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VOLUME NO 11 | ISSUE 5 | OCTOBER 2013

BOTSWANA | BURUNDI | ETHIOPIA | KENYA | MALAWI | MAURITIUS | MOZAMBIQUE | RWANDA | SUDAN | TANZANIA | UGANDA | ZAMBIA

Inside this Issue In Vogue The East African Oil and Gas Sector Taming the Lion Markets Reflections from ALN on the Investment Climate in Africa A Plug in the Vent Land Ownership Challenges Hamper Natural Gas Development in Tanzania Building Blocks Public Private Partnerships and Kenya’s Infrastructure Deficit Diamonds Unearthed An overview of mining in Botswana Consumer Protection in Kenya Away with the fine print! Forex Alert Zambia’s Move in Monitoring Balance of Payments and so much more...


36 | LEGAL NOTES | APRIL 2013

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ALN at a Glance ALN is an independent alliance of leading law firms in Africa. It is the largest and only grouping of its kind in Africa, with close working relationships across its 12 members and an established network of Best Friends across the continent. ALN’s firms are committed to working together to provide extensive coverage and on-the-ground experience. Members share common values and are grouped under – EAC, SADC and COMESA – with a combined population of 325 million people.

KENYA Our member firms are on the ground in Botswana, Burundi, Ethiopia, Kenya, Malawi, Mauritius, Mozambique, Rwanda, Sudan, Tanzania, Uganda and Zambia. ALN also works closely with its affiliates in UAE, Kenya and Mauritius and its affiliates in UAE, Kenya and Anjarwalla & Khanna is the largest Mauritius and its associates in South Africa.

corporate law firm in Eastern Africa. The firm is ranked first in Kenya by various legal guides, including Chambers Global, IFLR 1000, Legal 500, PLC Which Lawyer and Euromoney Guide to the World’s Leading Project Finance Lawyers. Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com

Undertaking infrastructure projects in Kenya: Get the contract right! Introduction ALN

Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030. Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project. What should a project contract provide for? The key concerns for most developers of a project are as follows: • ensuring that works are completed in accordance with the construction programme for the project; • ensuring that the works are completed within budget; • where projects are to be financed, ensuring that the risk allocations in the various project contracts will be acceptable to potential lenders and financiers; and


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KENYA

Welcome For those of you who are new to ALN as a whole, we are an independent alliance of leading law firms in Africa. We are the largest grouping of its kind in Africa, with a tightly integrated set of top-rated member firms. ALN’s clients and network of international ‘Best Friends’ law firms benefit from ALN’s “one-stop-shop” capability knowing that the quality of lawyers and quality of services throughout is going to be uniformly Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com first class. Please do visit us on www.africalegalnetwork.com Actually, I’m new to ALN myself! So a word of introduction is

Anjarwalla & Khanna is the largest corporate law firm in Eastern Africa. The The Beatingfirm Drums of Africafirst in Kenya by various is ranked These are undeniably exciting times for Africa. Never before have legal guides, including Chambers Global, the drums resonated with such vigour! Today, Africa is being viewed as theIFLR land 1000, of a thousand continent’s Legalgems. 500,The PLC Which potential Lawyer stretches from mineral to agricultural wealth and from rich natural and Euromoney Guide to the World’s resources to a youthful workforce.

Leading Project Finance Lawyers.

The slumberous giant is rising and Africa’s economies are among the fastest growing in the world, averaging 7 per cent. The growth and returns are attributable to various factors, among them: the unearthing of mineral deposits in Botswana and Zambia and the discovery of oil deposits, natural gas and coal in Mozambique, Kenya, Uganda and Tanzania.

Undertaking infrastructure projects in Kenya: in order. I have been with ALN for 6 months now – operating out of Nairobi – having had a career background as a CEO, Get the contract right! a PE investor and an investment banker. I hold a B.Sc. and PhD

Yet, despite such vast riches, Africa remains home to some of the world’s poorest. It continues to struggle with imbalances of trade INSEAD MBA. I like learning languages and have promised my and is viewed by many as a risky place to do business. Africa must Kenyan friends that Swahili is next! find ways to address the concerns that still bedevil the continent. Kenya has seen a significant rise in infrastructure developments theofrecent especially in the fields ofand real At theinheart this, is past, the need for regulatory and structural governance reforms. Legal Notes is ALN’s flagship publication. Each edition brings estate development, energy and transportation infrastructure. This has been caused by various factors including a you for commentary from apopulation, selection of ALN’s pool demand housingandbyanalysis the rising infrastructure demands caused by growing investor interest in the In this edition of Legal Notes, we bring you legal highlights from of renowned legal minds. country and the Government’s Vision 2030 development blue print, aim achieve various ALNwhose countries, withisa to particular focusindustrialization on natural resources.by We evaluate emerging trends in the oil & gas sector in East Africa the year Like2030. ALN itself, Legal Notes continuously strives for excellence. and discuss diamond regulation in Botswana, the investment To achieve excellence requires your feedback. So do let us know opportunities presented by Kenya’s private public partnerships what you think.an infrastructure project, be it skyscrapers,laws and the new forex regulations Zambia. Putting together roads, power projects or ainreal estate development in Computer Sciences from Imperial College, London, and an Introduction

involves amalgamating several constituent elements. An integral ingredient to any project is the construction Sincerely, We have also included a special report on the investment climate contract which sets out the terms and conditions pertainingin to theascarrying outtheofeyes theofmain building works in Africa, seen through three senior ALN Partners. Our affiliates, AC&H and JMiles & Co., offer insights on UAE a respectDr.ofMichael the project. H. GeraA well drafted contract that is clear on the terms could have a significant effect on theascost, gateway to Africa and the role of bilateral investment treaties, Executive Officer timingALN andChief completion of the project. respectively. mg@africalegalnetwork.com

What should a project contract provide for?

As always, we hope that you will find this edition insightful! Asante! Merci! Obrigada!

The key concerns for most developers of a project are as follows: Anne Kiunuhe Editor Partner, Anjarwalla & Khanna the construction programme ak@africalegalnetwork.com

• ensuring that works are completed in accordance with for the project; • ensuring that the works are completed within budget; • where projects are to be financed, ensuring that the risk allocations in the various project contracts will be acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.


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Contents KENYA

Anjarwalla & Khanna is the largest corporate law firm in Eastern Africa. The firm is ranked first in Kenya by various legal guides, including Chambers Global, IFLR 1000, Legal 500, PLC Which Lawyer

In Vogue and Euromoney Guide to the World’s The East African Oil and Gas Sector.................................................................................................................................................................3 Leading Project Finance Lawyers. Taming the Lion Markets Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com Reflections from ALN on the Investment Climate in Africa.............................................................................................................................5 A Plug in the Vent

Land Ownership Challenges Hamper Natural Gas Development Tanzania...............................................................................................8 Undertaking infrastructure projects in inKenya: Get theBlocks contract right! Building Public Private Partnerships and Kenya’s Infrastructure Deficit........................................................................................................................10 Introduction Diamonds Unearthed

Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real An Overview of Mining in Botswana.............................................................................................................................................................12 estate development, energy and transportation infrastructure. This has been caused by various factors including a Consumer demand forProtection housing in byKenya the rising population, infrastructure demands caused by growing investor interest in the Away with the Fine Print!................................................................................................................................................................................14 country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the yearAlert 2030. Forex Zambia’s Move in Monitoring Balance of Payments.....................................................................................................................................16

Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development Opportunities and Challenges involves amalgamating constituent elements. An integral ingredient to any project is the construction Kenya’s Devolved System of several Government.....................................................................................................................................................18 contract which sets out the terms and conditions pertaining to the carrying out of the main building works in Foreignof Investment Protection in Africa.................................................................................................................................................20 respect the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project. The UAE Emerging Gateway to Africa..........................................................................................................................................................................22

What should a project contract provide for?

Editorial Team: Anne Kiunuhe - ak@africalegalnetwork.com | Patricia Fokuo - pf@africalegalnetwork.com Elizabeth Karanja ewk@jmilesarbitration.com | Wanguiare Kaniaru - wk@africalegalnetwork.com | The key concerns for-most developers of a project as follows: Madiha Abdul-Majid - interneight@nbi.africalegalnetwork.com

This publication is designed to inform readers of legal issues in various African jurisdictions.

• ensuring thatofworks are completed in to accordance theand construction programme for theseeking project; The contents this newsletter are intended be of generalwith use only should not be relied upon without specific advice matter.are If you would like within to subscribe to Legal Notes or any other ALN publication, visit • ensuring that on theanyworks completed budget; www.africalegalnetwork.com. For further information on Legal Notes, contact legalnotes@africalegalnetwork.com • where projects are to be financed, ensuring that the risk allocations in the various project contracts will be acceptable to potential lenders and financiers; and


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In Vogue The East African Oil and Gas Sector

KENYA

Anjarwalla & Khanna is the largest Krista Bates Consultant Anjarwalla & Khanna kb@africalegalnetwork.com

Introduction

Philip Karugaba Aleem Tharani corporate law firm in Eastern Africa. The Partner Senior Associate MMAKS Advocates firm is ranked first inAnjarwalla Kenya &by various Khanna karugaba@mmaks.co.ug at@africalegalnetwork.com

legal guides, including Chambers Global, IFLR 1000, Legal 500, PLC Which Lawyer licencing rounds designed to underpin investor 100 trillion cubic feet (mainly in the offshore

and Euromoney Rovuma Basin)Guide and the to Covethe Energy takeover World’s The development of the East African oil and confidence through a more formulaicand PTTEP (who outbid Shell) which has gas (O&G) sector offers a burgeoning market transparent system of block allocation. LeadingbyProject Finance Lawyers. demonstrated the growing attention O&G with significant opportunities for exploration, Kenya is early in the development spectrum companies are giving to Mozambique. Aleem Tharani Iand Anjarwalla & Khanna development production (E&P) companies. I at@africalegalnetwork.com with Tullow drilling wells onshore in Turkana Anadarko, ENI, Petronas, Statoil, Total and The O&G sector in East Africa is in the early Maurel & Prom already hold significant interests stages of development and as a relatively new (having obtained good results and declared in the country’s exploration permits. market, East Africa is an attractive investment commerciality with a circa 5200 barrels per day (bpd) flow rate) and Apache and Anadarko destination. The Government of Mozambique has made drilling wells offshore (with mixed results to a concerted effort to attract investment. The The question that arises is: how well prepared date). Due to the increased interest in Kenya, the critical factor in the future exploitation of the are Kenya, Mozambique, Tanzania and Uganda Kenyan Ministry has become more aggressive Introduction country’s gas, however, is the emergence of than in the past on compliance with PSC terms. to compete for this neoteric E&P interest? sound commercial criteria for the establishment The Kenya Ministry has recently only allowed Encouragingly, these countries are taking active of a south-east African gas-gathering network relatively shortdevelopments extensions in combination with steps tohas secure and a protect foreign investment Kenya seen significant rise in infrastructure in the recent past, especially in the fields of real capable of serving developing markets in the by rapidly effecting robust and comprehensive very heavy penalties – a clear and significant estate development, energy and transportation infrastructure. This has been caused region. by various factors including a regulatory systems designed to increase departure from its historic approach. PSC interest holders now approach the importance of demand for housing by the rising population, infrastructure demands caused by growing investor interest in the transparency and certainty for investors and Endemic corruption and limited O&G compliance with their obligations with increasing ensure their own people are beneficiaries of the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by infrastructure will pose the most significant caution, and repossessions on the grounds of natural resources. challenges to operators in the short-to-medium the year 2030. failure to comply with work and expenditure term and international donors have repeatedly The trend towards a definitive O&G playing commitments are expected imminently. called on the Government to tackle corruption field coupled with significant gas discoveries or risk or a freeze budgetary support and Putting together an infrastructure project, be it skyscrapers, roads, power projects a realonestate development in Mozambique and Tanzania and oil finds in From the people’s perspective, one of the most donor aid. involves several constituent Anis the integral ingredient to any project is the construction excitingelements. developments potential creation both Kenyaamalgamating and Uganda, is resulting in global of a sovereign wealth fund. The Government interest refocusing on theout Eastthe Africa region contract which sets terms and conditions pertaining to the carrying Challenges out of the main buildinginfrastructure works in remain – Mozambique’s as an attractive, if speculative, O&G emerging of Kenya has brought in a number of advisors is inadequate for the spike in investment respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost,in and is actively pursuing this as a possibility with market. the extractives sector. The potential of recent timing and completion of the project. a view to avoiding the oil curse. discoveries and regional and international

Undertaking infrastructure projects in Kenya: Get the contract right!

Kenya

The calm election of the new Kenyan Mozambique What should a project contract provide for? Government in 2012 has reduced the perceived After many years of civil war and political political risk of doing business in Kenya and instability, Mozambique is returning to a state and as consequently demonstrated a strong of law with the ofofa normality The key concerns forrule most developers project are follows: its upstream President being elected on a pro-progress ticket. O&G industry is of growing importance in With its favourable regional geology, competition the region. Mozambique’s upstream potential to lie in natural rather than oil. • for petroleum ensuringblocks that inworks completed appears in accordance withgasthe construction Kenya are has intensified.

demand for gas have prompted foreign companies to take the lead on infrastructure development with support from the Government.

Tanzania Tanzania has no commercial oil discoveries and (Songo Songo and Mnazi Bay) and a number of promising gas discoveries in the deep offshore the various project fields contracts will beto blocks. The producing took decades

only two small gas fields programme for producing the project;

Ministry ofthat Energy Petroleum has • The ensuring theand works are completed within budget; diligently released of a steady stream of blocks Mozambique’s debut into the market includes • for E&P where projects are to bea financed, ensuring that thediscovery risk allocations highlights as the of more thanin activities, and is considering move to such acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.


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bring to commercial production due to the lack of a local market and the impracticability of export in view of the limited reserves. In June 2013, a run of new discoveries took the total recoverable reserves of gas to 28 trillion cubic feet. Tanzania has licensed 16 international energy companies to search for O&G. BG Group, Statoil, Petrobras, Royal Dutch Shell and Exxon Mobil Corp are among companies already operating in Tanzania. The country plans to offer seven deep offshore blocks and one onshore block in October for O&G exploration. The potential rewards for investors are not in doubt but, despite enjoying enviable political stability, Tanzania remains some way behind regionally as an overall investment environment due to corruption, a challenging tax authority, electricity shortage, poor infrastructure and a deficiency of homegrown specialists in key Government departments. In a political move likely to significantly shake investor confidence, the Ministry of Energy and Minerals has recently indicated all existing O&G contracts will be reviewed – it is not entirely clear what this will mean for PSC holders. The overall uncertainty leaves Tanzania in a challenging position. Aleem Tharani Anjarwalla & Khanna at@africalegalnetwork.com

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Uganda

aggressive sharing of the profit oil with the relevant Government, who are now looking to see a significant balance sheet for E&P companies who wish to secure a PSC. The Ministries must however be cognisant of the need to balance the interest of the people of East Africa to fully benefit from their own O&G resources with the level of risk which O&G companies are willing to accept. The successful development of the sector is reliant on a KENYA country making itself an attractive destination – O&G is by its nature a risky business. East Africa will need to rise to the challenge of attracting E&P activities through sensible PSC and a strong legal,largest fiscal and Anjarwalla & terms, Khanna is the regulatory framework.

corporate law firm in Eastern Africa. The

Given and that firm a preponderance PSCs in are Kenya held by smaller players, is rankedoffirst by various noncompliance with work obligations is becoming increasingly likely. legal guides, including Chambers Global, With an intensifying difficulty on the part of smaller E&P companies to IFLR 1000, Legal 500, PLC Which Lawyer secure funding coupled with looming work obligations, those holding blocks and requiring financing are becoming less demanding of their and Euromoney Guide to the World’s potential farm-in partners. Although Kenya (with the most developed Finance Lawyers. capital market inLeading East Africa)Project has developed a new stock exchange market (GEMS) targeted to provide funding for such companies, it is currently in its infancy. Consequently, there are increased for well funded players wanting to invest in the East African O&G sector via the farm-in route.

O&G exploration activities in Uganda have had an unprecedented

90 per cent drilling success rate, with 58 of theprojects 64 explorationin andKenya: This signals new opportunities for those with the technical, operational Undertaking infrastructure appraisal wells drilled in the country to date encountering oil and/or and financial capacity interested in investing in the East African O&G Get thedrilled contract right! gas. Wells on a number of structures during 2002-2013 confirmed market. the presence of multiple exploitable accumulations of hydrocarbons

Introduction proving up over 3.5 billion barrels of oil equivalent in place.

The Future of the O&G Industry

Clearly these are very exciting times for East Africa. Unfortunately The moratorium that was placed on licensing oil and gas activities in many of the East African countries in recent times have shaken investor Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real Uganda will soon be lifted with the enactment of new laws to govern confidence. Whether it be an adverse review of PSCs, the introduction of estate development, energy and transportation infrastructure. This beendiscourse causedonbythevarious including ora the sector and the establishment of the relevant institutions. International taxation onhas farm-ins, pathwayfactors to commercialisation oil companies are already setting up in Uganda in anticipation of the other Government acts, it may restrict development of the sector.in the demand for housing by the rising population, infrastructure demands caused by growing investor interest new licensing rounds. country and the Government’s Vision 2030 development blue print, whose aim to successful achieveO&G industrialization by The key to a stable, long termisand sector is the creation Parliament has recently promulgated further legislation to enable the of an investor friendly, market competitive, certain and transparent the year 2030. effective and efficient management of the nascent O&G sector, one of investment environment with full collaboration with the O&G companies. which is the Petroleum (Exploration, Development and Production) Act, Despite a few notable offshoots there is broadly speaking a steady march Putting together an into infrastructure project, be it skyscrapers, roads, power projects or a which real isestate development 2013 which was brought force in April 2013. to adopting these founding principles indicative of the various Africaningredient Government’sto approach to ensuring benefits involves amalgamating several constituent elements. An East integral any project is the theattendant construction The new laws are expected to help boost investor confidence in the of natural resources flow to its people. There is every indication, and contract which sets out the terms and conditions pertaining to the carrying out of the main building works in sector. Investors should however expect to see tougher contractual one can be cautiously optimistic, that despite some challenges along respect of the project. A well drafted contract that is clear on the could a significant effect on the terms than those that were negotiated under the old legal regime. the way terms the O&G sectorhave will ultimately flourish in East Africa andcost, steer the region to a better future. • timing and completion of the project. After a two year impasse between the Government and the O&G companies, the Government has decided to build a refinery to cater for Interesting fact about Africa: Nineteen African countries are What should a project contract provide the needs of Ugandans alongside a crude export pipelinefor? to cater for currently significant producers of oil and gas, but these sectors the interest of the O&G companies. This will hopefully stimulate progress employ less than 1 per cent of the workforce. in the development of the O&G sector. The key concerns for most developers of a project are as follows: Interesting fact about ALN: ALN has an oil & gas sector group that advises project sponsors, funders, private equity Trends in the Market partners, government agencies, acquirers and targets on a changing landscape, Ministries East Africa • Withensuring that works the arevarious completed in across accordance with theinnovative construction programme for the project; project structures, tax considerations, local have become more robust with the terms required under new PSCs, with participation requirements, and other regulatory and • largeensuring that the works are completed within budget; increases in signing bonuses, minimum work obligations, minimum commercial considerations in the oil and gas sector. programs and bank The trend isensuring shifting tothat a more • workwhere projects areguarantees. to be financed, the risk allocations in the various project contracts will be

acceptable to potential lenders and financiers; and


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Taming the Lion Markets Reflections from ALN on the Investment Climate in Africa

KENYA

Anne Kiunuhe Partner Anjarwalla & Khanna ak@africalegalnetwork.com

Anjarwalla & Khanna is the largest Elizabeth Karanja corporate law firm in Eastern Africa. The Associate JMiles & Co.

firm is ewk@jmilesarbitration.com ranked first in Kenya by various legal guides, including Chambers Global, IFLRabound 1000,about Legal 500,inPLC Which Lawyer The renewed interest in Africa has been described as the modern scramble for Africa. Questions investing Africa and in many ways, it remains an adventurous journey. There are no easy road maps or instruction manuals. Weand were Euromoney privileged to speak to three from Guide toSenior the Partners World’s key emerging markets in Africa – Mr. Karim Anjarwalla, the Managing Partner of Anjarwalla & Khanna, Advocates, Kenya, Mr. Phillip Karugaba, a Leading Project Finance Lawyers. Senior Partner at MMAKS Advocates, Uganda and Mr. Julien Kavaruganda, the Managing Partner of K-Solutions & Partners, Rwanda. They have been Aleem Tharani & Khanna advising investors and businesses in Africa for over a decade and are familiar with the do’s and don’ts about the continent. They share with us their I Anjarwalla I at@africalegalnetwork.com candid views on investing in the continent.

Mapping the Growth

sharein of Kenya: trade with Africa has Undertaking infrastructure America’s projects African countries have in recent years continued continued to shrink over the years. Trade to outdo as the fastest growing Get the others contract right! between Africa and other countries, particularly

According to Phillip Karugaba, a Senior Partner at MMAKS Advocates in Uganda, “the leading sector attracting investment by far in Uganda economies in the world. It is estimated that in the BRICS countries is on the rise. China leads has been in the oil & gas sector and the support the last 10 years, growth in Africa has surpassed Introduction the BRICS pack. Chinese investment into Africa services. The buy up of Heritage interests that of East Asia. Research conducted by multiplied 10 times between 2005 and 2011, by Tullow and the subsequent farm-in of Total Renaissance Capital indicates that 11 African Kenya has seen a significant rise in infrastructure in the past, especially in theamong fieldstheoflargest real CNOOC were certainly with major developments investment in oil and recent gas, and countries grew at an annual rate of 7 per cent transactions of late.” The significant growth ais commodities and infrastructure development. estate development, energy and transportation infrastructure. This has been caused by various factors including or more between 2000 and 2009. IMF data Between 2006 and 2012, China invested over attributable to various factors, primarily Africa’s shows thatfor 6 out of the by 10 the fastest-growing demand housing rising population, infrastructure demands caused by growing investor interest in the USD 67 billion in projects in Africa. Brazil is rich resources and extended periods of political economies in the world between 2001 and country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by investing heavily in the mining sectors in stability. 2010 were in Africa. These statistics tell a story the year 2030. Mozambique and Angola. The Indian-based (despite investors derive different conclusions companies that have recently set up in Africa Strides in Law and Governance from them) but it is irrefutable that Africa will Karim Anjarwalla, the Managing Partner of include Airtel, Tech Mahindra and Tata.projects Putting together an infrastructure beBharti it skyscrapers, roads, power or a real estate development in the years ahead continue to attract a lot project, of Intra-African trade boosted by trading blocs Kenya’s Anjarwalla & Khanna Advocates interest. involves amalgamating several constituent elements. An integral ingredient to any project is the construction such as the EAC, SADC and COMESA is also on attributes the growth in Kenya to improvements contract which sets out the terms andthe conditions pertaining to thebeing carrying the main building works in theof political climate and governance rise, with South Africa and Nigeria the inout It is thus not surprising that international structures as evidenced byon the most active exporters of growth capital. Growth respect of the project. A well drafted contract that is clear on the terms could have a significant effect therecently cost, investors continue to beat on Africa’s doors. Ten successfully held elections. According to Mr. in neighboring countries has increased the timing completion ofa the project. years agoand if you were invited to conference on importance of gateway countries such as Anjarwalla, “The elections have undoubtedly Africa in London or other global venues, Mauritius (as a financial gateway), Kenya and chances are the topic would have been political What should a project contract provide for?as geographic gateways). Nigeria (both or social such as peace-keeping or the refugee crisis. Today, many of the conferences and The Budding Sectors Karim Anjarwalla “He is a very fine The keyrelate concerns for mostopportunities developers a project are as follows: events to the investment in ofSectors that have continued to attract significant lawyer and very the continent. investment include natural resources and pleasant to deal with.” IFLR 1000, 2013 extractive industries such as oil, gas and mining, • ensuring that works are completed in accordance with the construction programme for the project; New Trade Dynamics ksa@africalegalnetwork.com infrastructure, fast moving consumer goods, • Although ensuring that works areone completed within budget; the EU as the a bloc remains of telecoms, construction, real estate and financial • Africa’s where projects are to the be EU’s financed, ensuring that the risk allocations in the various project contracts will be biggest trading partners, and services.

acceptable to potential lenders and financiers; and


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KENYA

Anjarwalla & Khanna is the largest corporate law firm in Eastern Africa. The firm is ranked first in Kenya by various legal guides, including Chambers Global, IFLR 1000, Legal 500, PLC Which Lawyer and Euromoney Guide to the World’s Leading Project Finance Lawyers. Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com

Undertaking infrastructure projects in Kenya: Get the contract right! Introduction Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a had a positive on investment in Kenya making the most improvement in business demand for impact housing by the rising population, infrastructure demands caused There by growing interest in the is Roominvestor for Improvement because they were peaceful, they were held regulation for domestic firms since 2005, 17 of Despite significant headways made by by country and the Government’s Vision 2030 development blue print, whose aim is tothe achieve industrialization under the new constitution and they affirmed these are in Sub-Saharan Africa. Rwanda has African countries in improving the investment the year 2030. the growing strength of Kenya’s democratic implemented 26 regulatory reforms since 2005

climate, a lot still remains to be done. and governance institutions.” Other while Burundi has implemented at least 4 Mr. Anjarwalla points out that there is still a contributors to the growth in Kenya include reforms last one year. roads, Mauritiuspower which isprojects or a real estate development Putting together an infrastructure project, be initthe skyscrapers, significant infrastructure deficit, especially in improvements in infrastructure, such asconstituent the rankedelements. 19 in the World Bank Doingingredient Business involves amalgamating several An integral to any project is the construction relation to power. The increase in urbanisation, expanded road network, telecommunication, Report improved access to credit information contract which sets out the terms and and conditions pertaining to the carrying with out 40 of per thecent main building works in of African estimated to live improvement in rail and the expansion of the made property transfers faster by in cities by 2030, is causing a strain on the respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, capacity of the port of Mombasa. implementing electronic systems. Uganda and timing and completion of the project. Zambia are both noted to have strengthened already over-stretched infrastructure. Julien Kavaruganda, the Managing Partner of their insolvency processes. Other areas requiring reform include investor Rwanda’s K-Solutions & Partners, identifies relations, bureaucracy, unemployment and What should a project contract provide for? law and regulatory reform in Africa as a key Phillip Karugaba dispute settlement mechanisms. “bright and very driver of the increased interest in Africa. commercial - definitely In Uganda, the Constitution is  currently  being “Incorporating a company in Rwanda can of a project are as follows: The key concerns for most developers a heavyweight lawyer tested on several issues such as the appointment now be done all in a space of 6 hours”, he in the Ugandan to Cabinet of a  serving  military officer, out. • points ensuring that works are completed in accordance withmarket.” the construction programme forofthea Chief project; re-appointment Justice and other Chambers Global, 2013 issues. “Constitutionalism must prevail” quips • According ensuring that the works are completed within budget; karugaba@mmaks.co.ug to a recent report published by the Mr. Karugaba. • IFC and where to50beeconomies financed, ensuring that the risk allocations in the various project contracts will be Worldprojects Bank, outare of the

acceptable to potential lenders and financiers; and


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Julien Kavaruganda “is strong in banking, financing and contract negotiations.” Chambers Global, 2013 julien@ksolutions-law.com

Unemployment and poverty is still a major challenge. “There has been insufficient focus on poverty alleviation which has resulted in high unemployment and concerns in relation to insecurity”, says Mr. Anjarwalla.

LegalNotes 7

up our sleeves and get working on the hard and soft issues to create a condusive environment for business” advises Mr. Karugaba, adding that infrastructure, roads, power, telecoms and rail all need much Mr. Kavaruganda’s view is that the answer lies more investment than is available. Softer issues in the transfer of knowledge. “Request a KENYA like legislation, fighting corruption, and ease of transfer of knowledge otherwise we won’t be doing business must all be addressed and able to create what they are selling to us: we quickly. His advice to the African people is that can buy their products now, but with their Anjarwalla & Khanna is the largest they need to put in massive effort to acquire the commitment to help us to develop our the necessary steps to make the most of this growing interest. The question is how do they do this?

corporate law skills firmsoinasEastern The to requisite to equipAfrica. their people knowledge we can be in a position to develop services in the growing industries and our industry and compete with them infirm the is provide ranked first in Kenya by various investment opportunities. coming years.” legal guides, including Chambers Global, IFLR 1000, Legal 500, PLC Which Mr. Anjarwalla emphasizes the needLawyer for Africa A major mind shift towards foreign investment

and Euromoney Guide to leaders the accountable World’s to invest in itself. “Hold your There have been strides in improving dispute is required and Africa needs to view and treat and remember that foreign investment will foreign investors as  collaborators  in national Leading Project Finance Lawyers. resolution mechanisms: 44 out of 54 African only help a nation’s development if a country development, recognising their commercial jurisdictions are signatories to the ICSID Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com and its citizens invest in themselves and create Convention on investment arbitration; African interests and accommodating this alongside a viable domestic economy based on each national priorities. “For African governments governments are increasingly prepared to country’s comparative advantages.”• this is not the time to bask in the sun but to roll accept arbitration as a preferred dispute resolution mechanism; and jurisdictions such as Mauritius, Kenya, Rwanda and Nigeria have set up international arbitration centres in a bid to increase foreign investor confidence. However, Introduction there is still a real need to improve the capacity and quality of the judiciary, which will give more Kenya seen a significant rise in certaintyhas in the enforcement of contracts andinfrastructure developments in the recent past, especially in the fields of real resolvingdevelopment, of investment disputes. estate energy and transportation infrastructure. This has been caused by various factors including a

Undertaking infrastructure projects in Kenya: Get the contract right!

demand for housing by the rising population, infrastructure demands caused by growing investor interest in the Whereas many Governments in Africa are to be country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by lauded for the significant legal reforms the year 2030. witnessed over the last few years, African Governments must ensure that the reforms do not achieve the counteractive effect of making Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development it a more difficult place to do business. Mr. involves amalgamating several constituent elements. An integral ingredient to any project is the construction Anjarwalla, for instance, points out that Kenya, contract which setsform outofthe terms inand conditions pertaining to the carrying out of the main building works in which ushered in a new governance respect of the ofproject. AGovernment well drafted 2013 comprising a National and contract that is clear on the terms could have a significant effect on the cost, 47 County Governments, needs to take care timing and completion of the project. that the new devolved government structure does not lead to turf wars in relation to What should a project resource-based investments such contract as oil and gasprovide for? and mining between national government and Interesting fact about Africa: There is only one place on Earth where 4 countries meet – county The keygovernments. concerns for most developers of athe project are asoffollows: “Four Corners Africa” includes Botswana, Zambia, Zimbabwe, and Namibia.

How do we Move Ahead?

factwith aboutthe ALN: ALN is the onlyprogramme network in Africa together leading • Withensuring completed inInteresting accordance construction forthat thebrings project; the world’sthat focusworks having are shifted towards law firms in Africa to work together to provide extensive coverage and on-the-ground • Africa, ensuring that the works areAfrican completedexperience. within budget; African governments and the people will need to carefully and actively take • where projects are to be financed, ensuring that the risk allocations in the various project contracts will be acceptable to potential lenders and financiers; and


8 LegalNotes

3

A Plug in the Vent Land Ownership Challenges Hamper Natural Gas Development in Tanzania

Interesting fact about Tanzania: Tanzania is home to the coconut crab, KENYA the world’s largest (and one of the most delicious) crabs in the world. Amish Shah Legal Consultant Adept Chambers amish.shah@adeptchambers.com

Interesting fact about ADEPT Chambers: Adept acted for Cumberland Anjarwalla & Khanna is the largest and Jeppe Star on the sale of Jeppe Star to a consortium of HSBC Investment law firm in equity Eastern Bank and Satya Capital,corporate marking the largest private dealAfrica. of 2010. The

Introduction

firm is ranked first in Kenya by various legal guides, including Chambers Global, IFLR 1000, 500, PLC Which Lawyer WhenLegal a foreigner wishes to own land for foreign

One of the challenges faced by investment purposes, is required to be The legal framework for petroleum and gas and Euromoney Guidethetolandthe World’s exploration companies is the uncertainty identified, Gazetted and allocated to the TIC exploration and development in Tanzania is surrounding the ownership of landLeading for Project Finance Lawyers. which thereafter creates derivative rights in governed by the Petroleum (Exploration and midstream and downstream infrastructure. Aleem TharaniAct, Anjarwalla & Khanna at@africalegalnetwork.com favour of the investor, subject to the investor Production) 1980 (the PEPA) and midstream I I obtaining a Certificate of Incentives. The and downstream petroleum activities are Land Ownership for Investment Tanzania Investment Act, 1997 (the TIA) sets governed by the Petroleum Act, 2008 (the PA) Purposes out minimum capital requirements that must be and the regulations promulgated thereunder. All land in Tanzania is State land, vested in the meet in order to qualify for registration under The Tanzania Petroleum Development President of the United Republic of Tanzania as the TIA. If a project is wholly owned by a Corporation (the TPDC) Is the body responsible trustee for the nation. Statutory leases of up to foreign investor or if a joint venture, the for entering into production sharing agreements ninety-nine (99) years may, however, be Introduction minimum investment capital must not be less (PSA) / development agreements with foreign obtained and are known as granted rights of than the Tanzania Shillings equivalent of USD exploration and development companies. occupancy. These leasehold interests represent 300,000. If the company is locally owned, the title and may developments be sold and encumbered. Land Kenya has seen a significant rise in infrastructure in the recent past, especially in the fields of real minimum investment capital is not less than the The PEPA applies to any naturally occurring may only be held under these statutory leases estate development, energy and transportation infrastructure. This has been caused by various factors including a Tanzania Shillings equivalent of USD 100,000. hydrocarbon, whether in gaseous, liquid or by a citizen of Tanzania or a company which has demand housingThebyPA, theonrising population, infrastructure demands caused Broadly, by growing inwhich the the TIAinvestor applies tointerest businesses solid state for or mixtures. the other a majority Tanzanian shareholding. Foreign meet the investment requirements, as discussed hand, only seems to apply to petroleum, which country and the Government’s Vision 2030 development blue print, whose nationals and foreign companies cannot own aim is to achieve industrialization by above, other than to a business enterprise has been defined to mean petroleum crude and land in Tanzania. A Tanzanian company wholly the year 2030. which is authorised to conduct exploration or any liquid or gas made from petroleum crude, owned by foreigners or majority owned by production operations or to construct or coal, schist, shale, tree, peat or any produce of foreigners can hold land if it holds a Certificate Putting project, be it skyscrapers, roads, power projects a real under estatethedevelopment operate or a pipeline PEPA. However, petroleumtogether crude. Thean PAinfrastructure does not take into of Incentives issued by the Tanzania Investment there are provisions in the TIA which still apply account natural gas. Currently, there is no involves amalgamating several constituent An integral ingredient to any project is the construction Centre elements. (the TIC). to licence holders under the PEPA these legislation in force which specifically relates to contract which sets out the terms and conditions pertaining to the carrying out of the main building worksrelate in to guarantees of transfer of capital, profits and natural gas. One of the challenges faced by respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, dividends and guarantees against expropriation. foreign exploration companies is

Undertaking infrastructure projects in Kenya: Get the contract right!

timing and completion of theGas project. Although there is a draft Natural Policy

the uncertainty surrounding the The Investment Regulations promulgated under which was issued in 2012, it is not in force. ownership of land for midstream the TIA require the TIC to automatically issue a Furthermore, the Gas Supply Bill, 2009 as downstream infrastructure. What should a project contract provideand for? Certificate of Incentives to any investor holding subsequently amended to the Natural Gas Act, 2012 has not passed the mandatory readings The keybyconcerns most developers a project are started as follows: required parliamentfor or been given presidential of 1952 – Tanzania petroleum exploration assent. There is, therefore, a gaping legislative 1974 – First petroleum discovery was made at Songo Songo Island for companies in the 5 – Number ofwith onshore shallow water discoveries of natural made to date • lacuna ensuring that undertaking works arework completed in accordance theand construction programme for gas thefields project; natural gas sector, especially in the midstream 2 – Number of gas fields producing natural gas. These are in Songo Songo and Mnazi Bay • and ensuring that the works are completed within budget; downstream sector. 29 – Number of exploration licences granted to the TPDC

• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.


3

LegalNotes 9

KENYA

Anjarwalla & Khanna is the largest corporate law firm in Eastern Africa. The firm is ranked first in Kenya by various legal guides, including Chambers Global, IFLR 1000, Legal 500, PLC Which Lawyer and Euromoney Guide to the World’s Leading Project Finance Lawyers. Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com

Undertaking infrastructure projects in Kenya: Get the contract right! Introduction a licence under the PEPA. In practice, however, oil and gas exploration Kenya has seen a significant rise in infrastructure developmentsWith in the recent past, especially in the fields of real the recent gas discoveries made in Tanzania the and production companies are not automatically issued with a Certificate estate development, energy and transportation infrastructure. This has been causedgasbyreserves varioushave factors including a estimated recoverable increased to of Incentives and therefore cannot rely on the provisions of the land 30 and 40caused trillion cubic feet. demand forallows housing by company the rising population, demands by growing investor interest in the laws which a foreign to hold land under ainfrastructure derivative title. Government authorities argue that because exploration/ country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by development activities are governed by the relevant PSA/development should the TPDC lose its title over the land for whatever reason, then the the year 2030. agreement and since PSA’s/development agreements are issued pursuant to the PEPA, the provisions of the TIA are not applicable.

infrastructure on the land could be affected. This creates an operational risk for an natural gas investor.

Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development Developments in the Natural Gasconstituent Sector a project financing to perspective, the uncertainty raises issues for involves amalgamating several elements. An From integral ingredient any project is the construction With the recent gas discoveries made in Tanzania the estimated lenders as they would often require a strong guaranteed to act in as contract which sets out the terms and conditions pertaining to the carrying out of the main buildingtitle works recoverable gas reserves have increased to 30 and 40 trillion cubic feet. security for financing. Where an investor only holds a long term lease respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, (say from the TPDC), the lenders would only be able to create a security timing completion the project. Certain and foreign companies areofplanning to develop liquefied natural gas with the consent of the title holder. terminal(s), but as discussed above, such ambitions would face challenges in obtaining land under a derivative title from the TIC. These What should a project contract provide for? companies would instead have to hold some form of long term lease from the TPDC, which would hold the land as envisaged under the The key Gas concerns for most developers ofarrangement a project are as Natural Policy, 2012. The concern with this is that

Conclusion

It is clear that there is a legislative lacuna that needs to be quickly addressed in order to guarantee the future of natural gas development in follows: Tanzania. There are discussions in Government for the need to amend the land laws to guarantee land ownership for natural gas development or to make special concessionsfor under laws. Investors will There is currently no legislation in force which specifically ensuring that works are completed in accordance withinvestors the construction programme theexisting project; have to wait and see if changes will be implemented in the near future, relates to natural gas. ensuring that the works are completed within budget; as momentum by foreign exploration/development companies mounts. •

• • • where projects are to be financed, ensuring that the risk allocations in the various project contracts will be acceptable to potential lenders and financiers; and


10 LegalNotes

3

Building Blocks Public Private Partnerships and Kenya’s Infrastructure Deficit

KENYA

Rosa Nduati-Mutero Partner Anjarwalla & Khanna rn@nbi.africalegalnetwork.com

Introduction

Anjarwalla Khanna is the largest Edwin&Baru Lawyer corporate law firm in Eastern Africa. The Anjarwalla & Khanna

firm is ebm@africalegalnetwork.com ranked first in Kenya by various legal guides, including Chambers Global, IFLR 1000, Legal 500, PLC Which Lawyer

Kenya, under its developmental blueprint “Vision 2030”, aims at achieving middle-income status with Guide a high quality of life for all its andcountry Euromoney to the World’s citizens by the year 2030. Although the economy has shown steady growth averaging 4.82 per cent between 2004 to 2013, the country needs Leading Project Finance Lawyers. to achieve and maintain an annual growth rate of 20 per cent for the next 20 years to achieve middle-income country status.

Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com

The government has been encouraging participation of private parties in developing public infrastructure through Public Private Partnerships (PPPs) in a bid to bridge the yawning infrastructure deficit. These efforts have initially been centered on creating a favorable environment to encourage the uptake Introduction of PPPs through creation of a legal framework, engaging investors and government entities. Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real As Engineer Stanley Kamau, head of the PPP estate energy andstates, transportation infrastructure. This has been caused by various factors including a Unit at development, the Kenya National Treasury “[we] as a for government, create population, an demand housingarebytrying thetorising infrastructure demands caused by growing investor interest in the enabling environment and a mechanism for country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by

Undertaking infrastructure projects in Kenya: Get the contract right!

supporting PPPs.”

the year 2030. The PPP Act

The Publictogether Private Partnerships, Act 2013 (the Putting an infrastructure project, be it skyscrapers, roads, power projects or a real estate development Act) was assented to on 14 January 2013 and or charges to consumers; and is generally liable Projects involves amalgamating several constituent elements. An integral ingredient to any Under projecttheisAct the construction came to effect on 22 February 2013. The Act for risks arising from performance of the Before undertaking any project, a Contracting contract which sets out the terms and conditions pertaining to the carrying out of the main building works in repealed the PPP regulations under the Public function in accordance with the project Authority must first assess the advantages of respect of the A well that is clear on the terms could have a significant effect on the cost, Procurement and project. Disposal Act, No. 3drafted of 2005 contract agreement. using a PPP over developing the facility or (PPDA) and and completion PPP arrangements the timing of theunder project. providing the service itself based on three Privatisation Act, 2005.

The Act applies to projects for the financing, indicators: construction, operation, equipping or What should a project contract provide for? The Act defines a PPP as an arrangement maintenance of infrastructure or development Although the economy has shown between a state department, agency, state of a facility or the provision of public services steady growth averaging 4.82 per corporation or county government The key concerns for most (Contracting developers ofundertaken a projectasare asAfollows: PPPs. plain reading of the Act cent between 2004 to 2013, the Authority) and a private party, where the suggests that contractual arrangements country needs to achieve and party performs a public function or between the government and a private party • private ensuring that works are completed in accordance with the construction programme foranthe project; maintain annual growth rate of 20 provides a service on behalf of the Contracting for the exploitation of a natural resource, such per cent for the next 20 years to • Authority; ensuring that the works are incompleted within budget; receives a benefit for it either the as building a dam or a mining concession would achieve middle-income country status. • formwhere projectsfrom area to befund financed, ensuring the ofrisk allocations in the various project contracts will be of compensation public and/ fall under thethat definition a PPP.

acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.


3

(i) value for money, (ii) affordability for the Contracting Authority and (iii) the end users and appropriate transfer of risks to the private party. Projects can either be solicited bids or privately-initiated proposals. Solicited bids For a solicited bid, a Contracting Authority conceptualizes the projects it wishes to undertake and submits a list of these projects for approval by the PPP Unit, PPP Committee and the Cabinet.

LegalNotes 11

The Act fails to clarify whether projects that qualify as PPPs are also subject to the PPDA.

Inadequate funding: A recurring challenge is lack of adequate funds, compounded by the absence of a long-term lending market. It has been reported that Kenya will only undertake 6 PPP projects out of the 160 important projects in the first 5 years due to inadequate finances. There is a lack of local players in the long-term KENYA lending market which is currently dominated by Development Finance Institutions (DFIs).

by the Cabinet Secretary. These 13 arrangements include; i) Management contract; Anjarwalla ii) Lease; iii) iv) v)

& Khanna is the largest

Concession; Overlap other laws: A glaring challenge corporate lawwith firm in Eastern Africa. The is Build-own-operate-transfer scheme; that the Act fails to clarify whether projects that firm is ranked first in Kenya by various Rehabilitate-operate-and-transfer; or qualify as PPPs are also subject to the PPDA. legal guides, including Chambers Global, a Land swap. This poses a serious setback in implementing

Draft PPP Regulations 2013 (the Regulations)

PPP asLegal the PPDA its ownLawyer processes IFLR 1000, 500,contains PLC Which

required to be Guide followed. to the World’s and Euromoney Once the project is on the National Priority List, Project Finance Lawyers. The National Treasury recently circulated Leading draft the relevant Contracting Authority conducts a Conclusion sectorTharani diagnostic study and submitsI at@africalegalnetwork.com a project Regulations for public comment. Although the The Act has introduced a firm legal base upon Aleem & Khanna I Anjarwalla Regulations were mostly well received, the proposal for approval to the PPP Unit. If which PPP projects can be undertaken in Kenya approved, a competitive bidding process begins business community has voiced concern that and with the devolved system of government, with private parties applying for prequalification the Regulations are heavily skewed in favour we are likely to see increasing interest in of the Government. followed by technical and financial bids by the infrastructure projects undertaken as PPPs in

Undertaking infrastructure projects in Kenya: prequalified parties. Get the contract right!

the future. The success of the Act will however The Regulations are expected to provide for rest in the ability of the Regulations to either thresholds for the application of the Act and for give confidence or discourage investors The successful party then establishes a project Introduction projects which can be undertaken by County interested in undertaking PPP projects in the company in which the Contracting Authority Governments without necessarily getting Country. • may be a minority shareholder. Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real approval from cabinet. This is welcome as most estate development, energy and transportation infrastructure. has been of the small-to-medium-sized This PPP projects will caused by various factors including a Privately initiated bid A single PPP project requires the at the Countydemands level. A private party may field by a PPP a be undertaken demand for housing theproject risingtopopulation, infrastructure caused by growing investor interest in the involvement and collaboration of Contracting Authority without going through country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization many government agencies and by Challenges in Implementing competitive bidding where: departments. the year 2030. the Act i) There is an urgent need for continuity; Managing expectations: PPPs involve heavy ii) Costs relating to intellectual property in planning logistics which roads, may takepower at least projects or a real estate development relation to the design are Putting together an project infrastructure project, be itandskyscrapers, Interesting fact about Kenya: 3 years before implementation commences. substantial; involves amalgamating several constituent elements. An integral ingredient toKenya any was project the construction Africa’sisfirst geothermal power iii) There exists only one person capable of Most people are unaware of the time required contract which sets out the terms and conditions pertaining to the carrying out of the building producer andmain is the world leaderworks in the in for matters such as the mobilisation of capital undertaking the project; or number of solar power systems respect ofexists the project. A circumstance well draftedas contract thatapprovals is clearlike onenvironment the termsimpact could have a significant effect on installed the cost, and multiple iv) There any of the per capita. timing completion ofprescribe. the project. assessments. It is, therefore, important that theand Cabinet Secretary may the expectations of the public and policy The Contracting Authority then submits the Interesting fact about proposal to the PPP Unit for approval which if makers are managed. Anjarwalla & Khanna: What should a project contract provide for? approved, negotiations can commence with the First Sub-Saharan African law firm Generating synergy: A single PPP project private party. to achieve financial close on a large the involvement and collaboration of The key concerns for most developers ofrequires a project are as follows: power project. A&K was the lead legal many government agencies and departments. Project Agreements adviser for the project sponsors on the Consultations between the various departments All project agreements are subject to the laws development an 83 MW HFO power • ensuring that works are completed (including in accordance with the construction programme forofthe project; between National and County of Kenya and must fall within the 13 generation facility. • arrangements ensuringprovided that the works completed within budget; governments) are therefore central to a PPP in the Secondare Schedule • of thewhere are to be approved financed,project. ensuring that the risk allocations in the various project contracts will be Act or projects any other arrangement

acceptable to potential lenders and financiers; and


12 LegalNotes

3

Diamonds Unearthed An Overview of Mining in Botswana

KENYA Rizwan Desai Senior Partner Collins Newman & Co. rizwan.desai@collinsnewman.bw

Introduction The mining industry in Botswana has dominated the national economy since the early 1990s. Botswana is most famous for its diamond industry, which was for many years Idominated Aleem Tharani & Khanna at@africalegalnetwork.com I Anjarwalla by South African giant, De Beers, in partnership with the Botswana Government. De Beers began exploring for diamond in Botswana in 1955, a time when the country’s economy survived on agriculture. And, hence, Botswana’s rise to be a leading global exporter of diamonds Introduction began.

Krupali Rai Paralegal Anjarwalla & Khanna is the& Co. largest Collins Newman krupali.rai@collinsnewman.bw corporate law firm in Eastern Africa. The

firm is ranked first in Kenya by various legal guides, including Chambers Global, IFLR 1000, Legal 500, PLC Which Lawyer and Euromoney Guide to the World’s Leading Project Finance Lawyers.

Undertaking infrastructure projects in Kenya: Get the contract right! Mineral Legislation Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real As the mineral sector grew, the Government estate development, energy andmineral transportation infrastructure. been caused by various factors including a (d) Creating employmentThis andhastraining recognised the need to update existing opportunities for Botswana demand housing byThe the Mines rising and population, infrastructure demands caused (b) by growing interest in tothe a retention investor licence, which is granted the regulationfor pragmatically. (e) Vesting all mineral rights in the Republic. licensee over a prospecting area for Minerals Act of 1977 has been amended to country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by periods not exceeding 3 years. Licensees incorporate changes designed to facilitate the the year 2030. Acquiring Mineral Rights

must provide the Director of Geological issuing of exploration and mining licences and Survey and the Director of Mines with to make Government participation in new Applications for mineral rights are made to the Minister Minerals, Energy Waterprojects Putting together an infrastructure project, be itofskyscrapers, roads,andpower or a real estate development quarterly activity reports and annual developments more attractive to investors. The Resources through the Geological Survey financial reports. They must also current Mines and Minerals Act (the Act) was involves amalgamating several constituent elements. An integral ingredient to any project is the construction Department (exploration) or the Department of immediately provide the Minister enacted in July 1999. contract which sets out the terms and Mines conditions pertaining to the carrying out of the main building works in (mining). There are three types of mineral (via the Director of Mines) results of respect of the project. A well is clear on the terms could havestudies, a significant on theincluding cost, rights inthat Botswana: surveys effect and tests, Botswana’s general mining policydrafted aims atcontract

timing andthecompletion of the project. maximising national economic benefit from

analytical metallurgical, mineralogical and geophysical work. development of mineral resources. This is to be (a) a prospecting licence, which is restricted to a maximum area of 1000km2. It is valid (c) a mining licence, which is only issued to achieved through: What should a project contract provide for? for 3 years and may be renewed for a prospecting licensee over the ore (a) Encouraging prospecting and new mine further two periods of 2 years each. The deposit in question. The application development The concernsmining for most developers are as follows: licence holder is among others, requires to must be made by a company resident (b) key Negotiating agreements which of a project submit activity reports to the Minister and in Botswana which intends to carry on the maximise the net national economic once a mineral discovery is made, this is sole business of mining under the mining benefits resulting from mine operations • ensuring that works are completed in accordance with the construction programme for the project; required to be notified to the Minister. The licence applied for. The licence is valid up (c) Generating linkages with the rest of the • ensuring that the works are completed within budget; licensee may apply for a mining licence to 25 years and may be renewed for economy and increasing local value added • where that the risk allocations in the various project be upon discovery. another period not contracts exceeding 25will years. services projects are to be financed, ensuring

acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.


3 The rights may be granted to an individual or company as provided for in the Act.

LegalNotes 13

retains the right to acquire a minority interest, this will now generally be up to a maximum of 15 per cent and will be on commercial terms with the Government paying its pro-rata share of costs incurred.

Coordinating Agency which promotes the use of an environmental impact assessment. Sectorally, the regulations under the Act contain The key feature of the revised licensing regime detailed requirements for environment control. is that the whole process from prospecting to The holder of a mineral concession is obligated mining would be automatic and predictable, to conduct his operations in such a manner as removing some of the uncertainty and stages of Minimum controls are exercised on business to preserve as much as possible the natural KENYA negotiation which previously existed. The main operations and the management is left entirely environment; minimise and control waste or innovation was the introduction of the retention to the private sector partner. undue loss of or damage to natural and licence, designed to accommodate explorers Anjarwalla & resources; Khanna the largest biological and is to prevent, and where who on making a discovery, find that it cannot Taxation of mining companies outside the unavoidable, promptly treat pollution and corporate law firm in Eastern Africa. The immediately be mined economically. Previously, diamond industry has also been revised with a contamination of the environment. firm is ranked first in Kenya by various prospective mining investors would have lost variable rate income tax replacing projecttheir entitlement if they were not able to bring specific rates. legal guides, including Chambers Global, Conclusion a resource into production. The Government of Botswana has undertaken IFLR 1000, Legal 500, PLC Which Lawyer a Royalty rates are calculated as a percentage of deliberate commitment to derive maximum and Euromoney Guide to the World’s The Government’s Stake the gross market value of the mineral and are benefit from the entire diamond value chain in LeadingtheProject Lawyers. The Government of Botswana insists on currently 10 per cent for precious stones countryFinance which has led, inter alia, to the effective participation in the mineral sector (including diamonds), 5 per cent for radioactive relocation of the De Beers marketing and selling Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com through equity participation and board minerals, precious metals, semi-precious stones arm, Diamond Trading Company, from Europe representation. and coal and 3 per cent for all other minerals, to Botswana which will initiate the much including building and industrial mineral needed critical mass for secondary diamond Generally, for large projects, Government products. trading in Botswana. participation falls within the range of 15 per cent to 25 per cent issued free of cost. With Environmental Obligations The current legislative, political and business regard to new mines, while the Government Botswana has a National Conservation Strategy environment, in addition to the Government’s Introduction

Undertaking infrastructure projects in Kenya: Get the contract right!

stewardship of Botswana’s mineral resources has led to the recognition of Botswana, Kenya has seen a significant rise in infrastructure developments in the recentbypast, especially in the fields of real the Fraser Institute, as one of the top 5 estate development, energy and transportation infrastructure. This has been caused including a countriesby in various the worldfactors for mining investment demand for housing by the rising population, infrastructure demands causedinby2012. growing investor interest in the

country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by With the progressive developments made the year 2030. by the Government, it is expected that Botswana’s position as a diamond producer

can onlyor go a up.real • estate development Putting together an infrastructure project, be it skyscrapers, roads, power projects involves amalgamating several constituent elements. An integral ingredient to any project is the construction Interesting fact about Botswana: contract which sets out the terms and conditions pertaining to the carrying out of the main building works in Botswana’s currency is called the Pula respect of the project. A well drafted contract that is clear on the terms could have a means significant effect on the (which “rain” in Setswana, the cost, timing and completion of the project. local language).

What should a project contract provide for? The key concerns for most developers of a project are as follows:

Interesting fact about Collins Newman: Collins Newman has a well-developed and dedicated mining practice covering all aspects of mining and resources law, and has been involved in the largest infrastructure projects in Botswana. programme for the project; Interestingly, diamond mining uses water, rather than chemicals, for extraction.

• ensuring that works are completed in accordance with the construction • ensuring that the works are completed within budget; • where projects are to be financed, ensuring that the risk allocations in the various project contracts will be acceptable to potential lenders and financiers; and


3

14 LegalNotes

Consumer Protection in Kenya Away with the Fine Print!

Interesting fact about Kenya: Jomo Kenyatta International Airport is the biggest KENYA airport in East Africa. Nafysa Adam Principal Associate Anjarwalla & Khanna naa@africalegalnetwork.com

Introduction

Anjarwalla & Khanna is & Khanna: the largest Interesting fact about Anjarwalla With 54 lawyers, A&K is the lawAfrica. firm in corporate law firm inbiggest Eastern East Africa.

The

firm is ranked first in Kenya by various legal guides, including Chambers Global, IFLR 1000, Legal 500, PLC Which Lawyer

and English common law. The lack of a single and Euromoney Guide to the In the last 3 years, Kenya has witnessed encompassing legislation was a challenge to Leading Project Finance Lawyers. significant changes in the area of consumer enforcement. protection. Many of the legal rights of Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com consumers are now enshrined in written law and There was no statutory designated body dealing consumer lobby groups are slowly beginning to with consumer affairs, and the Consumer gather momentum. The Constitution of Kenya Federation of Kenya (COFEK) was registered provides that consumers have the right to by a cross-section of interested parties in 2010. goods and services of reasonable quality. COFEK provides legal advice and institutes

World’s

Undertaking infrastructure projects in Kenya: Get the contract right! legal proceedings in matters touching

on In addition, consumers have the right to consumer protection. For instance, in 2012, Introduction information necessary for them to gain benefit COFEK instituted proceedings against the from goods and services, protection of their Communication Commission of Kenya to stop Kenya seen significant rise inandinfrastructure developments recent past, especially in the fields of real health, has safety anda economic interests them from effecting their noticein to the switch off automatically incorporates compensation for loss orenergy injury arising from analogue signal transmission inThis a bidhas to have the caused The estate development, and transportation infrastructure. been by CPA various factors including a into consumer agreements certain defects in goods or services. public switch to digital signal. COFEK claimed demand for housing by the rising population, infrastructure demands caused by growing investor interest in the implied conditions and warranties that the CCK had failed to offer sufficient public country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization applying to sale of goods such by The Constitution required Parliament to enact information on digital migration so as to allow as fitness for purpose and the year 2030. legislation to provide for consumer protection consumers the freedom of choice guaranteed merchanteable quality. and for fair, honest and decent advertising. by the Constitution. Pursuant together to this, the Protection Putting an Consumer infrastructure project, be it skyscrapers, roads, power projects or a real estate development Act, 2012 (the CPA) was enacted and became The Competition Act, 2010 and factors, including the relative involves amalgamating several constituent elements. An integral ingredient consider to anyvarious project is the construction operational on 14th March, 2013. Consumer Protection strengths of the bargaining positions. contract which sets out the terms and The conditions to the carrying out of the main building works in Competitionpertaining Act has a number of provisions Historical respect of Background the project. A well drafted contract is clear on theprotection. terms could a the significant effect on the cost,to geared that towards consumer For have Further, Competition Act grants power Prior to the enactment of the CPA, consumer example, the Competition Act makes it the Competition Authority to require suppliers timing and completion of the project. protection was fragmented among various an offence to laws, including the Standards Act, the Trade representations What should a project contract Descriptions Act, the Sale of Goods Act, theprovide conduct for? that is Hire Purchase Act, the Competition Act, 2010 the supply of

to recall their goods if they do not comply with prescribed safety standards.

Under the Competition Act, a person who contravenes any of the provisions in relation to consumer welfare commits an offence and The Constitution of Kenya provides is liable to conviction to imprisonment for a that consumers have the right to ensuring that works are completed in accordance with the construction programme for the project; term not exceeding 5 years and/or to a fine goods and services of reasonable ensuring that the works are completed within budget; In determining whether or not a person has acted not exceeding KES 10 million (approximately quality. unconscionably, thethe Competition Authority may where projects are to be financed, ensuring that risk allocations in the USDvarious 120,000).project contracts will be

The key concerns for most developers • • •

make false and misleading to consumers or engage in unconscionable in relation to goods or services. False or misleading representations of a project are as follows:include false representations that the services or goods are of a particular standard, quality, value or grade.

acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.


3

New Framework The CPA establishes a platform for consumer protection. The CPA automatically incorporates into consumer agreements certain implied conditions and warranties applying to sale of goods such as fitness for purpose and merchanteable quality.

Who is a Consumer? The CPA defines “consumer” widely to include not only the person who buys the goods or services, but also a person who uses the goods or services irrespective of whether they were a party to the purchase transaction.

LegalNotes 15

(b) A lender is not entitled to impose on (b) If a consumer agreement includes an a borrower default charges other than estimate, the supplier shall not charge the reasonable charges in respect of legal consumer an amount that exceeds the c os t s inc u r re d b y t h e l e n d e r i n estimate by more than 10 per cent. attempting to collect payment and (c) A repairer of motor vehicles and other realizing security interest or costs goods shall not charge a consumer for KENYA incurred by the lender in respect of bounced any works or repairs until the repairer first cheques. gives the consumer an estimate unless the & Khanna is estimate the largest (c) A borrower is entitled to pay theAnjarwalla full consumer declines the or gives outstanding balance under a corporate credit the amount that lawrepairer firm ina maximum Eastern Africa. Thehe agreement at any time without any will pay for the works. firm is ranked first in Kenya by various prepayment charge or penalty.

Other Protections

legal guides, including Chambers Global, Conclusion IFLR 1000, 500, PLCway Which GivenLegal the haphazard that Lawyer consumer

Other protections under the CPA include: protection has Guide been dealt in the past, the and Euromoney towiththe World’s (a) Where a consumer, under a future CPA, in many ways, is a welcomed change. It Project Finance Lawyers. performance agreement, has paid atLeading least brings with it a piece of legislation that can two-thirds of his payment obligations, be relied on by consumers, in its entirety, in Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com The CPA establishes the Committee whose the supplier may only re-possess the goods relation to consumer protection. Suppliers, functions include providing advice to or services upon default in payment by on the other hand, need to be aware of its consumers on their rights and responsibilities the consumer by leave from the High far-reaching implications. Only time will tell under appropriate laws, making available Court. how effective the CPA will be in meeting its to consumers general information affecting objectives. • their interests, ensuring relevant action on all aspects of consumer protection and advising Introduction the Cabinet Secretary on matters related to consumer protection. The Kenya Consumers Protection Advisory Committee (the Committee)

Undertaking infrastructure projects in Kenya: Get the contract right!

Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, transportation infrastructure. This has been caused by various factors including a The Committee is made energy up of theand principal secretary for and industry, Attorneydemand fortrade housing by thetherising population, infrastructure demands caused by growing investor interest in the General and persons nominated by the cabinet country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by secretary which include among others, four the year 2030. persons nominated by accredited consumer organizations, professional bodies including the Law Society of Kenya and agencies Putting together an government infrastructure project, be it skyscrapers, roads, power projects or a real estate development including the Kenya Bureau of Standards. involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which out Industry the terms and conditions pertaining to the carrying out of the main building works in The CPA and thesets Banking respect of the project. A well drafted The CPA has significantly changed the game contract that is clear on the terms could have a significant effect on the cost, in the banking industry. There timing and completion ofare theprotections project. offered in relation to credit agreements (a consumer agreement under which a lender What should a project contract provide for? extends credit or lends money to a borrower), including the following: (a) Ifkey a lender under afor credit agreement invites of a project are as follows: The concerns most developers a borrower to defer making payment, the lender must disclose whether or not • interest ensuring that works are completed in accordance with the construction programme for the project; would accrue on the unpaid • amount ensuring thatwhich the works completed within budget; failing lender isare deemed have waived the interest. • towhere projects are to be financed, ensuring that the risk allocations in the various project contracts

acceptable to potential lenders and financiers; and

will be


3

16 LegalNotes

Forex Alert

Zambia’s Move in Monitoring Balance of Payments Interesting fact about Zambia: Because Zambia is a land-locked country, you need to travel 600 miles before seeing an ocean. KENYA

Mutule Museba Associate Musa Dudhia & Co. mmuseba@musadudhia.co.zm

Introduction

Interesting fact about Musa Dudhia: While you are driving through & 1.5 Khanna is the largest Zambia, you can see theAnjarwalla Kafue Dam, a USD billion project Musa Dudhia acted as local counsel on by advising the International Finance Corporation corporate law firm in Eastern Africa. The and the Government of Zambia.

firm is ranked first in Kenya by various legal guides, including Chambers Global, IFLR 1000, 500, PLCdoWhich Lawyer WhilstLegal the Regulations not require written

Registration of Loans

The Government of Zambia will now be able to loan agreements to beto submitted where the The Regulations require any person and Euromoney Guide the World’s monitor borrowings from non-resident lenders who obtains a foreign exchange loan from a parties are not related, it is expected that BoZ Leading Project Finance Lawyers. and remittances out of Zambia. This is after the non-resident lender or who provides a loan to a will request copies of such loan agreements recentTharani introduction of the Bank Iofat@africalegalnetwork.com Zambia Aleem & Khanna non-resident borrower to register the loan with when registering the loans. I Anjarwalla (Monitoring of Balance of Payments) the BoZ through a commercial bank licensed Regulations, Statutory Instrument 55 of 2013 in Zambia (Commercial Bank). However, this Where the transaction involves goods or services (the Regulations), which came into operation requirement to register the loan does not apply which results in an external debt then the on 1 July 2013. The Regulations repealed the borrower will have to provide evidence of the to loans for a period of less than 30 days. Bank of Zambia (Monitoring of Balance of importation and physical delivery into Zambia Payments) Regulations Statutory Instrument The Regulations further provide that, should a of the goods or services which resulted in the Introduction 32 of 2013 (SI 32). subsidiary of a foreign company obtain a loan amount.

Undertaking infrastructure projects in Kenya: Get the contract right!

foreign exchange loan from a parent company, The enactment of the Regulations does not shareholder, partner or affiliated entity, Under the Regulations, a Commercial Bank is Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real appear to introduce any foreign exchange the local borrower shall provide the Commercial only permitted to make inward or outward debt estate development, energynewand transportation been caused by various a restrictions, but have still created concerns service remittances on factors loans thatincluding are registered. Bank withinfrastructure. a signed facility,This loanhas or similar demand housing by theinrising infrastructure caused bythegrowing investor interestproof in the for foreignfor lenders and investors relationpopulation, to case of outward remittances, that agreement and in each casedemands disclose the rate of In foreign exchange payments to and from applicable taxes have been paid is required. interest, duration and the repayment schedule country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by Zambia. of the loan.

the year 2030.

Impact of the Regulations on Foreign

Putting Lenderstogether an infrastructure project, be it skyscrapers, roads, power projects or a real estate development Under theamalgamating Regulations, the Bank of Zambia involves several constituent elements. An integral ingredient to any project is the construction (BoZ) monitors borrowings from non-resident The Regulations contract which sets out the terms and conditions pertaining to the carrying out of the main building works in lenders and the receipt of the principal and require any person respect of the A well drafted that is clear on the terms could have a significant effect on the cost, interest on loansproject. to non-residents. BoZ alsocontractwho obtains a timing of the project. monitorsand any completion amounts remitted out of Zambia foreign exchange whether gratuitous or not, loans granted to loan from a nonnon residents and any payments of interest or What should a project contract provideresident for? lender or principal or an instalment on loans from foreign who provides a loan lenders. to a non resident

The key concerns for most developers of a project are as follows: borrower to register The Regulations affect all capital-intensive the loan with the in Zambia which are largely financed BoZ through a the • projects ensuring that works are completed in accordance with through foreign exchange loans from commercial bank • financial ensuring that the works areZambia. completed within budget; institutions outside licensed in Zambia

construction programme for the project;

• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.


3

LegalNotes 17

A person who contravenes any provision of the Regulations commits an offence and is liable, KENYA upon conviction, to a fine not exceeding approximately USD 3,300 and/or to imprisonment for a & Khanna is the largest period not exceeding 10 years.

Anjarwalla corporate law firm in Eastern Africa. The

firm is ranked first in Kenya by various legal guides, including Chambers Global, IFLR 1000, Legal 500, PLCequipment Which Lawyer complied the pledged capital must be

Persons that contracted loans with foreign borrowers based in Zambia have to the the Euromoney acquitted toGuide the BoZ by World’s producing lenders before the Regulations became with the regulatory requirements underand documentation indicating the operational on 1 July 2013 are required to Regulations. Leading Project Finance Lawyers. monetary equivalent of the capital equipment. The provide the information required for the Aleem TharaniofIaAnjarwalla Khanna at@africalegalnetwork.com Regulations also require an acquittal of the registration debt on or&before 31IJuly 2013. Impact on Foreign Investors monetary equivalent of any non-cash It would appear that the failure to register The Regulations have introduced a requirement component to the BoZ. any foreign exchange loan will proscribe a for foreign investors to open and maintain a Commercial Bank from facilitating inward and foreign currency account with a Commercial The ZDA Act provides that the ZDA may outward debt service remittances in respect Bank. Under the Zambia Development Agency suspend or revoke a licence, permit or certificate to the loans contracted before the operation Act, 2006 (the ZDA Act) a foreign investor is defined as a person who makes direct of registration where it finds that a foreign of the Regulations. Introduction investment in the country and who in the case investor has failed to implement the pledged investment. It, therefore, appears that the Foreign lenders may, therefore, have to take of a natural person is not a citizen or permanent resident of Zambia and, in the case of a to deposit or acquit the of pledged measures to ensure that borrowers based in Kenya has seen a significant rise in infrastructure developments in the recent failure past, especially in the fields real investment would result in the suspension or Zambia have complied with the requirements company, is incorporated outside Zambia estate development, energy and transportation infrastructure. This has been caused by various factors including a revocation of the investment certificate of under the Regulations in order to avoid the risk . demand for housing by the rising population, infrastructure demands caused the byforeign growing investor interest in the investor. of Commercial Banks in Zambia being The ZDA Act provides that for a foreign investor country Government’s Vision development blueas print, whose to be entitled to incentives specified by or aim is to achieve industrialization by proscribedand from the facilitating loan repayments on 2030 ensuring that the works are fit for purposes. under the Income Tax Act or Customs and • Criminal grounds of lack of registration. acceptable to potentialSanctions lenders and financiers; and the year 2030. • where projects are to be financed, ensuring that the risk allocations in the various project contracts will be that the works to are completed budget; Excise Act, it is required to hold an investment • • Inensuring addition the within implications discussed above, ensuring that works are completed in accordance with the construction programme for the project; certificate and be investing not less than The the Regulations make provision for criminal Loan Identification Number key concerns for most developers of a project are as follows: Putting together an infrastructure project, be it skyscrapers, roads, power projects or Aa real estate development should a project contract provide for? sanctions. person who contravenes any The Regulations further require that the loan USD 500,000 or the equivalent in convertible What timing and completion of the project. involves amalgamating several constituent elements. integral ingredientrespect toof theany ison thethe construction in a priorityAn sector or product. provision thecontract Regulations commits aneffect offence project. Aof wellproject drafted that is clear terms could have a significant on the cost, agreements, which are registered, be assigned a currency,

Undertaking infrastructure projects in Kenya: Get the contract right!

contract which sets out the terms and conditions pertaining to the carrying out of the main building works in involves amalgamating several constituent elements. An integral ingredient to any project is the construction Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development

a fine not unique identification number BoZ and contract which sets out bythetheterms and conditions pertaining to the carrying and outisofliable, the upon mainconviction, buildingto works in exceeding approximately USD 3,300 and/or will be maintained in an electronic depository at The Regulations require foreign investors respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, to imprisonment for a period not exceeding the BoZ. To obtain this identification number, holding investment certificates under the ZDA timing and completion of the project. 10 years. the resident borrower will need to provide Act to deposit the pledged cash component of the year 2030. country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by demand for housing by the rising population, infrastructure demands caused by growing investor interest in the estate development, energy and transportation infrastructure. This has been caused by various factors including a Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real

evidence of receipt of the loan amount in a the investment pledged under the investment certificatefor? into the account required to be bank account in aaCommercial and theprovide What should project Bank contract bank account has to be in the name, or for the maintained within the period stated in the investment certificate and to acquit the benefit, of the borrower. The key concerns for most developers ofdeposited a project are as follows: amount to the BoZ. Commercial Banks shall be proscribed from the with Regulations require that thecompleted unique In • registering ensuringloans that without works are in addition, accordance the construction where a foreign investor has pledged capital identification number. Foreign lenders must • ensuring that the works are completed within budget; therefore take measures to ensure that equipment under the investment certificate,

Introduction

Get the contract right! Undertaking infrastructure projects in Kenya:

Conclusion

Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com

Project Financereactions Lawyers. The Regulations have elicitedLeading anxious and Euromoney Guide to the World’s IFLR 1000, Legal 500, PLC Which Lawyer from both local and foreign investors. It will be legal guides, including Chambers Global, firm is ranked first in Kenya by various interesting to see how the Zambian corporate lawGovernment firm in Eastern Africa. The Anjarwalla & Khanna is the largest goes about enforcing the Regulations. •

programme for the project;

KENYA

• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be acceptable to potential lenders and financiers; and 3


18 LegalNotes

3

Opportunities and Challenges Kenya’s Devolved System of Government

KENYA

Aisha Abdallah Partner Anjarwalla & Khanna aa@africalegalnetwork.com

Introduction

Anjarwalla & Khanna is the largest Paul Wanjohi Lawyer corporate law firm in Eastern Africa. The Anjarwalla & Khanna

firm is pwk@africalegalnetwork.com ranked first in Kenya by various legal guides, including Chambers Global, laws while Revenue Finance IFLR 1000, Legaland 500, PLC Which Lawyer

mandated to legislate on national The Kenya Constitution, which was promulgated the Senate is restricted to legislation on matters The Constitution guarantees that a minimum of and Euromoney Guide to the World’s in August 2010, heralds significant changes, affecting the counties. Both chambers are 15 per cent of the total national revenue must Leading Lawyers. required to cooperate on a number of beProject among them being the introduction of the allocatedFinance to the county government. For the overlapping areas. devolved system of government. This financial year 2013/2014, the approved Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com transitioned Kenya from the old national system budgetary allocation to counties stands at At the national level, the President’s powers of government, which was characterized by approximately 32 per cent. This allocation has have been significantly checked. For example, the centralization of political and economic already faced criticism, and governors and the President can only appoint and dismiss power, to a federal system of government, county officials have been clamouring for Cabinet Secretaries with the approval of where resources and power would be equitably increased allocation. A cross-section of Parliament, a power which was hitherto left to distributed in the country. politicians have agitated for a referendum to his unfettered discretion. The Cabinet pass a constitutional amendment increasing the Introduction Secretaries are largely career professionals, a minimum allocation from 15 to 40 per cent. On Implementation of the devolved system departure from the former system where the other hand, some have argued that the commenced after the March 2013 elections. ministers weredevelopments politicians. Kenya has seen a significant rise in infrastructure in the recent past, especially the first fields of real county governments in should demonstrate There are 47 counties, each with its own estate development, transportation infrastructure. This has been caused factors including a prudentby use various of the 32 per cent before requesting executive and legislative energy arm. Theand devolved At the county level, the County Assembly further allocation. system envisages that the by national county demand for housing the and rising population, infrastructure demands caused by growing investor interest in the enacts legislation to enable the county governments are distinct systems of governments to execute their assigned country and the Government’s Vision 2030 development blue print, whose aim is totheachieve industrialization Under Constitution, counties have by the government. functions. It also approves local development power to raise their own revenues through the year 2030. projects, investment decisions and borrowing property and entertainment taxes, fees and Devolution is seen as providing an opportunity by the county governments. The County charges charged on local services, sale of bonds for a break from the corruption and inequitable Putting together an infrastructure project, be it skyscrapers, roads, power or afinancial real estate development Executive Committee exercises executiveprojects and other instruments, borrowings distribution of resources that had hitherto authority at a local level and implements county involves amalgamating several constituent elements. An integral ingredient and to grants any project is the construction from donors. The obvious challenge existed. Kenyans have high expectations: legislation. It is made up of the Governor, will be to balance the fees and taxes charged contract which sets out the terms and conditions pertaining to the carrying out of the main building works in upgraded infrastructure, jobs, better services Deputy Governor and the County Executive by the county governments with those charged respect of the project. A well drafted thatmembers. is clear on the terms could have a significant effect on the cost, and a share of the proverbial national cake, contract Committee by the national government, as ultimately, any to nameand but acompletion few. Unfortunately, majority timing of thetheproject. revenue policies will affect the population. For of Kenyans do not fully understand the fairly The Opportunities and Challenges example, Nairobi County has enacted a County complex new system. Ensuring equity in of Kenya’s Devolved Government Finance law that is set to increase charges in What should a project contract provide for? resources distribution and managing Structure nearly all service areas by margins of up to 100 expectations will be a big challenge – The devolved system has brought with it a per cent. This, if not managed properly, will be decentralization is no for silver-bullet. bag are of fortunes. There are great The key concerns most developers ofmixed a project as follows: counter-productive as it may increase the cost opportunities in terms of decentralisation of of doing business, the cost of living and deter Key Devolution Institutions resources and development. On the other hand, would-be-investors. • Under ensuring that works are completed in accordance with the construction programme for the project; the devolved system, there is a bicameral devolution also portends various challenges. • Parliament ensuring that of thetheworks completed budget; comprised Nationalare Assembly Belowwithin is a sample of the major opportunities A major challenge that will be faced by county governments management of inherited the Senate. The National Assembly is • and where projects are to be financed, ensuring that the risk allocations in the various isproject contracts willdebts be and challenges.

Undertaking infrastructure projects in Kenya: Get the contract right!

acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.


3

LegalNotes 19

KENYA

Anjarwalla & Khanna is the largest corporate law firm in Eastern Africa. The firm is ranked first in Kenya by various legal guides, including Chambers Global, IFLR 1000, Legal 500, PLC Which Lawyer and Euromoney Guide to the World’s Leading Project Finance Lawyers.

Interesting fact about Kenya: Kenya is named after Mt. Kenya – the largest mountain in Kenya.

Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com

Interesting fact about Anjarwalla & Khanna: A&K’s top legal minds have been honoured in 2013: it has been named Top Land Law Firm of the Year by Finance Monthly Law Awards; Banking and Finance Lawyer of the Year Award; by Lawyer Monthly Legal Awards and shortlisted as Law Firm of the Year Award for Africa Oil and Gas Awards.

Undertaking infrastructure projects in Kenya: from their predecessors. Some counties such as derived from the natural resources between Get the contract right! Nairobi County and Mombasa County have national and county governments. A system

will be more clearly set out and any disputes on overlap in functions smoothly resolved, needs to be put in place.

of debts from the needs to be quickly developed as between the defunct city councils and managing such debts two levels of government so as not to dampen Counties are responsible for providing a will be in direct competition with other financial investment and development of Kenya’s amount of the services to theofpeople. Kenya hasofseen a significant rise inasinfrastructure developments in the recent significant past, especially in the fields real resource wealth. obligations the county governments such It is expected that County governments will developmental projects andenergy service provision. estate development, and transportation infrastructure. This has been caused by various factors including a undertake a lot of capital infrastructure projects Devolution of Functions and Powers demand for housing by the rising population, infrastructure demands caused atbythe growing interest the county investor level mostly throughinpublic The functions of both the national and the Natural Resources country and the Government’s Vision 2030 development blue print, whose aim is topartnerships achieve (PPPs). industrialization by private This would create Currently, the national government has the county government have been set out in the opportunities for the private sector to work the 2030.to grant mining licences or Constitution. The national government is in sole year discretion jointly with the county governments. This is charge of overall policy formulation. In addition, enter into production sharing contracts. however an area that needs to be well defined certain key functions of national interest such as Putting together an infrastructure project, be it skyscrapers, roads, power projects a real estate development and theornecessary regulatory and structural With the recent discovery of oil and natural gas national security are the preserve of the national involves amalgamating several constituent elements. An integral ingredient to any project is the construction frameworks put in place to facilitate such PPPs. government. The county government is and good prospects for mining and other contract which sets out the are terms andprimarily conditions pertaining todelivery the carrying out of the main building works in mandated with service at the extractive industries, county officials calling Conclusion county that level. isWhile legislating for could their have a significant effect on the cost, for moreofparticipation respect the project.in Athe wellgranting draftedof contract clear on the terms Devolution is intended to promote democracy, exploration mining licences into respective functions, each level of government accountability, self-governance, public timing andandcompletion of and the entry project. production sharing contracts. Turkana, which will be expected to respect the division of participation, accessibility of services and lies in Northern Kenya, has recently seen major functions. Cracks are already starting to emerge equitable sharing of resources. What should a project contract for? of powers and responsibility, in the division discoveries of commercially viable oil reservesprovide However, it is a fairly complex and expensive and Kwale in Kenya’s Coastal region has seen as has been witnessed after the natural resource discoveries. In addition, although county process that will take many years to fully the discovery of commercially viable titanium The key concerns for most developers of a project are as follows: implement. There are a lot of opportunities for and rare metals deposits. Areas like the Mui governments are responsible for infrastructural development within the counties, the national individuals, professionals and businesses arising basin are being prospected for coal. • ensuring that works are completed government in accordance with the for construction for the is also responsible development programme out of devolution and ifproject; well handled, Kenyans at budget; the national level. A clear and investors in the country can enjoy the is a strong that argument thereare should be projects • Thereensuring the that works completed within systemthe through which functionsin the benefits that devolution • will be andprojects transparentare sharing of revenues • equitable where to be financed,management ensuring that risk allocations various project promises. contracts inherited huge amounts Introduction

acceptable to potential lenders and financiers; and


3

20 LegalNotes

Foreign Investment Protection in Africa Interesting fact about international arbitration: South Sudan, created in July 2011, joined ICSID in April 2012 and almost immediately had an ICSID case instituted against it in August 2012! Nikhil Desai Associate JMiles & Co. ngd@jmilesarbitration.com

KENYA

Interesting fact about JMiles & Co.: JMiles & Co. has represented clients in cases before tribunals of the ICC in London and Paris, tribunals of LMAA, LCIA, FOSFA andAnjarwalla ad hoc tribunals&in Stockholm, Khanna Zurich is and theGeneva. largest

corporate law firm in Eastern Africa. The ranked globally. first inTo-date Kenya bythan various more 487 BITs benefits to investments made by citizensfirm and is concluded have been entered into by African states African states rely heavily on Foreign Direct companies of the other state and which legal guides, including Chambers Global, of which approximately 70 per cent have been Investment (FDI) as part of their development provides for international dispute resolution IFLR 1000, Legal 500, PLC Which Lawyer signed with non-African counterparties and strategy. Where states are concerned some of mechanisms to settle claims by the investor the World’s around 30 perGuide cent havetobeen signed between To a Euromoney the risks are: failure by the state to safeguard against the host state should they arise.and two African states. foreign investor’s rights; expropriation of qualifying investor, a BIT will provide protections Leading Project Finance Lawyers. property; political instability and ineffective or beyond any protections contained in contractual Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com Protections provided under a BIT corrupt judicial systems to enforce their rights. agreements the investor may have entered into The protections provided under a In recent years, African states have taken with the host state. Rights under a BIT exist as BIT vary depending on the negotiations and several initiatives to increase the protection of a matter of international treaty law and do not agreement between signatory states. However, and legal security offered to its foreign investors depend on the investor being in a contractual generally a BIT will provide that each of the and this has had a correlating effect of relationship with the host state. states guarantee the other state’s investors increasing FDI into Africa. These measures certain substantive protections, such as: BITs and Africa include Bilateral Investment Treaties (BITs). Introduction (a) Protection from expropriation – This The first BIT was entered into in 1959 between protection is considered to be the most Germany and Pakistan in the wake of the ColdWhat are BITs fundamental War and nationalizations which in exposed the As the name suggests, a BIT is an international Kenya has seen a significant rise in infrastructure developments the recent past, especiallyandin traditional the fieldsinvestment of real protection and present in almost all BITs a lack of effective protection for foreign investors. agreement between two states where each estate development, energy and transportation infrastructure. This has been caused by various factors including (b) National Treatment – each state agrees not state agrees to give certain protections and By the end of 2012, there were over 2,500 BITs demand for housing by the rising population, infrastructure demands caused by to growing investor interest in the treat investment by foreign investors less country and the Government’s Vision 2030 development blue print, whose aim isfavorably to achieve by than industrialization investments of its own nationals the year 2030. (c) Fair and Equitable Treatment – requires that states maintain stable and predictable Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development environments consistent with reasonable involves amalgamating several constituent elements. An integral ingredient to investor any project is the construction expectations (MFN) works Treatmentin– contract which sets out the terms and conditions pertaining to the carrying (d) outMost-Favoured-Nation of the main building a host state agrees not treat respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the therelevant cost, investment less favorably than the timing and completion of the project. investment of an investor from any other state Introduction

Undertaking infrastructure projects in Kenya: Get the contract right!

What should a project contract provide for?

The key concerns for most developers of a project are as follows:

According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2013, foreign direct investment (FDI) in Africa programme for the project; grew to USD 50 billion in 2012, a rise of 5 per cent from the previous year.

• ensuring that works are completed in accordance with the construction • ensuring that the works are completed within budget; • where projects are to be financed, ensuring that the risk allocations in the various project contracts will be acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.


3

LegalNotes 21

KENYA

Anjarwalla & Khanna is the largest corporate law firm in Eastern Africa. The firm is ranked first in Kenya by various legal guides, including Chambers Global, IFLR 1000, Legal 500, PLC Which Lawyer and Euromoney Guide to the World’s (e) Repatriation of investment and earning – neither signed nor ratified the ICSID Convention). Leading Project Finance Lawyers. each state permits the unrestricted transfer By ratifying the ICSID Convention, ICSID member The recent “Arab Spring” has given of investments and returns made by states agree to treat an ICSID award as equivalent rise to a steady flow of potential BIT Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com national of the other state to a final judgement of a court in their state. claims in Africa. (f) Dispute Resolution –any breach of the BIT Therefore, ICSID awards are directly enforceable in will entitle the investor to commence ICSID member states and do not have to be arbitration proceedings against the relevant enforced under domestic procedures. Furthermore, state. Some BITs provide for ad hoc the fact that ICSID was formed and remains part Conclusion arbitration while others provide for of the World Bank, acts as a deterrent to states Potential investors wishing to benefit from the institutional arbitration (such as the from failing to honor an ICSID award due to the protections offered by BITs will want to structure Introduction International Chamber of Commerce (ICC) risk of losing World Bank funding and generally their transaction(s) with the particular BITs in and the Permanent Court of Arbitration). looking like an unfriendly investment state. mind, not least to ensure that they and their Kenya a significant rise in infrastructure developments in the recent investment past, especially fields of real Thehas mostseen common forum for investment qualify inasthe“investors” and Due to the confidential nature of certain arbitration is beforeenergy the International estate development, and transportation infrastructure. This has been caused by various factors “investment” under the BIT(s). including a international arbitration institutions it is not Centre for Settlement of Investment demand for housing by the rising population, demands caused by growing investor interest in the possible toinfrastructure state the exact number of BIT claims Disputes (ICSID). Investors should ensure that a particular BIT is country and the Government’s Vision 2030 development print, whose aim is to achieve industrialization by involving an African party.blue However, an indication still in force as some states do not renew their of the use of BITs to bring claims against African the year 2030. ICSID Arbitration BITs after the 10 years expiry period. A recent states can be gleaned from the fact that around ICSID was established under the 1965 example is South Africa which has terminated 22 per cent of all claims registered at ICSID were Washington Convention on the Settlement of its BIT with Economic Union Putting together an infrastructure project, be it skyscrapers, roads, power projects or Belgo-Luxembourg a real estate development against an African state. The recent “Arab Investment Disputes between states and and has announced its intention not to renew involves amalgamating several constituent An tointegral to any project is the construction Spring”elements. has given rise a steadyingredient flow of Nationals of other states (ICSID Convention). 12 other BITs it previously entered into with potential BIT claims in Africa. Four requests for contract which sets international out the terms and conditions pertaining to the carrying other out European of the main building works in ICSID is an impartial forum Union (EU) member states. The arbitration against Egypt were registered at providingof facilities for arbitration of international respect the project. A well drafted contract that is clear on the terms could have a significant effect theAfrican cost, reason for this is that the on South ICSID in the nine-month period from March investment disputes. The autonomous nature of timing and completion of the project. 2011 to December 2011. The cases have been Government feels that first-generation BITs did ICSID means that no national court has the not contain the necessary safeguards to brought (or are about to be brought) under the right to set aside an ICSID award on merits, preserve flexibility in a number of critical policy Egypt-UAE, Egypt-UK, Egypt-Kuwait and EgyptWhat a project contract for? making should it preferable for investment disputesprovide areas. USA BITs, and in relation to investments in with state parties. property development, textile manufacturing With a steady flow of investment coming into The key concerns for most developers ofand a project are as follows: the Egyptian energy industry. There are currently 158 signatories (147 ratified) Africa especially from the exploration and to the ICSID Convention globally of which 44 of exploitation of mineral resources, it is expected 44 of the 54with African have • the 54 ensuring that have works areand completed in accordance thestates construction programme for the project; African states signed ratified that the availability of BITs will be an important signed and ratified the ICSID ICSID Convention (4 African have • the ensuring that the works states are completed within budget; part of the risk management process for foreign Convention. but notprojects ratified andare 6 African have investors in Africa. • • signedwhere to bestates financed, ensuring that the risk allocations in the various project contracts will be

Undertaking infrastructure projects in Kenya: Get the contract right!

acceptable to potential lenders and financiers; and


22 LegalNotes

3

The UAE: Emerging Gateway to Africa Interesting fact about UAE: The UAE has the first indoor ski village and resort in the Middle East.

Holly Voce Associate Anjarwalla Collins & Haidermota h.voce@ach-legal.com

Interesting fact about AC&H: KENYA Anjarwalla Collins & Haidermota – a legal consultancy firm providing corporate/commercial legal services – is the first African firm to be Anjarwalla & Khanna is the largest licensed in Dubai.

corporate law firm in Eastern Africa. The firm is ranked first in Kenya by various

Dubai with its strategic location, world class infrastructure, modern business climate and status as anguides, international business Chambers hub is an excellent legal including Global, gateway into and out of the African continent. Investors are increasingly using Dubai as a base from which to pursue opportunities across IFLR 1000, Legal 500, PLC Which Lawyer Africa and five key sectors have been identified which present significant opportunities for investment, namely: general trade, logistics, tourism, and Euromoney Guide to the World’s agribusiness and finance.

Leading Project Finance Lawyers.

His Excellency Sultan Bin Saeed Al Mansoori, For example, there are free zones for IT, media, Aleem Tharani & Khanna Minister of Economy in the UAE advised that higher education, logistics, trading and general I Anjarwalla I at@africalegalnetwork.com “…UAE investment in Africa is expected to mercantile activity, among others. Free zone increase significantly in the coming years, with companies are entitled to visas for staff that the UAE increasing its economic diversification will be based in the UAE. There are generous efforts.” Over the past decade, Dubai’s non- tax holidays provided by each free zone and oil trade with Africa increased by 700 per cent as there are no exchange controls in the UAE, from USD 2.9 billion in 2002 to USD 23.2 billion repatriation of income is freely permitted. Introduction by 2011.

foreign party enjoys total day to day control and management of the LLC. The main advantages to foreign investors establishing a free zone company or an onshore company are as follows: (a) no personal income or capital gain taxes in the UAE; (b) no corporate taxation; (c) 100 per cent repatriation of capital and profits; Limited Liability Companies (d) no currency restrictions; There is no income or capital gains tax payable A limited liability company (LLC) (onshore (e) excellent support services; and Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real in Dubai and this fact creates a further incentive company) is usually established for purposes (f) easy access to both sea and airports. estate transportation infrastructure. This has been caused by various factors including a to housedevelopment, businesses in the energy Emirates. and In addition, of trading within the local UAE market, demand for housing by double the rising population, demands caused The by growing investorFree interest the UAE enjoys an extensive tax treaty although infrastructure an LLC can still trade internationally. Dubai Airport Zone in the network with over 50 countries (including a An LLC benefits from easier establishment The Dubai Airport Free Zone (the DAFZ) by was country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization number of African countries). procedures in other Gulf Cooperation Council established in 1996 and has become one of the year 2030. (GCC) countries as compared to a free zone the UAE’s fastest growing free zones. DAFZ is Company Establishment company. Under UAE law, LLCs must have currently home to 1,600 companies covering a Putting together an infrastructure project, be it skyscrapers, roads, power a real estate in the UAE a minimum of 2 shareholders of whom oneprojects number or of key industry sectorsdevelopment including aviation, There are different types of corporate bodies must be a UAE national who shall hold 51 freight and logistics, IT and telecommunications, involves amalgamating several constituent elements. An integral ingredient to any project is the construction which can be established in the UAE. The per cent of the registered shares of the LLC. pharmaceuticals, engineering, food and beverage, contract which sets out the terms and conditions pertaining to the carrying out of the main building works in two most common forms which non-Emirati The remaining 49 per cent may be distributed jewellery and cosmetics. respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, businesses utilise are free zone companies among the remaining shareholders at their timing and completion of the project. discretion. It should be noted that the profit/ DAFZ has become the premium free zone due ;and onshore companies. loss distribution need not reflect that of the to its unique advantages such as having: Free Zone Companies individual shareholdings in the LLC. It is possible (a) a strategic location in the heart of Dubai and What should a project contract provide for? A free zone company allows 100 per cent to arrange the affairs of an LLC such that the neighbouring Dubai International Airport; of the shares to be owned by non-Emirati (b) state of the art infrastructure and facilities; The key concerns most developers persons. A free zonefor company will generally of a project are as follows: (c) a one stop shop for all administrative not be licensed to operate within the UAE. Over the past decade, Dubai’s non-oil services; and The UAE have in total more than 30 free zones. trade with Africa increased by 700 (d) easy access to project; the facilities at Dubai • ensuring that works are completed in accordance with the construction programme for the Each free zone is industry specific and has its per cent from USD 2.9 billion in 2002 International Airport with its connectivity • ownensuring that the works are completed to within budget; set of laws and operating procedures. USD 23.2 billion by 2011. to 220 destinations worldwide through

Undertaking infrastructure projects in Kenya: Get the contract right!

• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be 130 airlines. acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.


3

DAFZ provides international investors with attractive business incentives including 100 per cent foreign ownership, a corporate tax holiday for 15 years (renewable for an additional 15 years), no personal income tax, freedom to repatriate both capital and profits, full exemption of import duties and no currency restrictions. DAFZ offers 3 types of companies which can be

LegalNotes 23

either individual or non-individual (or a Conclusion combination of both) with a minimum There is considerable investor interest in Africa, share capital requirement of AED 500,000 especially in the oil and gas sector, agriculture, (USD 136,612); and infrastructure development and mining. (c) a Branch Office being a branch of an existing company which does not have a With the progressive double tax arrangements share capital requirement. that the UAE has entered into withKENYA various Investors establishing a company in the DAFZ African countries, the favourable tax regime, can choose from 3 types of licences: good infrastructure and progressive service Anjarwalla theas largest (a) a Trade Licence for import, export, industry,&theKhanna UAE is wellispoised a gateway

established, each offering different options to distribution and storage of specific into law investment • Africa. The corporate firm in inAfrica. Eastern suit an investors specific business requirements. products; firm is ranked first in Kenya by various These are: (b) a Service Licence for activities as approved (a) a limited liability Free Zone Establishment by DAFZ after consultation with a legal DAFZ guides, including Chambers Global, (FZE) formed with one shareholder, IFLR 1000, Legal 500, PLC Which Lawyer sales executive; and either individual or non-individual with a (c) an Industrial Licence for light manufacturing, DAFZ offers 3 types companies and Euromoney Guide to ofthe World’s minimum share capital requirement of AED which can be established, each processing, assembling and packaging. Leading Project Finance Lawyers. 1,000,000 (USD 273,225); offering different options to suit Additional investor set up support provided (b) a Tharani limitedI Anjarwalla liability Free Zone I Company an investors specific business by DAFZ includes processing visas, residence Aleem & Khanna at@africalegalnetwork.com (FZCO) formed with a minimum of 2 requirements. permits, health cards and medical reports and a maximum of 5 shareholders, for company staff.

Undertaking infrastructure projects in Kenya: Get the contract right! Introduction Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030. Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project. What should a project contract provide for? The key concerns for most developers of a project are as follows: • ensuring that works are completed in accordance with the construction programme for the project; • ensuring that the works are completed within budget; • where projects are to be financed, ensuring that the risk allocations in the various project contracts will be acceptable to potential lenders and financiers; and


3

24 LegalNotes

Representative Deals ALN enjoys close working relationships across its members and an established network of best friends across the African continent. By leveraging the expertise and skills of each member firm, the group offers seamless legal advisory and transactional services, particularly on complex ad multi-jurisdictional matters. ALN’s continued success in advising on cross-border matters comes from its “one firm” approach of collaborating in virtual teams across multiple offices.

KENYA

Anjarwalla is Wananchi the largest Financial Services: A financing by OPIC in the sum of&USDKhanna 82 million to Group (Holdings) Limited and its related companies incorporated in Kenya, Uganda, corporate law firm in Eastern Africa. The Tanzania,  Mauritius and United Arab Emirates for a project involving development of firm is ranked first in Kenya by various television programming, development and operation of satellite management and delivery legal guides, Chambers of business devices, providing broad band internet, dataincluding and telephonic services Global, IFLR 1000, Legal 500, PLC Which Lawyer Infrastructure & Telecoms: Providing and and coordinating corporate investment advice Euromoney Guideandto the World’s in the sum of USD 100 million in 15 countries in Africa to Tech Mahindra, a leading Leading Project Finance Lawyers. communications service provider, which has been contracted by Bharti Airtel to provide Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com to business process outsourcing and telecommunications services in respect of its operations in various African countries

Undertaking infrastructure projects in Kenya: Mining & Minerals: Acting for a Canadian Mining Company on USD 450 million in Zambia on the disposal of interests in a copper mine and defending the company in Get the contract right! Introduction

litigation with a local partner

Oil & Gas: Acting for PTT Exploration and Production Public Company Limited Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real (PTTEP), Thailand’s national and publicly listed petroleum exploration and production estate development, energy and transportation This hasproducers been caused bygas various including a company, infrastructure. and also one of the largest of oil and in Asiafactors in the proposed demand for housing by the rising population, infrastructure caused investor interest in the acquisition of Cove Energydemands plc – a company listedby ongrowing the Alternative Investment Market of the London Stock Exchange which indirectly owns participating interests in various oil and country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by gas exploration blocks in Kenya, Mozambique and Tanzania, including advising PTTEP the year 2030. on petroleum exploration laws and competition laws

Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development Energy: Acting for An Triumph Power Generatingto Company in connection its involves amalgamating several constituent elements. integral ingredient any project is thewith construction an USD150 million, MW thermal in Kenya contract which sets out the terms and development conditionsofpertaining to the83carrying out power of theplant main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project. Agriculture: Acting for Proparco in its facility of USD 23 million to Sugar Corporation of Uganda Limited, a company specialized in planting, growing and processing sugarcane. The loanfor? was to finance expansion of production capacity by supporting out-growers, What should a project contract provide

improving existing plantations under the estate, rehabilitating the factory, purchasing new equipment and refinancing outstanding loans

The key concerns for most developers of a project are as follows:

• ensuring that works are completed Projects in accordance with the construction programme for thePower project; and Infrastructure: Acting as lead advisor to Botswana Corporation on a USD 16 billion Mmamabula coal development project • ensuring that the works are completed within budget; • where projects are to be financed, ensuring that the risk allocations in the various project contracts will be acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.


Expanding

Business Horizons

Horizon Africa Capital is a boutique mergers and acquisitions (M&A) advisory firm headquartered in Nairobi, Kenya Horizon’s primary activities are M&A advisory, capital raising and

finance institutions and commercial banks from which it routinely

corporate financial brokerage in Sub-Saharan Africa.

draws upon to identify investment opportunities and potential investors for transactions in Africa. Our network also includes the ALN, a leading

Our approach is based on providing differentiated, integrated

independent African Association of top tier law firms specializing in

financial advisory services throughout the life of a transaction,

corporate and commercial legal work.

from inception to execution. We have expertise in a number of sectors including Energy, Real Estate, Heavy and Light

Horizon is Global M&A’s first African partner, and its exclusive

Manufacturing, Hospitality, Aviation and Agro-processing.

partner for Kenya. Global M&A is an international partnership of leading independent M&A advisory firms specialized in mid market

Our value proposition is enhanced by the strength and breadth of

transactions in a range of $5M – $500M. As GMA’s Africa partner,

our relationships. Horizon has cultivated a strong global network

Horizon also serves the adjacent territories of Uganda, Tanzania,

of private equity firms, family investment offices, development

Ethiopia, South Sudan, Rwanda, Burundi and Zambia.

HORIZON AFRICA CAPITAL LTD Apollo Centre, 2nd Floor Wing A, Ring Road Parklands P.O. Box 103646, Nairobi 00101, Kenya Tel: +254 20 3742614/5 | Mobile: +254 717 722827 Website: www.horizonafrica.com


ALN Member Firms

ALN

Email: alnhq@africalegalnetwork.com

ALN HEADQUARTERS Port Louis, Mauritius Tel: +230 213 7920 Email: alnhq@africalegalnetwork.com www.africalegalnetwork.com


Legalnotes vol11 no5