KENYA Law and Practice Contributed by: Walid Khan, Ruth Wangui Rukwaro and Christina Wanjiku Wood, Africa Law Partners
8.6 Common Financing Sources and Typical Structures Financing sources for projects include commercial banks, DFIs, grants and project bonds. 8.7 Natural Resources Kenyan natural resource projects are guided by a mix of constitutional provisions, sector-based legislation and government policy. The Constitution defines state ownership of natural resources such as minerals, oil, gas and water in trust for the people: that is, private entities require concessions, licences or production- sharing arrangements to explore and develop the resources. One of the key issues is local participation. The Min- ing Act and Petroleum Act encourage joint ventures between foreign investors and locals, some with mini- mum local shareholding provisions. This is a statement of Kenya’s policy of resource nationalism and wanting to ensure that resource exploitation is for the benefit of the people through sharing revenue, employment and capacity building. Restrictions on the exportation of raw materials also apply. For example, the government is keen on value addition and beneficiation within the country, particu- larly in the mining sector. Export licences are typically subject to evidence of the absence or inadequacy of local processing capacity. The policy is targeted towards industrialisation and maximising economic gain from natural resources. Social and environmental issues are equally signifi- cant. Environmental and social assessments have to be conducted on projects, and there is a need for companies to engage with communities, especially where there is an issue of land rights and there has been displacement. Revenue sharing with county gov- ernments and local communities is also mandated by law, which creates another compliance and negotia- tion layer. They must also consider stability risks. Natural resource projects are sometimes subject to shift- ing fiscal regimes, policy overviews or political heat, especially in extractive industries that are perceived as strategic. Long-term contracts will therefore need
ent with Kenyan law. In enforcement cases, foreign lenders may enforce sale or possession remedies, but resulting ownership interest must always remain within constitutional limits on freehold ownership. In practice, lenders will structure enforcement through leasehold transfer or nominee arrangements to remain compliant. Water Rights Water is a public asset in Kenya and its utilisation is licensed by regulatory rules under the Water Act. For- eign investors can own the licences directly, as long as they are complying with the regulations. The rights over water are usufructuary and cannot be trans- formed into permanent rights of ownership. 8.5 Structuring Deals In Kenya, project companies are typically incorporat- ed as private limited liability companies pursuant to the Companies Act, 2015. This is the preferred legal form owing to its limited liability protection, govern- ance flexibility, and acceptability by both local and foreign investors. In large projects, joint ventures or special purpose vehicles (SPVs) are commonly estab- lished to ring-fence risks and allocate responsibilities between sponsors. Relevant Laws Governing Project Companies The Companies Act requires incorporation, govern- ance and disclosure. Other regulatory regimes apply depending on the sector – eg, Energy Act for power projects, Public–Private Partnerships Act for infra- structure concessions, or Water Act for water pro- jects. Environmental and land-use legislation compli- ance is required at the company structuring stage and project approval. Restrictions on Foreign Investment Kenya has a fairly open investment climate, though there are constitutional restrictions on foreign owner- ship of land, with foreign entities not allowed to own agricultural land and only allowed to take leasehold interests not exceeding 99 years. Certain sectors that are regulated (including telecommunications and avia- tion) have foreign ownership restrictions with provi- sions for Kenyan interest.
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