rights and obligations accrue on the parties. A grantor or secured creditor in possession of the collateral is required to exercise reasonable

care to preserve the asset. In the event that the collateral remains in the possession of the grantor, the grantor has the obligation to exercise reasonable care to preserve the asset and the secured creditor has the right to inspect the collateral.

In addition to the above, the grantor is required to fulfill the obligation that lead to the creation of the security right. In the event that there is default, the secured creditor may enforce his/her right in the manner agreed in the security agreement or in accordance with the MPSRA or any other written law.

The MPSRA provides that if the security right had been created under a hire purchase agreement, upon default, the secured creditor may enforce rights only in accordance with the Hire Purchase Act. If the transaction did not relate to a hire purchase agreement, the secured creditor may move to court or exercise the rights provided under the Act without applying to court.

The Act provides that where there is default, the secured creditor shall serve the grantor a notification in writing or in any other form agreed between the parties requiring the grantor to perform the obligation. The notice served to the grantor should adequately inform the grantor four key things. Firstly, the nature and extent of default, secondly, if default relates to non-payment, the actual amount owing and the time by which the payment must be made, thirdly, if default consist of the failure to perform or observe a covenant, that the grantor must do or desist from doing an act to rectify the default and the time by which the default must have been rectified. Lastly, the notice should inform the grantor the consequences that may follow if the notice is not complied with. In the event the grantor does not comply with the notice, the secured creditor may sue the grantor or appoint a receiver of the movable asset or take possession of the movable asset or sell the movable asset

Loans would only be availed to those who owned land upon the successful registration of a charge (or a mortgage under the former land laws) in favor of the Lender.

or pursue any other remedy provided in the security agreement or under any other written law.

Like all other securities, the full discharge by the grantor of the obligation that necessitated the creation of the security right allows for its termination. On the termination, the secured creditor is required to register a cancellation notice which shall note the security right has been extinguished.

CONCLUSION

The MPSRA will no doubt enhance the ability of individuals and entities to access credit facilities as the Act has expanded the scope of what is regarded as bankable security to include items that are owned by a majority of the population. Further, the Act has simplified the process of creation and perfection of securities on movable property. The adoption of an electronic registry and the requirement that all notices and

search request be submitted electronically will also go a long way in ensuring efficiency.

However, the enactment of the MPSRA and its coming into force has so far done little to benefit the very people that were in the mind of the drafters. Most of these remain unaware that with furniture, a log book, crops, livestock, intellectual property and other movable property, one can secure a loan. To this very day, they hold onto the mistaken belief that it is only when one owns a piece of land that one can access credit facilities. In view of this, a lot of sensitization has to be undertaken to inform the general public of the development that has been brought about by the MPSRA. That is, rethinking of bankable collateral.

Contributor

Joyce Muthoni is an Associate in the firm’s Corporate M&A, Private Equity practice

Like all other securities, the

full discharge by the grantor of the obligation

that necessitated the creation of

the security right allows for its termination.


INSIGHTINSIGHT

THE CHALLENGES OF FINANCIALLY CLOSING PPP PROJECTS IN KENYA

That Public Private Partnership (PPP) Projects in Kenya have struggled to financially close is not debatable.

To date out of a pipeline of Seventy-One (71) Projects since 2013, only one has been listed by the National Treasury Unit as having financially closed. Even if one was to consider the much more compact list of Twenty Projects that are included in the Advanced Projects report June 2018, one out of twenty projects is still a pretty dismal return. And it has not been for lack of effort. Or expertise for that matter.

So why can’t PPP projects in Kenya financially close?

Financial close occurs when all the project and financing agreements have been signed, all conditions on those agreements have been met, and the private party to the PPP can start drawing down the financing to start work on the project.

In most PPP arrangements, financial close conditions are often circular—the PPP contract does not become effective until funding is available for draw down (that is, funding availability is a Condition Precedent for contract effectiveness), and vice versa (Yescombe 2007)

Common Conditions Precedent to contract effectiveness and reaching financial close include:

a) finalizing all project agreements and contracts;

b) securing final approval from relevant government entities—for example, review and approval of the procurement process and final contract;

c) securing permits and planning approvals;

d) commencing or completing project land acquisition.

This process often requires a lot of detailed work and effort by both the public and private parties to bring the transaction stage to a close and begin project implementation. It must be noted that the primary obligation on achieving financial close is on the successful bidder in the PPP project. However, and wisely so, public contracting authorities often find themselves required to forebear any adverse action and to provide as much assistance as possible to private parties as they try to achieve financial close.

Today I will discuss three main obstacles to financially closing PPP projects in Kenya.

Projects are Not Bankable

The first is the suspicion that a number of the Projects being brought to the market are really not bankable.

A PPP project is considered bankable if lenders are willing to finance it (generally on a project finance basis).

Bankability for lenders mean two things; first that their returns,

which in a PPP will typically be capped in nature, should be sufficient to offset the long-term risks of the project in light of the revenue streams; and secondly that the overall elements of the deal add up to one that is sustainable with minimal likelihood of default.

The majority of third-party funding for PPP projects consists of long-term debt finance, which typically varies from 70%to as much as 90% of the total funding requirement (for example, in an availability-based PPP), depending on the perceived risks of the project. Debt is a cheaper source of funding than equity, as it carries relatively less risk.

Lending to PPP projects (usually referred to as non or limited-recourse finance) looks to the cash flow of the project as the principal source of security. This should ideally be cleared up during the two critical stages of a PPP cycle; the Feasibility study stage and the Procurement stage. However and this may come as a shock to some, currently the PPP Act in Kenya do not actually mandate that a project be bankable before it can be brought to market. Yes there is a requirement to identify Payment Mechanism in the Feasibility study (and consequently Viability Gap Financing needs) but a Project will not be stopped simply on account that it is not bankable. Neither are bidders mandatorily required to prove that they have secured fully committed financing packages.



It must be noted however that if the Law did mandate such, there would be very few Projects brought to the market. The fact that the law does not require that only bankable projects be implemented as PPPs should however not excuse the need to negotiate a bankable package before bringing a Project to market

In an ideal PPP market world, a Contracting Authority should require bidders to secure fully committed financing packages along with their bids. This will ensure that the finalization of the financing agreements can take place simultaneously with or shortly after the signing of the PPP contract.

But Kenyan PPP Market nascent as it is can hardly be considered to be ideal. Fully committed financing packages are thus difficult to obtain at the time of bidding. This means that the financing agreements will not be concluded immediately once the PPP contract is signed.

The current practice therefore leads to one where there is certainty in long drawn out negotiations post PPP Contract

Award before financial close can be achieved.

Risk Allocation

The second major obstacle to PPP Project financial close is risk allocation and the different assessment of it.

Fully identifying project risks require an understanding of the value chain for the project since risks can arise at different point in the value chain. A roads project has different value chain and therefore different risks to a power project.

What normally causes significant delays in PPP projects is the different assessment of various risks by the Public Body/Contracting Authority, the project developers and the Lenders. The lenders will normally require detailed due diligence, often supported by independent third-party consultants to assist in evaluating and assessing the accuracy of technical and economic assumptions in the project’s business plan and base financial model. Lenders and developers have different risk tolerance thresholds and whilst the risk assessments of the lenders and the developers may

be similar, the conclusions and outcome of the assessments will diverge.

What you then end up with is many different treatment of risks between the Contracting Authority, the developers and the Lenders which leads to protracted negotiations.

Project Planning and Implementation

The third major issue in financially closing PPP Projects in Kenya is project planning and implementation.

In a nutshell, all lenders will require that all Conditions Precedent (CPs) to the PPP Agreement and the Finance Agreements be fulfilled before drawdown.

Those CPs invariable require the Project Company to;

a) finalize all project agreements and contracts e.g Government letter of Support ;

b) securing final approval from relevant government entities—for example, Attorney General Letter of Authorization to Contract in Kenya;

Fully identifying project risks require an understanding of the value chain for the project since risks can arise at different point in the value chain.


c) securing permits and planning approvals; and

d) commencing or completing project land acquisition e.t.c.

This largely depends on;

a) The Project Implementation Design by the Contract Authority (sadly this is usually either underdeveloped or totally lacking);

b) the quality of the Project team of the Project Company and its advisors; and

c) the combined team’s experience in successful project implementation in the local market.

So focused on crossing the t’s and dotting the I’s, a number of Project developers just don’t pay sufficient attention to just how much could go wrong in project implementation. This is usually a big blunder that delays project for many years.

Looking back at the number of

projects in Kenya that have been severely delayed because of land acquisition, environmental concerns, licensing and approvals hiccups, access to way leaves e.t.c, this is one of the chokepoints that require serious analysis and review. The main causes of delay are not hard to decipher.

A successful bidder once armed with the Letter of Award is unleashed on a number of public and regulatory bodies to seek permits and approvals.

More often than not, these other bodies and agencies were never informed let alone consulted during the project design and procurement process. Even if they wanted to be helpful they are starting from a low information base that would take them months to process and get upto speed of. As they are just warming up, developers at the behest of lenders will be coming back with ever increasing demands for variations and

changes.

Throw in the problem of land acquisition and community agitations for compensation, the whole situation just becomes too complex and stressful for all concerned. Mistakes then start to be made and situations such as the Kinangop Wind Power Project arises.

Better coordination and planning right at the project inception stage would address nearly all these problems. Why it is not done is the mystery we need to devolve.

E.R Yescombe, Public-Private Partnerships: Principles of Policy and Finance, 1st Edition, 2007

Principal Contributor:

Crispine Odhiambo Managing Partner

Fully committed financing packages are thus difficult to obtain at the time of bidding. This means that the financing agreements will not be concluded immediately once the PPP contract is signed.


2018 IN REVIEW


February 2018

The deposit levy payable by deposit-taking Sacco Societies increased

The Sacco Societies Deposit Levy (Amendment) Order, 2018 has amended The Sacco Societies Deposit Levy Order 2011 increasing the maximum levy chargeable and the rate of deposit levy payable in percentage.

The Sacco Societies Deposit Order 2011 provided the deposit levy payable by any deposit-taking Sacco Society as 0.10% of the total deposits held as indicated in the last audited accounts, subject to a maximum deposit levy of Kenya Shillings five million (Kshs 5,000,000.00).

The Sacco Societies Deposit Levy (Amendment) Order, 2018 on the other hand provides for a schedule of rates in percentage. The schedule provides that 0.125% shall become payable from January 2018 to December 2018, 0.15% shall become payable from January 2019 to December 2021 and finally a percentage of 0.175% shall become payable from January 2022. The amendment also provides that the imposition of this levy is subject to a maximum levy of ten million shillings (Kshs 10,000,000.00).

The Land Value Index Laws (Amendment) Bill, 2018

The Bill seeks to amend the Land Act 2012, the Land Registration Act 2012 and the Prevention Protection and Assistance to Internally Displaced Persons and Affected Communities Act 2012. The amendments to the three statutes seek to;

a) Provide for the assessment of land value index. The

determination of the land value index is expected to standardize and harmonize the value of land across the country for the primary purpose of determining land rates, land rent, stamp duty and compensation during compulsory acquisition;

b) Regulate the process of compulsory acquisition and to harmonize and standardize the compensation thereof; and

c) Amend the Land Act in order to ease the acquisition of and access to land in order to successfully implement public infrastructure projects.

April 2018Tax to be introduced on idle land

The government through the Idle Land Taxation Policy plans to introduce taxation on idle land. The Idle Land Policy which has since been finalized is due for presentation before the Senate and the National Assembly before it can take effect.

The Policy aims at addressing the issue of food security in the country. Owners of large tracts of land will thus be forced to either till the land or lease it. It is hoped

that this will increase access to arable land among smallholder farmers who will in turn boost food production.

The World Bank has also called for the introduction of property tax in Kenya. This, it explains in its 17th Edition of Kenya Economic Update, is to allow the large tracks of idle arable land owned by absentee landlords to be used by smaller farmers who have been pushed into marginal lands.

The Tax Laws (Amendment) Bill, 2018 introduced to amend tax related laws

The Tax Laws (Amendment) Bill, 2018 seeks to amend the Income Tax Act, the Stamp Duty Act and the Value Added Tax Act. The amendment to the Income Tax Act seeks to introduce a tax on winnings and to enhance tax incentive on home ownership. The amendment to the Stamp Duty Act seeks to exempt from stamp duty the purchase of a house by a first-time owner under an affordable housing scheme. This is calculated as an incentive to first time home owners. The amendment to the Value Added Tax Act is to move some items from zero rate to exempt in order to limit zero rating to exports.


The World Bank has also called for the introduction of property tax in Kenya.


South African Firm buys out local Nissan Kenya investor

South Africa’s Motus Holding, previously trading in the name AMH Group has taken full control of the local Nissan dealership in Kenya after buying out a 49% stake in the franchise.

In 2014, Hakma partnered with AMH Group to set up Crown Motors. Hakma held 49% of the stakes with AMH holding the remainder. This was until last year when Hakma’s proprietor sold his stake to AMH. Details of the transaction remain unknown owing to the non-disclosure agreements signed by the parties.

September 2018Finance Act, 2018

The Act was assented to on 21st September 2018. The purpose of the Act was to amend the law relating to various taxes and duties and matters incidental thereto.

Some of the Acts that were amended by the Finance Act include the;

1. Income Tax Act Cap 470;

Previously Section 12C imposed turnover tax. This tax was from 1st of January 2007 payable by any resident whose income from business is accrued in or derived from Kenya and does not exceed five million shillings during any year of income. This tax did not apply to;

a) Rental income and management or professional or training fees;

b) The income of incorporated companies; or

c) Any income which is subject to a final withholding tax under the Act.

The Finance Act amended the Income Tax Act by repealing Section 12C and replacing it with a new section. The amended Section 12C provides for a tax that is to be known as presumptive tax. This tax shall be payable by a resident person whose turnover from business does not exceed five million shillings during a year of income. This tax affects persons who are issued or liable to be issued with a business permit or trade license by a county government in a year of income and shall be paid at the time of payment for the business permit or trade license renewal. However, this tax shall not apply to income derived from;

a) Management and professional services; or

b) Rental business; or

c) Incorporated companies.

The rate of presumptive tax shall be an amount equal to fifteen percent of the amount payable for a business permit or trade license issued by a County Government.

2. Tax Procedures Act, 2015

The Act repealed Section 37B of the Tax Procedures Act and substituted it with a new Section providing that notwithstanding

any other provision of this Act, the Commissioner shall refrain from assessing or recovering taxes, penalties or interest in respect of any year of income ending on or before 31st December 2017 and from following up on the sources of income under the amnesty where:

a) That income has been declared for the year 2017 by a person earning taxable income outside Kenya;

b) The returns and accounts for the year 2017 are submitted on or before 30th June 2019; and

c) The funds declared voluntarily have been transferred back to Kenya.

This section shall not apply in respect of any tax where the person who should have paid the tax;

a) Has been assessed in respect of the tax or any matter relating to the tax; or

b) Is under audit, investigation or is a party to ongoing litigation in respect of the undisclosed income or any matter relating to the undisclosed income.

Where no funds have been transferred within the period of the amnesty, there shall be a five-


AMH Group has taken full control of the local Nissan dealership in Kenya after buying out a 49% stake in the franchise.

year period for remittance, but a penalty of ten percent shall be levied on the remittance.

The funds shall be exempt from the provisions of Proceeds of Crime and Anti-Money Laundering Act 2009 or any other Act relating to reporting and investigation of financial transactions, to the extent of the source of the funds excluding funds derived from proceeds of terrorism, poaching and drug trafficking.

The Act also amended the Tax Procedures by inserting Section 83A which provides that a person who fails to pay tax on the due date shall be liable to pay a late payment penalty of five percent of the tax due and payable.

3. Miscellaneous Fees and Levies Act, 2016

Amended Part A and Part B of the Act. Part A deal with goods exempt from Import Declaration Fee when imported or purchased before clearance through customs and Part B deals with goods exempt from the Railway Development Levy when purchased or imported before clearance through customs. The amendment inserted in the two Parts goods imported for implementation of projects under a special operating framework arrangement with the Government.

4. Banking Act Cap 488

Amended the Act by inserting a new section, Section 31A, which provides that a bank or financial institution licensed under the Act shall, in respect of all accounts operated at the institution, maintain a register containing particulars of the next of kin of all customers operating such accounts and shall update this register on an annual basis. A

bank or financial institution which contravenes this section commits an offence and shall be liable for each account in which there is default to a fine not exceeding one million shillings.

Also inserted a new section, Section 33C, which provides that the Central Bank of Kenya (CBK) has authority to prescribe in regulations, conditions on deposits or withdrawals by customers in banks and financial institutions. The CBK was mandated to prescribe these regulations within thirty days of the Act coming into force. For avoidance of doubt, the section expressly provides that no other person shall purport to make such regulations and any existing guidelines or regulations shall cease to be operational within fourteen days of the coming into force of the regulations made under the section.

5. Central Bank of Kenya Act, Cap 491

The Act was amended to add a definition of a mortgage refinance business. This is defined as the business of providing long term financing to primary mortgage lenders for housing finance and any other activity that the Bank may from time to time prescribe. Such business shall be undertaken by mortgage

refinance companies which are defined as non-deposit taking companies established under the Companies Act and licensed by the CBK.

Section 4A of the CBK Act was also amended to provide that the CBK has the authority to license and supervise mortgage refinance companies. To be able to operate such a business, the applicant must apply to the CBK for a license and such application shall be in the prescribed form and accompanied by the prescribed fees. The CBK shall have the following powers with respect to regulation of mortgage refinance companies;

a) to license;

b) to determine the capital adequacy standards and requirements;

c) to prescribe the minimum liquidity requirements and permissible investments;

d) to supervise the companies, including;

i. conducting both on-site and off-site supervision;

ii. assessing professional and moral suitability of persons managing or controlling the companies;

iii. approving the Board and Management;


A bank or financial institution licensed under Section 31A, shall maintain a register containing particulars of the next of kin of all customers and shall update this register on an annual basis.


iv. approving the appointment of external auditors;

v. collecting regular data; and

vi. approving annual audited accounts before publication and presentation at the annual general meetings.

e) To revoke or suspend a license;

f) To direct or require such changes as the Bank may consider necessary; and

g) To take any other action that the Bank may consider necessary.

6. Retirement Benefits Act, 1997

The Act was amended to insert a new subsection providing that a trustee who fails to submit a copy of the audited accounts of the Scheme to the Chief Executive Officer by the due date shall pay a penalty of one hundred thousand shillings and where the

returns remain un-submitted, the trustee, in addition to the prescribed penalty, shall pay a further fine of one thousand shillings for each day or part thereof during which the returns remain unsubmitted. Further, the new subsection provides that a person who pays a penalty under this section may also be liable to prosecution. The amendment also provides a similar provision for fund managers and administrators.

The Act was also amended to provide what happens when there is non-remittance of employers’ contribution. The amendment provides that the Authority shall;

a) Require the employer to;

i. Pay the contributions and interest accrued to the Scheme in full within the period specified in the notice and a penalty of five per cent of unremitted contributions or twenty thousand shillings

whichever is higher, payable to the Authority within seven days of receipt of the notice;

ii. Pay the penalty and submit to the Authority for approval a remedial plan providing the period within which the accumulated contributions and interest thereon shall be offset; or

iii. Immediately cease further deductions from employees’ emoluments and notify all the members of the scheme of the cessation.

b) Initiate the process of winding up the scheme and facilitate members to join individual schemes where their contributions shall be remitted.

October 2018The Retirement Benefits (Good Governance Practices in the Management of Retirement Benefits Schemes) Guidelines, 2018

The old adage make hay while the sun shines holds true to most of us. To that end, most of us sweat it out in the days of our youth so as to channel some of our savings to pension funds to secure our latter days. These funds however previously lacked a proper framework for accountability and transparency, exposing members’ contributions to great risks.

Pursuant to Section 55 (3) of the Retirement Benefits Act No. 3 of 1997, the Chief Executive Officer of the Retirement Benefits Authority published the Retirement Benefits (Good Governance Practices in the Management of Retirement Benefits Schemes) Guidelines, 2018. The Guidelines are aimed at;


Most of us sweat it out in the days of our youth so as to channel some of our savings to pension funds to secure our latter days.

1. Providing a framework to facilitate schemes to establish and maintain minimum standards of best practices in their governance;

2. Enabling and equipping persons who establish schemes, trustees and service providers to better perform their functions; and

3. Providing a governance criterion for evaluating the performance of trustees and service providers.

To provide for effectiveness, the Guidelines provide that trustees, administrators and trust secretaries shall be mandated with ensuring compliance and shall report to members in the scheme’s audited financial statements on the scheme governance disclosure as provided under the Guidelines. The governance disclosure requires inter alia enumeration of:

1. The particulars of all the members of the Board of Trustees in office. That is, name, age, category, number of meetings attended, whether certified or not, highest qualification and membership in other boards;

2. The number of meetings held and the particular dates;

3. The composition of the Board of Trustee in relation to gender balance, mix of skills and age mix (those younger than 35 years and those older than 35 years);

4. Committees of the Board;

5. The number of annual general meetings held and the percentage of scheme members who attended; and

6. Board of Trustees evaluation. This should provide who facilitated the review (whether it was external or internal),

the mode of evaluation used (questionnaire, interviews etc.) and the rating of the Board.

November 2018Deacons PLC to be placed under administration

On 16th November 2018, Deacons PLC filed a notice of intention to appoint administrators. The multinational noted that this decision was arrived at by the Board of Directors who resolved that in the circumstances, this is in the company’s best interest.

The move towards administration is in light of the financial woes that have plagued the company. The latest financials released indicated that the publicly listed company had made losses totaling to Kshs 229.5 million in six months ending June due to poor revenues. The loss of Mr. Price franchise also reduced the company’s income.

Nairobi International Financial Centre takes shape as Government opens bids for key consultants

In 2017, The Nairobi International Financial Centre Act No. 25 of 2017 was enacted. The Act was enacted with a view to provide a legal framework to facilitate and support the development of an efficient and globally competitive financial service sector that generates high levels of national savings and investments. This was to be achieved through the Nairobi International Financial Centre (NIFC) through the stewardship of the Nairobi International Financial Centre Authority.

One year down the line, reports have emerged that the NIFC has started to take shape. This is following an invitation of bids for key consultants who shall

steer the creation of the regional financial hub. The consultants shall be expected to undertake a gap analysis of Kenya’s financial services sector and develop regulations to govern NIFC activities and suggest on incentives to be utilized. The consultants shall also interview private and public sector players.

The interviews with the private sector players shall be focused on understanding why the financial industry is not operating at its optimal capacity, identifying strategic activities that should be undertaken by the NIFC to bridge the gap and the appropriate incentives. The public sector players on the other hand shall majorly give their views as to steps that can be undertaken to enhance efficiency of the business and the regulatory environment.

trustees, administrators and

trust secretaries shall be mandated

with ensuring compliance

and shall report to members in the scheme’s

audited financial statements on

the scheme governance disclosure as

provided under the Guidelines.



TECHNOLOGY, MEDIA AND IP


Digital Transformation for Advanced Healthcare Delivery and Improved Affordability

KO Associates in partnership with Microsoft and the ICT Authority hosted a breakfast seminar on 28th February 2018 for a discussion on the issues revolving around health care delivery in Kenya, including the cost and access to healthcare services and the critical role of digital transformation. This forum provided an opportunity to discuss technologies such as the Cloud, what it is and how it’s shaping delivery of quality and affordable healthcare solutions.

High Court renders illegal move to spy on Mobile Phone Conversations

The High Court of Kenya declared the Communications Authority of Kenya’s proposed plans to tap into mobile phone conversations for mass citizenry surveillance as unconstitutional. Justice John Mativo of the High Court ruled that the Communications Authority’s move would amount to infringement of mobile subscribers’ right to privacy as enshrined under Article 31(d) of the Constitution of Kenya.

Digital Case Filing at the High Court of Kenya

Digital Case Filing at the High Court Commercial Division in Nairobi set to be Launched in May 2018. Lawyers filing fresh suits at the Commercial and tax division will be required to submit documents through the e-system alongside the physical papers at the registry. e-filing is tailored to make it easier for parties to deliver their mandates.

M-Pesa link with Paypal to ease Online Payments

Safaricom formed a partnership with PayPal and TransferTo to enable Safaricom customers easily move money between their PayPal and M-Pesa accounts. The transaction between PayPal and M-Pesa is being powered by TransferTo, a B2B Cross-Border Mobile Payments Network for emerging markets.

Access to the Internet: TV Whitespace

TV white space refer to the unused frequency spaces created to ensure that channels that broadcast on allocated frequencies do not interfere with each other. For analog televisions, these unused frequency spaces show nothing but a series of black and white dots. Compared to common methods of internet transmission like wi-fi and cellular networks, TV white spaces have the ability to be broadcast over long distances and go through barriers such as buildings and vegetation.

System in Kenya to Reduce Music Piracy

A digital music content distributor, through its local subsidiary, Spice VAS has set out to help music artists in the country reduce distribution costs and tame piracy in the market. DiGiSPICE, launched a content management system to help musicians monitor their content performance that is number of times their song is streamed, number of downloads, revenue earned, and number of consumers reached. In doing so the distributor hopes to boost transparency in the music industry by showing how much a musician earns and prospects of growth. In this way they intend

to ensure that artists get what is rightfully theirs and paying out royalties.Market Inquiry and Sector Study in The Kenyan Leasing Sector

Vide Kenya Gazette Notice Vol. CXX—No. 35 16 March 2018, the Competition Authority of Kenya notified the public that it intends to carry out a market inquiry into the leasing sector. Inter alia, the study aims to assess the Legislative framework governing the operation of leasing entities and the mechanisms of enforcing leasing contracts.

Appointment of Competent Authority Under Copyright Law

The Copyright Act provides that there shall be a competent authority appointed by the Cabinet Secretary for the purpose of exercising jurisdiction where any matter requires to be determined by such authority. Vide Kenya Gazette Notice Vol. CXX—No. 29 dated 02 March 2018, the Attorney General, Professor Githu Muigai appointed four persons as chairperson and members of the competent Authority for a period of three (3) years, with effect from the 1st February 2018.

Universal Music Group acquires Kenyan Record Company AI Records

Universal Music Group (UMG) acquired a majority stake in the Kenyan record company AI Records. This is a strategic alliance that is meant to help AI records move to the digital space. AI Records has been distributing both local and international music on CD’s and Vinyl. Recognizing that this is not how people digest their music these days, AI has welcomed UMG to help them digitize their music in order to reach a larger audience.


Kenya Appoints Taskforce on Blockchain and Artificial Intelligence

The Government has launched a task force on Distributed Ledgers and Artificial Intelligence (DLAI). The taskforce has 11 members and will help develop policies and guidelines for the block-chain technology. Former Information PS Bitange Ndemo heads the taskforce.

Vihiga Chosen as Model County for Use of GIS

France-based Airbus Defence & Space, US-based Esri and Kenya-based LocateIT have chosen Vihiga as their test county for the use of space technologies and geographic information systems (GIS) to facilitate planning management. Vihiga is determined to streamline its operations with the use of technology as they also plan to install video conferencing facilities in the sub- counties to make communication more efficient.

Embedding Tweet could be Copyright Infringement

A Federal District judge in New York ruled that one could infringe copyright simply by embedding a tweet in a web page. In the case of Justin Goldman, -V Breitbart News Network, Heavy, Time, Yahoo, Vox Media, Gannett Company, Herald Media., Boston Globe Media Partners., And New England Sports Network, Judge Katherine B. Forrest held that, …[W]hen defendants caused the embedded Tweets to appear on their websites, their actions violated plaintiff’s exclusive display right; the fact that the image was hosted on a server owned and operated by an unrelated third party

(Twitter) does not shield them from this result. This decision, if unchallenged, could principally alter key foundations of copyright law especially for social media, publishing, digital marketing, content production and even the fundamental right of free and fair speech

Kenya Government to Roll Out Digital Ids in March

The Permanent Secretary for Immigration, Rtd Major General Kihalangwa recently announced that they were in the process of procuring new Identity cards for Kenyans.

The cards termed new- generation IDs are meant to have details of a citizen’s National Hospital Insurance Fund (NHIF), National Social Security Fund (NSSF), Kenya Revenue Authority (KRA) and driving licence

Revenue Authority Eyes Tech Giants in New Tax Plan

The Kenya Revenue Authority plans to force global technology companies such as Amazon and Facebook to disclose the income they make in Kenya. Most of these companies declare their income in countries where the tax rate is lower therefore the Kenyan government misses out on the taxes. This is in a series

of long tax reforms targeted at ecommerce. KRA also asked Parliament to create a law that would enable them to collect taxes from firms that run taxi hailing applications such as UBER. The proposal made by KRA was to link the application from the Taxi hailing App to the KRA system so that they can monitor their revenue.

Declaration of Kenya Standards in ICT

Through the Kenya Gazette dated 26th January 2018, Gazette Notice no 674, The Secretary of the National Standards Council has declared the specifications or codes of practice for various industries. This is pursuant to section 9 (l) of the Standards Act, with effect from the date of publication of the notice.

The Communications Authority disburses 2Bn from the Universal Service Fund to bridge the Digital Divide

The Communications Authority (CA) last year disbursed Sh2.1 billion from the Universal Service Fund, money contributed by telecom firms for projects to bridge the digital divide in Kenya. All licensed telecom operators contribute the equivalent of 0.5 per cent their annual turnover to the USF, which in turn, is managed by the Universal Service Advisory Council.

The Ministry of Information, Communications and Technology of Kenya Taskforce Data Protection Bill.

The proposed Policy and Bill is expected to give effect to Article 31 of the Constitution of Kenya, by defining the requirements for the protection of Personal Data.


The proposed Policy takes cognizance of the fact that on a daily basis, vast amounts of personal data are collected, transmitted and stored globally by ever growing computing and communication technologies.

The Policy provides that personal data is a critical resource that drives economic growth and development in this century as oil was in the past. As a result personal data protection is increasingly becoming a critical area that requires to be managed carefully.

Some of the key concerns raised with the instruments include the scope of limitation on human rights under the veil of national security, the overarching role of the Cabinet Secretary, need for independence of the enforcement body and possible application of positive discrimination for Small and Medium Sized Enterprises.

Kenya’s Mr. John Omo elected the new Secretary General of the African Telecommunications Union (ATU)

Elections for the ATU Secretary General’s position were held on 17th of August 2018 in Nairobi during the ATU Conference of Plenipotentiaries, the top decision making organ of the ATU. Out of the 26 votes, Mr.Omo garnered 23 beating his sole challenge, Burundi’s Mr. Constaque Hakizimana who managed two (2) votes at elections held during the 5th Ordinary Session of the ATU Plenipotentiary Conference in Nairobi. One vote was spoilt.

Mr.Omo was the Director of Legal Services at the Communications Authority of Kenya (CA) and brings along a wealth of experience in the ICT industry spanning over 25 years. His

vision is to re-model the African Telecommunications Union (ATU) into a member-responsive organization that serves as the reference point for ICT on the continent in order to propel socio-economic transformation. ‘‘I envision ATU as that one united voice of the continent on matters ICT through leveraging on the collective efforts of stakeholders, including the academia, industry players, governments, and other intergovernmental organizations,’’ says Mr.Omo.

His priority is to build the capacity of member states, increase access to broadband, strengthen cross-border interconnectivity, and infuse innovation that can enable Africa harness the immeasurable opportunities that the digital age presents. Mr. Omo has been instrumental in the development of legal instruments for various bodies dealing with ICTs regionally and globally. Mr.Omo has overseen critical legal, regulatory and policy frameworks that have spurred the development of ICTs.

Kenya establishes Inter-Agency Anti-Illicit Trade Executive Forum and Technical Working Group

The Ministry of Industry, Trade and Co-Operatives established the Inter-Agency Anti-Illicit Trade Committee. This is in exercise of the powers conferred by section 5 (2) of the Anti – Counterfeit Act, 2018 and pursuant to the resolution of the Interagency Anti-Illicit Trade Committee made at its meeting held on the 19th March, 2018.

The Inter-Agency Anti-Illicit Trade Committee has established and appointed the members of Inter-Agency Anti-Illicit Trade Executive Forum and the Inter-Agency Anti-Illicit Trade Technical working groups.

Terms of Reference for Inter Agency Anti-Illicit Trade Executive Forum include advising the Cabinet Secretary responsible for trade and industry on all matters involving illicit trade, on policy, laws, and regulations to strengthen the war against illicit trade. Further, they are expected to co-ordinate with other ministries, departments and agencies and county governments with regard to issues of illicit trade as well as to submit an annual report on its work to the Cabinet Secretary.

The Inter-Agency Anti-Illicit Trade Technical Working Group terms of reference include to develop a National Strategy on combating illicit trade in Kenya. They are also expected to co-ordinate the surveillance and investigations of the sources of merchandise that infringe on various laws, regulations and policies which form part of illicit trade and conduct and coordinate public awareness, research and education on illicit trade.

Computer Misuse and Cybercrimes Act, 2018

The Computer Misuse and Cybercrimes Act,2018 came into force on the 30th of May 2018. For the Government this law is to protect Kenyans and ensure security and safety of Kenya’s vast communication network. However, there was a lot of criticism of the Act from those who argue that the new law is unconstitutional as it infringes on the freedom of expression as well as the right to privacy and property enshrined under the new Constitution of Kenya, 2010.

The Bloggers Association of Kenya (BAKE), an alliance of digital content creators chaired by Kennedy Kachwanya, through Advocate Mercy Mutemi and



Article 19 filed a constitutional petition. The Petitioner’s argument was premised on the ground that the new Act denies, violates and threatens to infringe various rights and fundamental freedoms in a manner that is unjustifiable under Article 24 of the Constitution of Kenya. The Article expressly provides that freedoms can only be limited if doing so is reasonable and justifiable in an open and democratic society. It was also argued in the petition that much of the Act is vague and overbroad with key terms such as publish definitions.

The Petitioners successfully had the following sections suspended:- 5, 16, 17, 22, 23, 24, 27, 28, 29, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 48, 49, 50, 51, 52 & 53.

Kenyan Senate Proposes law on Data Protection

The Chairperson of the Committee on Information, Communication and Technology and Baringo County Senator, Gideon Moi presented the Data Protection Bill of 2018 in July.

The Senate Bill seeks to protect the personal data of Kenyans

in accordance with the Right to Privacy as envisioned under Article 31 of the Constitution of Kenya. Article 31 provides that; “Every person has the right to privacy, which includes the right not to have their person, home or property searched; their possessions seized; information relating to their family or private affairs unnecessarily required or revealed; or the privacy of their communications infringed.”

The Bill provides guidelines for the collection, storage and processing of personal data. Companies will now be required to seek consent from data subjects directly before processing any personal data that is not part of public record.

Parliament suspends Drone Regulations

The Kenya Civil Aviation Authority, Aviation Industry Regulator, had regulations in place permitting the commercial use of Aerial Unmanned Vehicles (AUVs), commonly referred to as drones in the Kenyan airspace. The Authority published the rules through the Civil Aviation (Remote Piloted Aircraft Systems) Regulations, 2017.

The Kenyan Parliament Committee on Delegated Legislation annulled the Kenya Civil Aviation (Remote Piloted Aircraft Systems Regulations, 2017 in June after finding fault with several provisions on operations of drones. The Committee pointed out that there was less public participation in drafting the regulations, in violation of the Constitution.

It also felt the proposed set of rules fell short of addressing issues that had been raised around safety, security and breach of personal privacy by drones in civilian hands under the Bill of Rights. Additionally, the lawmakers pointed out inconsistencies in application of fines.

“The penalty imposed by regulation 56 of Sh 5 million or six-month imprisonment, or both, contravenes Section 82 (4) of the Civil Aviation Act, which allows for the imposition of a fine not exceeding Sh2 million or three years imprisonment,” the committee’s chair Gladys Shollei said in a report tabled in Parliament.


The Senate Bill seeks to protect the personal data of Kenyans in accordance with the Right to Privacy as envisioned under Article 31 of the Constitution of Kenya. PROJECTS


Projects, Energy, Infrastructure, Trade & Investment Developments

April 2018

Kenya Power Renews Commitment to Lower Manufacturer’s Energy Costs

Kenya Power has renewed its commitment to partner with the Kenya Association of Manufacturers to carry out regular energy audits among manufacturers in a bid to maximize on production efficiency. The move is targeted at spurring the growth of the manufacturing sector by lowering the cost of manufacturing. This will reduce the price of locally manufactured goods and encourage more investments in the manufacturing sector. In addition, Kenya Power has also made commitments to provide least cost energy to industries through optimizing the energy mix and investment in the expansion and strengthening of the distribution network to improve on quality and reliability of power supply.

Source:http://www.kplc.co.ke/content/item/2444/kenya-power-to-enhance-partnership-with-kam-to-lower-manufacturers%E2%80%99-energy-costs

Africa’s Free Trade Deal Deliberated in Kenyan Parliament

Kenyan Members of Parliament are currently debating a bill to ratify the African Continental Free Trade Agreement (AFCFTA), a landmark trade treaty signed by 44 African countries in Kigali, Rwanda. Once in force, AFCFTA will establish a single $3 trillion trade zone provide duty free access to 1.2 billion people across the continent. The treaty is critical

in boosting intra-African trade, investment, industrialization and regional integration.

Source:http://www.president.go.ke/2018/04/18/president-kenyatta-extols-benefits-of-intra-africa-trade/

May 2018

UBA Bank to Align Strategy with the Big Four Agenda

The United Bank of Africa has announced plans to align its local strategic objectives with the Big Four Agenda. The Bank intends to forge partnerships to support the growth of key areas such as infrastructure, energy, healthcare and public-sector initiatives both at National and County Governments level. Moreover, the Bank has recently partnered with the Youth Enterprise Development Fund and the National Youth Service to provide training on financial literacy and skills enhancement.

Source: https://www.businessdailyafrica.com/corporate/companies/UBA-banks-on-Uhuru-Big-Four-projects/4003102-4573552-ag30de/index.html

April 2018

Sustainable Goals Investment Fair in New York, US Explores Public Private Partnerships Best Practices

Representatives of Governments, the United Nations System, International Finance Institutions and the private sector explored new investment opportunities for SDGs. Discussions in the investment fair focused on successful PPPs in Kenya, Nigeria and Brazil. The fair was organized by the United Nations Department of Economic and Social Affairs (DESA). Ormat Olkaria III (Kenya)- the first privately funded and developed geothermal power plant in Africa was highlighted as reflecting the importance of successful risk allocation between the private sector and public sector in achieving efficiency. The project was funded through two separate rounds of equity and debt financing, resulting in profits for the private sector and a decrease in energy costs for consumers.

Source: http://sdg.iisd.org/news/sdg-investment-fair-explores-ppps-needs-best-practices/

February 2018

China Boosts Electrification of Kenya’s Trains

The Kenya Electricity Transmission Company Limited (KETRACO) signed a $240 million contract with China Electric Power Equipment and Technology Company Limited (CET) in January 2018 to provide electrification of the SGR system. Currently powered by diesel, the

PROJECTS

Kenya Power has renewed its commitment to partner with the Kenya Association of Manufacturers to carry out regular energy audits among manufacturers

SGR expansion will include the construction of 14 substations between Mombasa and Nairobi. The design of the SGR railway initially run by diesel powered locomotives allows for the addition of a single electric line that will be connected to KETRACO’s 482km 400kV Mombasa-Nairobi Transmission Line (MNTL), the longest and highest voltage transmission infrastructure in East Africa. It has a transfer capacity of 1500 MW which is 200 MW shy of the current national demand of 1700 MW.

Source: https://kenyanwallstreet.com/new-deal-signed-enable-sgr-elecrification-two-years/

April 2018

Kenya Pipeline Company Plans to Build $125 Million Liquefied Petroleum Gas Plant

Kenya Pipeline Company plans to build facilities worth $125 million to handle and store liquefied petroleum gas. The target is to boost the use of cooking gas amongst Kenyans. In addition, the Kenyan Government has scrapped value added tax on cooking gas and subsidized the cost of 6kg (13 pound) Cylinders in a bid to make the fuel more affordable and attractive for its citizens, most of whom prefer cheap charcoal, firewood and kerosene.

Source:http://www.oilreviewafrica.com/gas/gas/kenya-pipeline-company-to-develop-us-125mn-lpg-facilities-in-nairobi-and-mombasa

March 2018

Nairobi Metropolitan Area Transport Authority (NAMATA) Eyes Colombia Mass Transit Model

Nairobi urban planners have agreed to adopt the globally renowned Bogota bus rapid transit system in Colombia. The goal is to tackle traffic congestion in the city in a move that will lead to the construction of special lanes for high capacity buses across the city. According to NAMATA, the adoption of Bogota’s Trans Milenio transit system that has revolutionized mass transit in Colombia will result in Nairobi discarding the Dar-es-Salaam model found to be not well efficient. The Authority found the Bogota model advanced and better timed than the Dar-es-Salaam model. A benchmark tour on the Dar-es-Salaam Bus Rapid Transit System led to the discovery of systematic flaws such as delays in bus arrivals and departures as well as poor linkage between roads and commuter rail stations.

NAMATA has already mapped out five roads that will have the special lanes for high capacity buses including Mombasa Road, Thika Road, Outer Ring Road and Jogoo Road. There will also be feeder stations along the BRT corridors where ordinary matatus will drop off commuters from estates for them to be picked by large buses on the special lanes to Nairobi town.

Source: https://www.constructionkenya.com/5312/nairobi-rapid-transit-system/

March 2018

Potential New Entrant in Electricity Retail Market PowerGen Applies for Distribution Licence

PowerGen, a private company has applied to the Energy Regulatory Commission (ERC) for approval to enter the electricity retail distribution market. The move comes at a time when Kenya Power’s monopoly over the market is under attack due to the high consumer prices and numerous power outages experienced attributed to poor infrastructure. In a Gazette Notice No. 2199 of 2018 dated 7th March 2018, ERC notifies the general public that PowerGen applied for a licence to generate and supply electricity to households and small-scale business on 21st February 2018. According to the gazette notice, the application is still under review and public input is required on the same.

Source:https://www.businessdailyafrica.com/news/Fresh-attempt-end-Kenya-Power-monopoly/539546-4341034-sw7urmz/index.html

PROJECTS

Kenya Pipeline Company plans to build facilities worth $125 million to handle and store liquefied petroleum gas.


February 2018

Lordship Africa Unveils Kshs 5 Billion Mega Project in Kenya

Lordship Africa, a Real Estate Firm unveiled a Kshs. 5 billion mega project in Kenya that will consist of fully

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