KENYA Law and Practice Contributed by: Walid Khan, Ruth Wangui Rukwaro and Christina Wanjiku Wood, Africa Law Partners
Secured creditors might find themselves in jeopardy if they failed to register or perfect the security interests. The insolvency practitioner may reserve unregistered or late-registered charges, making the lender an unse- cured creditor. It is also important to note that Kenyan insolvency law gives preference to employees and tax authorities. While guarantees remain enforceable, insolvency of a security provider or guarantor reduces their value in practice. Recovery is bound to be postponed or insig- nificant if guarantors themselves are insolvent. This risk therefore highlights the importance of assessing the financial status of guarantors at the outset. Project finance has become a popular financing tool in Kenya, particularly for energy and infrastructure pro- jects that are heavily capital-intensive. Public and pri- vate sponsors have increasingly used project finance structures to fund international capital and transfer risk to operators, contractors and lenders. The model is attractive in the sense that repayment is directly tied to project revenues rather than the sponsor’s balance sheet. Energy and Power Projects The energy sector is the largest consumer of project finance in Kenya. Major renewable schemes, particu- larly in geothermal, wind and solar energy, have been funded by highly complex project finance arrange- ments with multilateral lenders, development finance institutions and commercial banks. They are facilitated by Kenya’s abundance of natural resources and gov- ernment subsidies for the expansion of the national grid. Infrastructure and Transport Transport infrastructure, including roads, ports and railway lines, also requires huge project finance. Pub- lic–private partnership funding is frequently used to fund large schemes such as highways and port ter- minals. The investments are critical to intra-regional 8. Project Finance 8.1 Recent Project Finance Activity
trade and logistics and are therefore a priority to both the government and private sponsors. Other Emerging Sectors Apart from transport and energy, project finance is increasingly being utilised in water and sanitation, telecommunications, and low-income housing pro- grammes. The government focus on universal access to clean water and internet penetration has created room for blended financial arrangements. While these sectors are still nascent, they are an indication of how project finance is being used in more sectors. 8.2 Public-Private Partnership Transactions Legislative Framework Public–private partnerships (PPPs) in Kenya are gov- erned primarily by the Public Private Partnerships Act, 2021, which replaced and updated the earlier 2013 framework. The Act sets out the procedures for pro- curing, approving and managing PPP projects, and established the PPP Committee and Directorate to oversee implementation. It provides for several mod- els, including concessions, build–operate–transfer arrangements, and joint ventures between public and private entities. Approval and Procurement Process The Act requires the PPP projects to undergo a com- petitive and transparent procurement process, which is overseen by the PPP Directorate. The projects are required to be aligned with national development pri- orities, and feasibility studies are a mandatory precur- sor to approval. This is for the purpose of establishing that PPPs offer value for money and protect public interests. Legal Restrictions and Risk Allocation While the law provides for a good framework, there are also constraints aimed at safeguarding public resourc- es. Government guarantees and support measures must be approved by the National Treasury, and not all projects are eligible for sovereign support. Risk allo- cation between the public and private partners must be carefully negotiated, particularly for demand risk, political risk and currency risk.
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