Use the Lexology Getting The Deal Through tool to compare the answers in this article with those from other jurisdictions.

Creating collateral security packages

Types of collateral

What types of collateral and security interests are available?

Collateral security interest is created by way of an agreement to transfer interest in property (the collateral) from a borrower to a lender in exchange for financing. The types of collateral and security interests commonly available in Kenya for project financing are mainly divided into two, namely, the movable property securities and immovable (real) property securities. The real property securities are governed by the statutes such as Land Act and Land Registration Act 2012, while the movable property securities are governed by the Movable Property Security Rights Act 2017. The later Act applies to security rights in movable assets including every transaction that secures payment or performance of an obligation, a chattel mortgage, credit purchase transaction, credit sale agreement, floating and fixed charge, pledge, lien, trust indenture, trust receipt and financial lease (formerly a chattels mortgage).

In practice, however, financiers have a preference for the real property owing to its permanent nature, certainty in confirmation of proprietors, registration of encumbrances and the doctrine of sanctity of title, which has been widely recognised in Kenya both in law and practice. It would therefore be easier for a financier to release funds towards a project secured by a real property as collateral, than when the financing is secured by a movable property as collateral. Ideally, ownership of immovable property in Kenya is recognised under the Constitution, which defines land to include buildings, the space above and beneath.

Collateral perfecting

How is a security interest in each type of collateral perfected and how is its priority established? Are any fees, taxes or other charges payable to perfect a security interest and, if so, are there lawful techniques to minimise them? May a corporate entity, in the capacity of agent or trustee, hold collateral on behalf of the project lenders as the secured party? Is it necessary for the security agent and trustee to hold any licences to hold or enforce such security?

Perfection of a security interest is usually by way of registration of the security interest with the relevant authority so that it is legally enforceable. Interest in real property is governed by the Land Act and the Land Registration Act 2012. These regimes provide for a government register that indemnifies the title holder. Securities over land in Kenya can only serve as a registration of a burden over the property in claim for the sums of money lent (charge) and not as a transfer of the property (mortgage). Section 90 of Kenya’s Land Act 2012 embodies the requirements and the procedure of perfection of security over land in Kenya. In perfecting a security interest in land, the charging instrument must be in a prescribed form. Third-party consent may be required prior to creation of the charge in some cases, for example, Commissioner of Lands’ consent for leaseholds, chargee’s consent for property that is already charged to a first lender, land control board consent for property falling under the controlled transactions zoning (mainly agricultural zones), spousal consent for property held as matrimonial property, and the Kenya Railways Authority, Kenya Ports Authority or Kenya Aviation Authority for property falling under that zoning.

The Act requires that a charge over land must be registered at the appropriate Lands Registry. Registration is only tendered upon receipt of three original copies of the charging instrument, the completed prescribed form and payment of a nominal fee. Where the chargor is a company registered in Kenya, the charge over land must also be registered at the Companies Registry. The grantor of the security interest is required to deposit the title deeds with the secured party.

To perfect a security in real estate, a search is first conducted to establish any interests registered over the land. A charge instrument is then drawn by a duly qualified advocate, the same is reviewed by the chargee’s advocates, after which it is engrossed and forwarded for assessment at the Lands Registry for the purposes of payment of stamp duty. Stamp duty over a legal charge in Kenya is currently set at 0.1 per cent of the amount borrowed, with no option of minimising, while the official registration fee is 1,000 Kenyan shillings ($10). The same is paid to a government-designated bank and the charge is lodged for registration together with the original title, identification documents of the chargee and chargor, land rent clearance certificate (for leasehold titles) and land rates clearance certificate (for property within urban zoning). A daybook number is issued, after which the applicant does a routine check to confirm if the charge has been registered. On average the registration of charge over a real property takes about two weeks (14 days) from the date of lodging. However, with the digitisation of the land registry in 2018 these timelines will be significantly reduced.

Although syndicate lending has been in existence for years, the practice of appointment of security agents and trustees has not been formalised in Kenya, but is nevertheless not illegal. As such, no strict formalities are to be fulfilled, provided that the perfection of the security is per the law. Given this lack of common use of security agents, the law does not formally define the consequences in bankruptcy. These will be a matter of private contracting and subject to any other applicable laws such as bankruptcy laws. Further, the law does not focus on enforcement of security by the trustee but is detailed on how the chargor may enforce the security. The Kenyan Land Act outlines the options namely the right of sale, right to sue for the payment of the moneys lent, appointment of a receiver, chargee’s right to lease the charged property and finally the chargee’s right to take possession of the land. The nature of the remedies of an unpaid lender in Kenya goes to the extent that they are granted the right to take possession, collect rent and proceed to sell. However, there are strict legislative requirements before these rights are exercised.

The procedure is laid down in the Act under the sections stated above, that at the very first instance due notice to pay and observe the agreement must be issued. This notice is for a period of 30 days and is to detail the breach and the consequences of the default. For all the remedies, this notice must be issued. In the event the borrower does not act to remedy the default the lender can proceed to sue, appoint a receiver, take possession of the land or proceed to lease the land. The right to sell requires another 40 days’ notice intimating to the borrower the intention to sell.

Perfection of movable property, on the other hand, is fully governed by the Movable Property Security Rights Act 2017, which repealed the Chattels Transfer Act and consolidated the law on movable property securities. The Act provides for the creation of a security upon due execution of a security agreement and registration of the notice to the creation of a security agreement with the registrar of movable properties at the collateral registry. Though not mandatory, registration of a security right in the circumstance is important as it is the only way that a holder of a security right will achieve third-party effectiveness over such a security right. There is in existence an electronic platform for undertaking a search at the Collateral Registry.


Assuring absence of liens

How can a creditor assure itself as to the absence of liens with priority to the creditor’s lien?

With respect to immovable properties, the creditor may conduct an official or physical search at the Lands Registry or company to ascertain ownership and if there is any encumbrance registered against the property or company records of the borrower. On the other hand, with respect to movable properties, creditors may conduct two searches; for motor vehicles at the National Transport and Safety Authority to determine the ownership of the motor vehicle; and at the movable property security registry to ascertain whether any notice has been lodged with respect to movable property .

Enforcing collateral rights

Outside the context of a bankruptcy proceeding, what steps should a project lender take to enforce its rights as a secured party over the collateral?

Project lenders may recover the loan or balance of the loan advanced by realising the value in the collateral through its sale. With respect to enforcement of a security right over movable property, once the debtor fails to pay or perform the secured obligation, there are varied options that the lender may exercise. Such right may be derived from the security agreement or the instrument. The Movable Property Security Rights Act 2017, on the other hand, provides for various ways by which the lender may enforce its rights as a secured party over the collateral. These include instituting a suit for payment, appointment of a receiver, leasing, taking possession or selling the movable asset.

In cases where a debenture is used to create security interest, an enforcement procedure is often set out under the terms of the debenture. The terms usually provide for crystallisation of the floating charge upon default and the appointment of a receiver or manager who undertakes the procedure.

Where enforcement is of a right attached to charge over shares, the chargee may enforce by way of a power of attorney and share transfer form, which are both granted by the chargor to the chargee upon perfection of the security enabling the transfer of shares to itself. Payment of stamp duty is made for the share transfer form, and a notification to the companies’ registry is tendered by the chargee of its newly acquired interest.

Enforcement of security over land is governed by the Land Act 2012 and the Land Registration Act 2012. Such proceedings may be commenced by the chargee only in the event that the chargor has been in default for a month or more. The chargee is required to issue notice upon the chargor to make good the repayment default. If there is a payment default for more than a month, the chargee may then exercise any of the following; appoint a receiver of the income from the land, sue for the amount due, lease the land, take possession of the land or sell the land altogether by public auction or private contract. Where the chargee chooses to sell the land by auction, the chargor must be given 45 days’ notice and further to advertise the sale of the property publicly, whereas, if the chargee chooses to sell by private contract, the chargor should be given 40 days’ notice before such a sale is effected.

Ideally, a secured party may sell, lease or otherwise dispose of any or all of the collateral. Such disposal may be made either publicly or privately, with the secured party giving reasonable notice to the debtor. Furthermore, nothing prevents the secured party, who in this case is the project lender, from participating in either public or private sale.

Enforcing collateral rights following bankruptcy

How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the collateral? Are there any preference periods, clawback rights or other preferential creditors’ rights (eg, tax debts, employees’ claims) with respect to the collateral? What entities are excluded from bankruptcy proceedings and what legislation applies to them? What processes other than court proceedings are available to seize the assets of the project company in an enforcement?

As per the Insolvency Act, the options available for enforcement of a security are:

  • where the terms of the charge entitles the creditor to exercise the right of sale, then the project lender may do so;
  • the project lender may surrender the charge to the bankruptcy trustee for the general benefit of the creditors and prove in the bankruptcy as an unsecured creditor for the whole debt; or
  • alternatively to have the property valued and prove in the bankruptcy as an unsecured creditor for the balance due (if any) after deducting the amount of the valuation.

Before a secured creditor can exercise such rights, certain bankruptcy proceedings must be adhered to beforehand that include constitution of creditors and ranking of creditors in order of priority. Preferential creditors rank first and are to be paid off before secured creditors. In Kenyan law, there is no distinction between foreign and local creditors in terms of realisation of security.

Ideally, the creditor who holds a charge over the bankrupt’s property may be required by the bankruptcy trustee, by way of notice, to proceed within 30 days after receipt of such notice to enforce its rights by either selling, surrendering the charge to the trustee or having the property valued for recovery. A project lender who does not comply with such notice is assumed to have surrendered the charge to the bankruptcy trustee for the general benefit of the creditors, in which case the project lender may be required to prove to be an unsecured creditor for the whole debt.

The Insolvency Act further provides that the bankruptcy trustee may make an application to the court for an order enabling the bankruptcy trustee to dispose of the property, whether or not such property of a bankrupt is subject to security. This is, however, only possible if the court is satisfied that the property would be likely to provide a better overall outcome for the creditors of the bankrupt.

Foreign exchange and withholding tax issues

Restrictions, controls, fees and taxes

What are the restrictions, controls, fees, taxes or other charges on foreign currency exchange?

Even though the Central Bank of Kenya licenses foreign exchange bureaux to enhance efficiency in the Forex market, there are no controls on foreign exchange in Kenya. The government repealed its foreign exchange control laws in 1993 and has fully moved to a market-determined exchange rate system. This policy has in effect attracted short-term capital inflows.

Foreign exchange transactions by Kenyan residents not exceeding US$10,000 to and from authorised dealers are permitted without restrictions. However, any amount exceeding this limit requires documentation to show the purpose of the transaction for administrative recording by the Central Bank of Kenya and in compliance with anti-money laundering laws.

Investment returns

What are the restrictions, controls, fees and taxes on remittances of investment returns or payments of principal, interest or premiums on loans or bonds to parties in other jurisdictions?

The enactment of the Foreign Investment Protection Act guaranteed capital repatriation and remittance of dividends and interest to foreign investors. Investors are thus free to convert and repatriate profits including uncapitalised retained profits; that is, proceeds of an investment after all relevant taxes have been paid as well as the principal and interest associated with any loan. Foreign companies attract 30 per cent corporate tax, while income tax (on dividends) is determined by residency. If an investor is deemed a resident, their dividends will be subject to income tax Act in Kenya, with benefits from double taxation treaties if available.

Generally, Kenya has no restrictions on converting or transferring funds associated with investment. The law, however, requires the declaration of amounts greater than US$5,000 to customs or the equivalent in other foreign currencies for non-residents as a formal check against money laundering.

Foreign earnings

Must project companies repatriate foreign earnings? If so, must they be converted to local currency and what further restrictions exist over their use?

Kenya operates a liberal economy where there is no restriction on project companies repatriating foreign earnings. The liberal nature equally guarantees capital repatriation and remittance of dividends and interest to foreign investors, who are free to convert and repatriate profits. Similarly, there are no restrictions over the use of such repatriated foreign earnings.

May project companies establish and maintain foreign currency accounts in other jurisdictions and locally?

In Kenya, project companies may establish and maintain both onshore and offshore foreign currency accounts. However, the Kenya Revenue Authority maintains great scrutiny over remittances and offshore accounts to ensure that the same are not utilised for tax evasion purposes.

Foreign investment issues

Investment restrictions

What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?

Generally, the government of Kenya provides the right for foreign entities to establish and own investments in the country, just as local entities. There are, however, certain restrictions imposed on foreign companies in terms of ownership of land and shareholding. Foreign companies cannot own agricultural land, freehold land or leasehold exceeding a term of 99 years. The restrictions also stretch to other sectors such as telecommunication and private security. The Communications Authority of Kenya, which is the telecommunications regulator in Kenya, requires 20 per cent Kenyan shareholding within three years of licensing of a foreign telecommunication service provider. The Private Security Regulations Act 2016 restricts foreign participation in the private security sector by requiring that at least 25 per cent of shares in private security firms are held by Kenyan citizens.

Kenya has entered and ratified several bilateral investment treaties. These treaties have provisions that promote fair and equitable treatment of foreign investors and protect foreign investors from discrimination, which is an indication of Kenya’s commitment to promoting foreign investment.

Insurance restrictions

What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?

There are no restrictions on insurance policies over project assets provided or guaranteed by foreign insurance companies in Kenya. The Insurance Act, however, provides that foreign insurance companies must be first registered in Kenya and with the Insurance Regulatory Authority to be eligible to offer insurance. Additionally, there is a restriction on stake owned by foreigners in locally registered insurance companies. Currently, they should not own more than 75 per cent of the shares and no single individual should control more than a 25 per cent stake. Obtaining of policies from insurance companies not registered with the Insurance Regulatory Authority is prohibited and requires the written consent of the Commissioner. Insurance policies may also be payable to foreign secured creditors.

Worker restrictions

What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?

Kenya is yet to enact a local content bill that restricts aspects of bringing in foreign workers and technicians to work on projects locally. Nevertheless, there are provisions under the existing legislation, such as the Mining Act 2016, which impose such restrictions as well as the government policy in issuance of work permits to foreigners. Ideally, foreign companies can only bring in foreign staff whose expertise, skills and qualifications are not available among Kenyan citizens. Such foreign workers are required to apply for and obtain visas and work permits where applicable. Even in such circumstances, the general requirement by the government is that such skills and knowledge are transferred to Kenyans during the project cycle, and as such, there must be provision of an understudy while applying for a work permit.

Equipment restrictions

What restrictions exist on the importation of project equipment?

Generally, the government has not placed any restrictions on the importation of project equipment other than customs clearance and payment of import duty. The existing import declaration fee on such project equipment is at 2 per cent of the cost-insurance-freight. However, there are also exemptions from taxes on certain items such as equipment used for the construction and infrastructure works. Once the local content legislation comes into effect, foreign investors will be required to source locally produced equipment under certain qualifications.

Nationalisation laws

What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected?

The Foreign Investment Protection Act provides for protection of foreign companies and assets from nationalisation or expropriation. Section 5 of the Act provides that investments by investors of a contracting state in the territory of another contracting state shall not be expropriated, nationalised or subjected to any other measures, direct or indirect, having an effect equivalent to expropriation or nationalisation, except for a purpose that is in the interest of the public, and which is non-discriminatory, in accordance with due process of law, and against prompt and full compensation. The Act further provides that any compensation that may need to be made shall be done at the existing current commercial rates and shall be settled at a freely convertible currency.

Accordingly, Kenya has entered various bilateral and multilateral investment treaties that are in force and offer protection to foreign project companies from the contracting states.

Fiscal treatment of foreign investment


What tax incentives or other incentives are provided preferentially to foreign investors or creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration?

In Kenya, there are available fiscal (tax) and non-fiscal incentives to foreign investors. The tax incentives are issued by the Kenya Revenue Authority in collaboration with other government agencies such as the Export Processing Zones (EPZ) Authority and the Capital Markets Authority guided by the applicable tax laws such as Income Tax Act. Currently, EPZ companies are granted a 10-year corporate income tax holiday, and a 25 per cent tax rate instead of 30 per cent for 10 years thereafter. They also enjoy a 10-year withholding tax holiday on dividends and other remittances to non-residents. Additionally, they enjoy perpetual exemption from VAT and customs import duty on inputs, perpetual exemption from payment of stamp duty on legal instruments and 100 per cent investment deduction on new investments in EPZ buildings and machinery.

Furthermore, interest payable on loans obtained from foreign lenders on certain projects such as energy, roads, ports, railways and water projects, among others, is exempted from tax by the government.

In addition, financial instruments such as charges, debentures and guarantees - which are executed with respect to transactions relating to foreign loans advanced to investors in infrastructural projects such as energy, roads, ports, railways and water - are exempted from payment of stamp duty. However, to foreign investors outside the exempted projects, there is an imposition of withholding tax calculated at the rate of 15 per cent on income.

Government authorities

Relevant authorities

What are the relevant government agencies or departments with authority over projects in the typical project sectors? What is the nature and extent of their authority? What is the history of state ownership in these sectors?

The relevant government authorities are provided under the relevant legislation specific to the sector. For example, in oil and gas the relevant government agencies are established under the Petroleum (Exploration & Production) Act, which provides the Minister (Cabinet Secretary) with powers to negotiate and conclude oil and gas contracts. The Mining Act establishes various agencies such as The National Mining Corporation, the Minerals and Metal Commodity Exchange and The Mineral Rights Board, agencies that are charged with various mandates with regards to the mining sector including licensing, permit renewals, approvals and regulation of the mineral sector. The Energy Act also established the Energy Regulatory Commission that regulates licensing and approvals of energy projects in the country.

Most of the projects in these sectors are owned by the state either wholly or through a private-public partnership, or partially privatised. For example, all major airports are owned by the state under the auspices of the Kenya Airports Authority. A bigger share of electricity is generated by the state through the Kenya Electricity Generation Company, while a significant percentage is generated by private energy producers but sold to the state-owned Kenya Power, which is the only electricity retailer in the country.

Regulation of natural resources


Who has title to natural resources? What rights may private parties acquire to these resources and what obligations does the holder have? May foreign parties acquire such rights?

In Kenya all natural resources which include oil, gas, and minerals vest in the state. Private parties may, however, acquire contractual right to explore and exploit such resources from the state, provided they do so in a sustainable manner. Such rights are often granted by way of exploration and production agreements entered with the state. Such agreements can be entered with both local and foreign parties, but the Mining Act, for example, provides that a foreign party gaining mineral rights must guarantee 10 per cent free carried interest to the government of Kenya. Common ways of acquisition include; concessions, production sharing contracts, licences and permits. These rights can be acquired by both local and foreign investors. Generally, the government as the owner of natural resources benefits from royalties, taxes and fees imposed on the investors.

The Constitution of Kenya adequately protects the rights of indigenous communities and other minority groups. During such acquisition processes, there are a number of stakeholder consultations and community engagement to ensure that their rights are not infringed. Similarly, such groups often receive fair and reasonable compensation in the event of any damage to their property or relocation. This is further gaining recognition through revenue-sharing policies where a certain allocation is reserved for the local community.

Royalties and taxes

What royalties and taxes are payable on the extraction of natural resources, and are they revenue- or profit-based?

The taxes and royalties payable on the extraction of natural resources vary depending on the classes of natural resources. The ninth Schedule of the Finance Act 2014 provides for the taxation regime of the extractive industry, which covers oil, gas and mining companies and their service providers. The taxation schedule is applicable to:

  • licensee - a party who has been issued with, or granted a mining right;
  • contractor - a party with whom the government has concluded petroleum agreement; and
  • subcontractor - a party supplying services other than a person supplying services as an employee to either a licensee in respect of mining operations or a contractor in respect of petroleum operations.

The Act has distinguished between taxation of subcontractors with permanent establishment in Kenya and those without permanent establishment in Kenya. Subcontractors without permanent establishment are subjected to withholding tax, whereas those with permanent establishment are subjected to tax on business profit.

The income tax payable on taxable profits by a resident contractor is 30 per cent, while that payable by a non-resident contractor is 37.5 per cent. The ninth schedule of the Act also provides for allowable deductions, including expenditure relating to exploration, development and decommissioning. The capitalisation threshold for petroleum companies provided under the schedule is a debt-to-equity ratio of 2:1, which would restrict the deductibility of interest against business income to the extent of that narrow ratio.

Further, pursuant to the provisions of the production sharing contract (PSC), oil profit is shared between the government and the contractor on such ratios provided in the PSC. Other applicable fees payable are the signature bonus, which is a one-time payment on award of PSC, and surface fees by the contractor, which are calculated on the basis of the surface area of the contract area and the exploration period.

Export restrictions

What restrictions, fees or taxes exist on the export of natural resources?

In order to export extracted minerals or petroleum from Kenya, one must first obtain a licence from the relevant authorities. There are also certain taxes, fees and royalties payable in respect of minerals exportation. For example, the Mining Regulations provide that there shall be payable on all diamonds originating from Kenya an ad valorem royalty of 15 per cent of the gross value thereof as assessed by an approved valuer.

Legal issues of general application

Government permission

What government approvals are required for typical project finance transactions? What fees and other charges apply?

There are a number of government approvals that are required for a typical project finance transaction. For example, the National Environment Management Authority must approve an investment that may have an impact on the environment upon satisfactory environmental impact assessment. The county governments must issue licences and certain permits for operations by local or foreign project companies within the respective county government territory. The National Land Commission must also approve certain projects involving transactions in public land. The Civil Aviation Authority must also inspect projects that may impact on aviation security and issue approvals before such projects can progress, for example, in wind power projects where wind masts are erected. Remittances in cash require certain disclosures by the remitter under the Money Laundering Laws. Other approvals with respect to PPPs are covered in more detail below.

Registration of financing

Must any of the financing or project documents be registered or filed with any government authority or otherwise comply with legal formalities to be valid or enforceable?

Registration of financing documents is a requirement if the same are to be enforced. Where the projects involve land transactions, there will be preparation of certain security documents that require registration with the registrar of lands, and the formalities are as covered in the previous sections. Project documents, on the other hand, must be registered with the National Construction Authority, which ensures streamlining of the construction industry. Contracts pursuant to public procurement and private public-partnership transactions are also subject to negotiation and approval by the procuring or contracting authority. If the project finance is procured by county or government-linked entities, then the financing agreements are subject to approval by either the National Treasury or County Treasury.

Arbitration awards

How are international arbitration contractual provisions and awards recognised by local courts? Is the jurisdiction a member of the ICSID Convention or other prominent dispute resolution conventions? Are any types of disputes not arbitrable? Are any types of disputes subject to automatic domestic arbitration?

The recognition and enforcement of international contractual provisions and awards in Kenya is governed by the Foreign Judgments (Reciprocal Enforcement) Act and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention). The former Act applies to judgments that include arbitral awards if the award has, under the laws in force in the country where it was made, become enforceable in the same manner as a judgment given by a designated court in that country. The party in whose favour such an award has been given may apply to the court for recognition and subsequent enforcement of the award.

On the other hand, the New York Convention to which Kenya is a party is recognised under the Kenyan Arbitration Act. This provides that an international arbitration award shall be recognised as binding and enforced in accordance with the provisions of the New York Convention or any other convention to which Kenya is signatory, and relating to arbitral awards. The application of the New York Convention requires that contracting states must recognise an agreement in writing under which the parties undertake to submit their disputes to arbitration. This is a fundamental requirement as it prohibits national courts from interfering in disputes that are the subject of an arbitration agreement.

Similarly, Kenya enacted the International Investment Disputes Convention Act in order to give legal sanction to the provisions of the ICSID Convention on the settlement of investment disputes between the state and nationals of other states. Kenya is also a member of the International Chamber of Commerce and the United Nations Permanent Court of Arbitration.

Most contractual disputes are arbitrable unless the parties make it clear in the underlying contract other alternative dispute resolution mechanism other than arbitration. This notwithstanding, arbitration agreements that tie a party to domestic mechanisms have been challenged in international arbitration forums, to the effect that those agreements can only require a first resort to domestic forums without necessarily deterring the parties from international arbitration (provided the underlying treaty allows resort to international arbitration). Disputes that are criminal in nature are, however, subjected to domestic criminal laws and thus are not arbitrable. Domestic contractual disputes are automatically subjected to domestic arbitration if the parties subject themselves to arbitral process, but there are no types of disputes subject to mandatory domestic arbitration proceedings.

Law governing agreements

Which jurisdiction’s law typically governs project agreements? Which jurisdiction’s law typically governs financing agreements? Which matters are governed by domestic law?

Project agreements in Kenya are governed under the jurisdiction and choice of law agreed by the parties within the contract with no strict restriction on matters that must be governed by domestic law. Financing agreements that require registration under any registry in Kenya or compliance with certain formalities or regulatory regime in Kenya are governed by local laws, but do not necessarily have to be subject to the local jurisdiction if the parties to the contract have chosen a different jurisdiction.

Submission to foreign jurisdiction

Is a submission to a foreign jurisdiction and a waiver of immunity effective and enforceable?

Yes, in Kenya, submission to a foreign jurisdiction and a waiver of immunity is effective and enforceable by virtue of the provisions under the Foreign Judgments (Reciprocal Enforcement) Act where it can be established that a court in another jurisdiction can adjudicate upon a cause of action.

Environmental, health and safety laws

Applicable regulations

What laws or regulations apply to typical project sectors? What regulatory bodies administer those laws?

The laws that regulate project sectors are all pegged on the Constitution of Kenya 2010, which is the blueprint law. Sector-specific laws such as mining and the exploration of oil and gas include the mining Act 2016, The Petroleum (Exploration and Production) Act, and the Energy Act which governs power generation and transmission among others. The environmental, health and safety laws include the Environmental Management and Co-ordination Act 1999 and the Regulations, which establish the National Environmental Management Authority as the regulatory body. Other laws relevant to the sector include the Occupational Safety and Health Act 2007, with the overseeing regulator as the Director of Occupational Safety and Health Services. Environmental issues are regulated by the National Environment Management Authority, all forms of energy are regulated by the Energy Regulatory Commission, minerals are regulated by the Mineral Rights Board, ports are regulated by Kenya Ports Authority, and telecommunication is regulated by the Communications Authority of Kenya.


Project companies

Principal business structures

What are the principal business structures of project companies? What are the principal sources of financing available to project companies?

Generally the principal business structures for project companies in Kenya are limited liability companies that are incorporated under the Companies Act 2015 as special purpose vehicles. Unincorporated joint ventures are also not restricted.

The domestic public securities market has not been yet utilised to finance projects in Kenya. The most common principal sources of financing include equity finance and debt finance. Project companies more often than not obtain financing from local and offshore banks, private financial institutions, and international financial institutions such as the African Development Bank and International Finance Corporation.

Public-private partnership legislation

Applicable legislation

Has PPP-enabling legislation been enacted and, if so, at what level of government and is the legislation industry-specific?

Kenya’s Public Private_Partnership (PPP) Act No. 15 of 2013 was enacted by the national government of Kenya mainly to facilitate PPP contracts in Kenya and to provide for the participation of the private sector in the financing, construction, development, operation, or maintenance of infrastructure or development projects of the government through concessions or other contractual arrangements, and for the establishment of the institutions to regulate, monitor and supervise the implementation of project agreements on infrastructure or development projects and for connected purposes. While projects of a PPP nature have been carried out at the county government level, it is just now that the PPP unit is developing county legislation on PPPs.

PPP - limitations

Legal limitations

What, if any, are the practical and legal limitations on PPP transactions?

There are certain limitations on PPP transactions in Kenya. According to the Public Private Partnership Act, a contracting authority that intends to enter into a project agreement with a private party shall confirm that the private party has the financial capacity to undertake the project, the relevant experience in undertaking projects of a similar nature, and the relevant expertise to undertake the project. The Act has established three main public agencies involved in the current PPP process in Kenya - namely; the PPP Unit, PPP Committee and the county and national governments. The PPP unit is embedded within the National Treasury and is tasked with overseeing project preparation and planning. The Unit also serves as a national centre for PPP expertise and provides technical support for PPP implementation. On the fiscal obligations, all loans to county governments or linked entities must be guaranteed by the national government. Additionally, the law requires county governments not to borrow any amount exceeding 5 per cent of the county’s last audited accounts.

PPP - transactions

Significant transactions

What have been the most significant PPP transactions completed to date in your jurisdiction?

The most significant PPP transactions in Kenya range from power plants, to roads and airports. There are currently about 70 approved PPP projects in Kenya to date. Some of the most significant are:

  • the 400MW project in Menengai where the Geothermal Development Company (GDC) entered a PPP with a private company as an independent power producer to produce power;
  • coal mining concession in Kitui, which Chinese firm Fenxi Mining Group entered a PPP contract into with the Ministry of Energy for a coal mining project in the Kitui coal fields in December 2011;
  • construction of a new container terminal in Mombasa - the project worth 21 billion shillings, with 16 billion shillings being financed by Japan under a PPP arrangement; and
  • developing the Greenfield terminal of Nairobi’s Jomo Kenyatta International Airport (JKIA) and other airport facilities that on average, will impact on traffic at JKIA, which is expected to grow at 12 per cent for the next 20 years.

The overall objective of the IFPPP project is to increase private sector investment in the Kenyan infrastructure market and to improve the enabling environment to generate a pipeline of bankable PPP projects.


Update & Trends

Updates and trends

The year 2018 has seen the government focus on the Big 4 agenda, which aims at food security through investment in the agricultural sector, creation of employment through industrialisation, health care and affordable housing. The government has allocated 400 billion Kenyan shillings in the current financial year towards delivery of the Big 4 Agenda. These four sectors are likely to rely heavily on foreign investors and PPPs for financing. This focus on the Big 4 has also impacted heavily on development of infrastructure. Major projects such as roads, railways housing, energy, railways and water development projects are targeting PPPs. Kenya’s Vision 2030 blueprint seeks to make the country an industrialised middle-income economy by 2030. Some of the ongoing and planned PPP projects that the government intends to undertake include the establishment of a Kenya flying school, the construction of a second terminal at the Jomo Kenyatta International Airport, the establishment of a 980Mw coal plant, a two-phase geothermal development project to generate a total of 1,200 megawatts, establishment of a four-tier National Data Centre, among many other projects. Other than PPPs, Kenya is also giving major thought to Islamic financing and Shariah-compliant bonds as an alternative for financing government infrastructure.