KENYA Law and Practice Contributed by: Walid Khan, Ruth Wangui Rukwaro and Christina Wanjiku Wood, Africa Law Partners
Practical Challenges In practice, PPPs in Kenya face challenges including protracted procurement timelines, regulatory over- laps, and difficulties in securing land rights. Political changes and government as well as government pri- orities can also delay or alter projects, leaving private investors in uncertainty. Long-term local currency financing remains scarce, which often necessitates the engagement of international lenders and exposes projects to exchange rate risks. Outlook Despite these issues, PPPs remain at the centre of Kenya’s policy of financing infrastructure in energy, transport, housing and water. Recent reforms imple- mented by the 2021 Act to reduce approvals and assist in attracting more private investment should begin to bear fruit. As the system continues to mature, Kenya can look forward to increased PPP activity, driven by green energy and digital infrastructure. 8.3 Governing Law Governing Law of Project Documents Kenyan law does not require that all project docu- ments be governed by local law. Local law typically applies to construction contracts, land contracts and security documents since these are directly involved with assets and obligations within Kenya. However, for financing agreements, power purchase agreements, and offtake contracts, parties will prefer foreign gov- erning law such as English or New York law, particu- larly where international lenders are involved. Dispute Resolution Practice Parties to Kenyan high-stakes projects normally favour international arbitration as the ideal dispute resolution procedure. The International Chamber of Commerce (ICC) or the London Court of International Arbitration (LCIA) are commonly chosen institutions. Arbitration is attractive because it provides neutrality, enforce- ability under the New York Convention, and greater ease for foreign investors who may be apprehensive about proceedings in local courts. Local Court Considerations Kenyan courts will uphold foreign governing law provi- sions and arbitration clauses, provided that they do not violate public policy. Land disputes or regulatory
permit-related disputes, however, can require the imposition of Kenyan law compulsorily and determi- nation by courts within the country. The parties are therefore advised to draft contracts with prudence so that there is no incongruity in the choice of foreign law and arbitration vis-à-vis obligatory domestic legal requirements. Practical Outlook English or New York law with international arbitration is also strongly rooted in Kenya’s project finance prac- tice, particularly in high-profile energy and infrastruc- ture projects. Lenders and sponsors typically do not object to a hybrid approach, wherein project docu- ments with high local content are regulated by Ken- yan law, while financing and revenue arrangements are regulated by foreign law. This balancing achieves commercial certainty at the cost of mandatory local rules compliance. 8.4 Foreign Ownership Restrictions on Holding Land Kenyan law places constitutional limitations on foreign ownership of land. Foreigners may take land only on leaseholds for a maximum duration of 99 years and can never take freeholds. The provisions apply alike to individuals and companies dominated by foreign non-citizens and voice the policy of keeping perma- nent holding of land in the country within the grasp of Kenyan citizens. Kenyan law also prohibits transfer of agricultural land to foreigners or entities that are not fully Kenyan- owned. Subsurface and Natural Resources State ownership of rights in subsurface resources, minerals and water is provided for under the Consti- tution and legislation. Foreign investors cannot own them but may be issued licences or concessions by the government to extract them. Rights of this sort are tightly regulated and often subject to state approval and monitoring. Lenders’ Security Rights Security over land and related rights may be taken by foreign lenders by way of mortgage or charges, subject to the underlying ownership being consist-
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