Kenya's Independent Power Producers (IPPs) Face Transparency Mandate in Proposed Energy Bill
18 September 2023
Kenya's Independent Power Producers (IPPs) Face Transparency Mandate in Proposed Energy Bill
In a bid to enhance transparency and combat corruption within Kenya's burgeoning power sector, a groundbreaking legislative proposal has emerged in the form of the Energy (Amendment) Bill, 2023. Spearheaded by Nairobi Senator Edwin Sifuna, the bill, if approved by Members of Parliament, will impose stringent disclosure requirements on Independent Power Producers (IPPs) seeking to engage in purchase agreements with the government.
The key provision within the bill mandates that any entity aspiring to enter into an energy purchase agreement must unveil its beneficial ownership in accordance with the Companies Act. Furthermore, the proposed law will require Kenya Power, the primary procuring entity, to publish a comprehensive audit report of agreements inked with power plants and their respective owners' identities. This move ensures that the public gains unhindered access to all pertinent information concerning power purchasing agreements and the individuals or entities behind them within 90 days.
Beyond fostering transparency, the legislation is also aimed at curbing money laundering and corruption. The bill explicitly bars the government from approving power purchasing deals with entities that fail to fully disclose ownership details. Senator Sifuna argues that disclosing beneficial owners and power purchase agreements will bolster investor confidence, promote good corporate governance, and serve as a deterrent against tax evasion, money laundering, corruption, and other illicit activities. Additionally, the bill imposes a requirement for the government to conduct feasibility studies before entering into any power purchase agreements to ensure they address the country's energy deficit.
CAPITAL MARKETS
National Treasury Utilizes Multiple Bond Reopenings to Secure Ksh 222 Billion
In a strategic move aimed at mitigating long-term high-interest commitments, the National Treasury has resorted to multiple reopenings of four short-term bonds, successfully raising Ksh 222 billion since May. These bonds, boasting maturity durations ranging from two to five years, are currently offering elevated interest rates of nearly 18 percent, marking a four-percentage-point increase from their yields just three months ago.
Among the bonds revisited is a 10-year paper initially issued in August 2016, with a remaining maturity of three years. Having raised Ksh 18.3 billion during its inaugural sale seven years ago, it was reopened in July, garnering Ksh 15.7 billion. Subsequently, a tap sale on this reopening brought in an additional Ksh 31.23 billion. This same bond underwent its second reopening this month, concluding with an impressive Ksh 6.6 billion in government proceeds.
Another three-year bond, first introduced in May with an initial raise of Ksh 20.3 billion, underwent three tap sales before the end of June, accumulating an additional Ksh 56.4 billion for the national exchequer. In July, the government initiated the primary sale of a five-year bond, followed by a tap sale. An August reopening of the bond, coupled with a tap sale, pushed the total amount raised from this bond to Ksh 48.6 billion across the four sales.
These strategic moves by the National Treasury serve as a means to balance short-term financial needs with the uncertainty of long-term interest rates, ultimately ensuring greater financial flexibility for the government in these challenging economic times.
REGULATORY
Central Bank of Kenya Requires Money Remittance Providers to Sell Large Foreign Exchange Amounts to Banks
In a recent directive by the Central Bank of Kenya (CBK), money remittance providers (MRPs) are now obligated to sell all daily foreign exchange currency exceeding $100,000 (equivalent to Sh14.7 million) exclusively to commercial banks. This move is seen as a strategic decision to give commercial banks a competitive advantage in the foreign exchange market. MRPs, which facilitate cash remittance services for individuals residing abroad and engage in foreign exchange activities, will need to adhere to this new regulation, aimed at promoting a "fair and orderly" market.
Gerald Nyaoma, the Director of Bank Supervision at the CBK, emphasized the growing involvement of MRPs in the wholesale foreign exchange market without being subjected to the established guidelines, standards, and codes of conduct. As a result, the regulator has imposed restrictions on MRPs, limiting the maximum amount of foreign exchange they can sell to individual customers to $100,000 per day. Any excess amount beyond this threshold must now be channeled exclusively to commercial banks, as specified in the circular issued by Mr. Nyaoma.
Currently, there are 20 institutions authorized by the CBK to conduct both money remittance and forex business, with Dahabshill Money Transfer Limited being the oldest among them, having obtained its license in November 2013
COMPANIES
1. French Oil Giant Rubis Faces Sh3.9 Billion Forex Losses in Kenya Due to Weakening Shilling
French multinational oil company, Rubis, has reported a substantial forex loss of Sh3.9 billion (€25 million) in the Kenyan market during the first half of this year. This financial setback underscores the adverse effects of the continuous depreciation of the Kenyan shilling. Rubis disclosed these losses in its half-year report, highlighting that the local market has been grappling with "extreme currency tensions" since last year.
Like many other players in the oil industry, Rubis has been grappling with the sharp decline of the Kenyan shilling, primarily attributed to challenges in accessing US dollars. Despite witnessing growing sales, the weakening shilling has significantly eroded the company's earnings. The impact of this depreciation on Rubis' forex exchange losses across all markets during the first half of the year is striking, surging to Sh10.13 billion (€66.4 million) from just Sh1.49 billion (€9.8 million) during the same period last year.
Rubis stated in its report, "The half-year was marked by extreme currency tension in Kenya and Nigeria, peaking in the latter country with a 50 percent devaluation of the naira on 8 June, exacerbating the exchange rate losses recorded during the half-year, which reached €66.4 million compared to €9.8 million in 2022." The company's financial outlook remains uncertain as it grapples with the volatile forex market and ongoing currency challenges in Kenya and Nigeria.
2. East African Cables Secures Sh232 Million Deal to Supply Kenya Power
East African Cables (EA Cables), a prominent manufacturer of electrical cables and conductors, has clinched a lucrative contract worth Sh232 million to provide its products to Kenya Power, highlighting the power utility's increasing preference for sourcing materials from domestic manufacturers. The initial shipment of the ordered products was dispatched on Thursday, and CEO Paul Muigai confirmed that the company is well on track to fulfill Kenya Power's extensive order, which will be delivered in multiple batches throughout the remainder of the year.
Mr. Muigai expressed his appreciation for Kenya Power's consistent efforts to support local manufacturers in their procurement processes, aligning with the government's Bottom-Up Economic Transformation Agenda (BETA). He emphasized that this ongoing commitment to placing orders with local manufacturers is poised to have a profoundly positive impact on the local economy.
"As we send off the inaugural shipment, East African Cables proudly acknowledges Kenya Power's continued support for local manufacturers, which serves as a significant boost for national industrialization and economic transformation efforts," commented Muigai. This contract not only bolsters EA Cables but also underscores the importance of domestic manufacturing in Kenya's economic growth strategy.
TAX
Government Plans Tax Increases on Unhealthy Products to Promote Public Health
In a move aimed at promoting healthier living and mitigating the negative consequences of addiction, the Treasury is set to increase taxes on alcohol, cigarettes, betting, and sugar-based products starting in July 2024. The details of this tax strategy were revealed in a draft three-year tax revenue plan. These tax hikes are expected to result in higher prices for the mentioned products, which, according to government officials, will contribute to a reduction in their consumption.
One notable change in the tax regime is the proposal to base taxation on the sugar content of non-alcoholic sugar-sweetened beverages. This measure is intended to discourage the consumption of sugary drinks and combat the prevalence of obesity and diet-related non-communicable diseases. The government has already taken steps in this direction by introducing a tax of Sh242.29 per kilogram on locally manufactured sugar confectionery, including white chocolate, in July.
Additionally, consumers of spirits and other high-alcohol-content products may soon face higher taxes. The Treasury plans to increase excise duty on these products, citing the elevated health risks they pose. To determine the optimal tax rates for different alcoholic products, a quantitative analysis will be conducted. Meanwhile, the taxation of cigarettes and other tobacco products will also see changes, with excise duty rates being harmonized to promote fairness. These adjustments are based on the negative health externalities associated with these products and recommendations from an ongoing study in East African Community partner states.
WHAT YOU MUST HAVE MISSED
A large batch of dollar-denominated loans sourced from banks by oil marketers last year have fallen due, piling pressure on the shilling in spite of the government-backed deal to import fuel on credit.
Bank executives told the Business Daily that oil dealers were settling their loan obligations made last year amid forex shortages, keeping the dollar demand high within the oil industry and eating into the gains of the fuel importation deal. In transactions known as currency swaps, the oil marketers exchanged Kenya shillings for equivalent amounts of dollars with local lenders.
Treasury plans to increase the revenue threshold for a trader to qualify as an agent for collecting value-added tax
Under the draft Medium Term Revenue Strategy, which will run between July 2024 and June 2027, the Treasury has proposed to review upwards the current requirement for a trader to have a minimum of Sh5 million in annual sales to qualify for VAT obligations. The strategy further proposes to harmonize the VAT rate to 18 percent in line with its peers in the seven-nation East African Community trading bloc from the current 16 percent.
EPRA raised fuel prices
"The maximum allowed petroleum pump prices in Nairobi are as follows: Super Petrol increases by Sh16.96, Diesel increases by Sh21.32 per litre and Kerosene increases by Sh33.13 per litre," Epra announced on Thursday.
Super Petrol is up by 16.96 to 211.64, diesel is up by 21.32 to 200.9 and Kerosene is up by 33.13 to 202.61. The prices are inclusive of the 16 percent Value Added Tax in line with the provision of the Finance Act 2023.