Category Archives: Amu

Reading the Tea leaves at Centum, Kenya Airways, Safaricom – Part II

 Follow up from two years ago

Three companies that had their year-end in March 2016 have just published their annual reports which are now found on their individual websites. On Thursday both Centum and Kenya Airways boards will face their shareholders at the annual general meetings (AGM’s). Centum is ending a 9 year dividend drought, and Kenya Airways which had another a record-breaking loss, now believes the worst os now behind them. Meanwhile Safaricom will create 6 ‘mini-Safaricoms’ that operate in six Kenya regions and create more segment products like Blaze.

Centum:

  • Has a (massive 192) page annual report (up from 160 pages), and the company has 37,325 shareholders.
  • Will pay Kshs 665 million in dividend (1/= per share) ending a long dividend drought (since 2009)
  • Significant joint ventures are Amu Power (51%) and Two Rivers Lifestyle Center (50% – following a partial disposal). Old Mutual advanced Kshs 5.7 billion to Two Rivers with the debt convertible to 40% in the equity of Two Rivers, with shareholders loans previously held by AVIC and ICDC offset against the consideration. Further developments at Two Rivers  include luxury apartments, a five-star hotel and residences, a healthcare facility and additional structured parking. Property owners who have purchased plots at Two Rivers include  South Africa’s City Lodge Hotel group who are establishing a three star hotel; and Victoria Bank, who are constructing an office block.
  • The completion of the transaction on disposal of interest in Two Rivers and the acquisition of additional interest in Kilele, Sidian Bank and Almasi resulted in a net gain on disposal recorded in equity of Kshs 2.5 billion.
  • The half-year report will be available online to shareholders who register.
  • NAS, where they own 15% will continue diversifying its income streams by launching two Burger King restaurant franchise outlets in Kenya.
  • Will enter the healthcare business with a significant investment this year
  • Centrum plans to build 20 schools across Africa in the next three to five years, as part of a tripartite consortium with SABIS and Investbridge Capital. The consortium has acquired a suitable site along Kiambu Road that will host the first SABIS school in Sub-Saharan Africa, offering both 8-4-4 and K-12 education curricula with a capacity of up to 1,700 students.
  • In agri-business, Centum incorporated Greenblade Growers and acquired a 120 acre farm in Ol Kalou  that will be used for value addition and will have a capacity to process 10 tonnes of fresh produce per day, to key export markets of Netherlands and later the  UK.
  • Energy: to date, the company has invested Kshs 3.1 billion in the development of two landmark projects – Amu Power and Akiira One Geothermal.
  • At the AGM, Centum Chairman James Muguiyi, retires after 13 years and also the Principal Secretary – Ministry of Industry, Trade and Cooperatives, (representing the Kenya government) will retire from the board and not seek re-election.
  • Shareholders will be asked to approve the incorporation of Zohari Leasing, Rea Power Company,  Le Marina  (Uganda) and Two Rivers Development Phase Two. Also that the acquisition of 100% shares of Vipingo Estates and an additional 29% of Longhorn Publishers be ratified (they paid Kshs 393 million for the new shares).
  • Shareholders will also approve a name change from Centum Investment Ltd. to Centum Investment PLC.
  • Shareholders will approve an indemnity of the company directors .. against all relevant loss including any liability incurred by him (her) in defending any civil or criminal proceedings.. the directors may decide to purchase and maintain insurance, at the expense of the company.

Kenya Airways (KQ) kq-ticket-sleeve-old-style

  • The report is 149 pages (up from 130 pages) and KQ has 78,577 shareholders (a slight increase as  their share price has dipped)
  • The Group operates domestic flights and flies to 53 destinations in Africa, Middle East, Asia and Europe.
  • After their 31 March 2016 year-end, they received Kshs 10 billion from the Government of Kenya, (being the second and final tranche of the KShs 20 billion (US$ 200 million) bridge financing that has been on-lend from African Export–Import Bank (Afreximbank), and they sub-leased two Boeing 787 & three Boeing 777-300 aircraft as part of the turnaround initiatives in order to improve its liquidity position.
  •  JamboJet tax losses stood at Kshs 856 million, and Kenyan income tax laws allow for carry forward of tax losses for a maximum period of 10 years.
  • Short term facilities were drawn down from Equity Bank, Jamii Bora Bank, Kenya Commercial Bank, Commercial Bank of Africa, I & M Bank, Chase bank, National Bank of Kenya, Diamond Trust Bank, Co-operative Bank, NIC bank and Eco bank. During the year, the airline negotiated for extended repayment periods for all short-term loans ranging from 4 – 7 years except for Kenya Commercial bank. The Government of Kenya Loan is at 10.20% far much more than previous financing that was at 4-7%. Citi JP Morgan Kshs 78 billion is at 1.5% , Afrexim Bank 23 billion is at 4%, while other short-term Kshs 22 billion is at 9%
  • In addition to the Kenya government, KLM, and IFC, top 10 shareholders now include Mike Maina Kamau, Vijay Kumar Ratilal Shah, Gulamali Ismail and Galot International.
  • They implemented a business class upgrade system in January 2016, under which economy class passengers can bid & buy upgrades to fly on  business class.
  • A total of 63 bird strikes were reported in the year (down from 77 last year).

 Safaricom

  • The report is 172 pages (up from 136 pages) and the company has 600,000 shareholders (down from 660,000).
  • At the AGM a few weeks ago, shareholders approved payment of a dividend for Kshs 0.76 per share for 2016 and also a special bonus dividend of Kshs 0.68 per share.
  • According to a True Value report (they commissioned it, and it was done by KPMG), the total value the company contributed to Kenyan society in FY15 was Kshs 315 billion and they  sustained over 682,000 jobs.
  • Bonga points totaling Kshs 3.2 billion are a liability to be converted to revenue as customers utilize their points
  • Lent Kshs 500 million to Safaricom money transfer services, a subsidiary that derives revenue from international money transfer services.
  • The license  fee for M-pesa dropped from 10% to 5% from August 2015.
  • Donated Kshs 414 million to the Safaricom foundation
  • Spent Kshs 9.3 billion on the National Police Service communication project that’s now 92% complete.
  • They now require all new business partners to sign up to the “code of ethics for businesses in Kenya” during the on boarding process, and 269 companies have signed this.
  • They were fined Kshs 157 million by the Communications Authority of Kenya for not complying with its quality of service thresholds.

Lamu, Kenya and Amu Power – Part II

See Part I of the visit to Lamu with Amu Power

After the morning session with the county officials, we had a chance to visit the planned site of the Amu Power coal plant at Kwasasi, on the mainland. This was my third visit to Lamu in four years, but my first chance to visit the mainland of Lamu County.

The Lamu islands are incredibly beautiful, and once you experience Lamu, you are unlikely to look at Mombasa the same way again. It’s a beautiful place for tourists to visit; boat rides, the endless beaches of Shela, the quaint town with tiny streets, curio shops, friendly residents,  ancient buildings, tasty foods served on roof top restaurants, and a world heritage status conferred on the town.

Also for tourists who come to Lamu, unlike travel to Mombasa where they have to contend with at least an hour of traffic around both Jomo Kenyatta and Moi airports, they can fly to Lamu having skipped the traffic bit by using Wilson airport in Nairobi, while in Lamu, there’s no such thing at traffic – as you land on Manda island, walk 300 meters and get on a boat that can get you to a hotel or villa within ten minutes. But while it’s beautiful for tourists, life is not getting better for residents. The boat rides are expensive, unemployment is high, and education is low, and the land has other challenges.

Mainland jettyTo get to the Kwasasi site, we took a 15-minute boat ride to Mokowe jetty where several taxis were waiting. Mainland Lamu, which borders Somalia about 100 kilometers away, has been in the news over the last two years due to sporadic attacks and incidents, with the most catastrophic being Mpeketoni in June 2014, where 48 people were killed by a terror gang.

The first stop after stepping off the ferry on the mainland was to drive to the local police station to collect some armed policemen that the company had hired for the day. After that it was a long drive over about an hour that covered about 30 kilometers on narrow dry dusty roads. Lamu County is said to have 6 kilometers of tarmac, but this main road on the mainland had none.

Eventually, we got to a Navy base, which also marked the edge of the port area. This was our starting point and we drove along the fence of the navy base, which had a road then away from the fence with satellite tracking devices to pinpoint the coordinates of the corners of the site and this took about two hours to navigate. Amu Power had contracted a landscape architect to produce real life drawings of what the plant would look like in the current environment, and he took several pictures at each corner of the site and strategic points on the road.

Kwasasi 1The site of the plant was a large plain field with sparse bush. This was a shock as I expected to find warehouse sheds, office and residential buildings to mark the edge of a LAPSSET (The Lamu Port Southern Sudan-Ethiopia Transport Corridor) port city. But the place was sparsely populated and devoid of structures or developments.

This was apparently communal land, but there were sticks in the ground to mark boundaries in some places and burnt bushes in other places presumably for cultivation clearing. In some places targeted for LAPSSET projects, speculators in the area have pushed up the price of land five times in the last few years.

Another shock was seeing many women and girls walking along the road with yellow 20-liter drum, full of water. This is an arid area, with few water points and the role of fetching water is one performed by women who walk long distances. We later stopped at one of Amu Power’s CSR projects, which were a series of water tanks at a  central point to which a company lorry delivers water every week for area residents to use. It should not be the business of prospective investors to provide water, but that’s the reality of doing business in many parts of the world, and the water delivery has made life easier, with more to be done.

Hindi water pointAmu Power has plans for the construction of a water desalination plant, which will be the first ever, built in Kenya, and the excess of this will be shared with the local community.

We left just before sunset and asked the taxi driver about the ongoing curfew that was in the area. He said it was still in force, but had been relaxed of late.

After we got back to the Island we had a few more talks to recap the day. Earlier, one of the community leaders has  talked of the challenges Lamu had faced and why it had remained largely unchanged 50 years after independence with issues like  water shortages, transport challenges and lack of roads. He said, while Lamu was poor, there had been resistance to several past attempts to introduce development projects  in the area– including a fertilizer plant, the new port (because it would spoil fishing), and wind power in Shela (because it would spoil the water).

Kwasasi 2The day after the visit, as we prepared to leave and fly back to Nairobi, we started hearing reports of the ongoing attack at the university in Garissa. The full scale of the attack did not become apparent till later in the day.

It is expected that President Uhuru Kenyatta will be in the area in a few weeks to commission the first three berths of the Lamu port that is set to be completed in 2019.

The port, crude oil pipeline, the coal plant in Lamu and Lamu-Garissa-Isiolo Road will raise the profile of Lamu and thus the government’s investments to enhance the security profile of the area. The fringe benefits of this infrastructure will be to open up the Eastern and Northern part of Kenya to development and settlement, the way that the British railway did over 100 years ago between Mombasa and Kisumu.

Clearly, not only is change coming to Lamu, change has to come to Lamu. The LAPSSET projects and the coal plant are about 30 kilometers from Lamu town and the picturesque islands that most people in Lamu are familiar; that’s about the distance from Mombasa island to Diani beach and its possible that the two will coexist and mutually benefit like the South coast neighbours.

Lamu, Kenya and Amu Power: Part I

Earlier this month, I took a trip to the Lamu county at an invitation from the Gulf Energy side of Amu Power, and Gulf are the leading a project that will see the construction of a coal power plant that will generate 980 MW for Kenya.

This is part of an ambitious project by the government to invest in and diversify its future energy generation capacity, from one that’s relied for years on hydropower dams and more recently to diesel, geothermal and wind power sources.

The coal plant to be built by Amu Power is one of several large projects planned by the government for Lamu, and the team from Amu Power has been meeting with various stakeholders over the last few months including sessions with residents of the area, coastal governors, other politicians, and elders.

Amu Power at Lamu meet This one, at the American Centre in Lamu town, saw the Amu Power team meet with their community partners, and local county staff, led by the Lamu county commissioner, district officers and area chiefs, and DO’s. They form a vital link being the government administrators in the community, heading security and intelligence teams, and it was to explain what the company would be doing over the next 3 years.

The 980 MW Coal Plant in Lamu is being built for Kenya’s Ministry of Energy and Petroleum on a build, own, operate and transfer basis for 20 to 25 years. But already, there has been some controversy by some NGO groups who have started a campaign in communities and on social media to stall or discredit the project. By having such sessions with the area leaders, Amu Power were hoping to avoid a repeat of issues such as in Kinangop where residents have delayed a wind power project.

Sanjay Gandhi, a consultant working for Amu Power, explained that coal plants of years past are not built anymore and there is new technology that mitigates the old environmental challenges that come from coal. He noted that all projects have effects on the community, but with good mitigation measures these can be alleviated. The Amu Power plant will be built by Chinese contractors, but to standards set by American institutions. Also the Amu Power offices will be on site and they will live and supervise the plant with full teams of staff for the next 25 years. Sanjay speech Lamu

Sanjay explained that Kenya needs the electricity and that peak demand has gone up from 899 MW in 2005 to 1,470 MW in 2014, with Lamu town itself still powered by diesel generators. KPLC is adding 200,000 customers every year, and it is expected that peak demand for electricity will reach 5,359 MW by 2017.

Coal is also the cheapest form of energy at 7.5 US cents (Kshs 6.30 per unit) compared to geothermal at 9 C, and solar and wind power 12 C /kwh (Kshs 8 per kilowatt-hour). He said coal is the most cost-effective way of generating industrial power, and once you turn it on, the plant will be able to run for 8 months without turning off. Kenya’s ability to add new hydro dams is diminishing and renewable energy sources like wind and solar power are not consistent enough for industries to run.

The government’s only investment will be a through commitment to buy electricity 981.5 MW of electricity at Kshs 6.3 per unit and the Amu Power plant will be built  to handle different types of, whether from Kitui county (where coal has been found), or imported from South Africa, Mozambique, or Indonesia.

Amu Power is planning to complete the plant through 21 months of day and night work; this is  after 7 months were lost in court following the government decision to award them the project. They will build on 870 acres of land that the company will lease from Kenya Ports Authority who are buying land from residents in the area, and while actual boundaries have not all been determined, people have been buying and speculating on land value appreciation in and around the site.

They have identified a Chinese contractor to do the work, and the company wants 1,000 local youth to go to the National Youth Service (NYS) for 6 month training to be ready for work in October. They have started with Pate area and plan to find 100 people in each of the 10 Lamu wards to be trained and employed as masons, brick layers, welders, fitters, riggers, electricians – and if the contractor can’t find local people, they will get others from outside the area.

They estimate that the plant will need 2,000 employees on a full-time basis during construction, and 3,000 at peak. Thereafter, there will also be 500 permanent jobs for 25 years, and while early managers will be Chinese, there will be a requirement for each foreigner to have a Kenyan understudy throughout. There are opportunities for the local community to prepare and provide all that is necessary for these workers, such as housing and food in addition to supplying building materials for the construction. Lamu chiefs

After the talk, there was question and answer session in which local chiefs raised various points of concern including – plans for local fishermen who rely on fish catches for they livelihood, need to re-forest the area, need for completion of school classrooms, need for sea wall rebuilding in some places, a need to train youth in small business skills, the lack of bursaries for school kids, as well as the challenge of combating drugs and alcohol, which were mentioned in the Lamu county development plan. They also raised the issue of controversial payments for land ownership that has happened in some areas of the planned Lamu port.

The county commissioner spoke and appealed to chiefs to look at security in their areas, and talk to people, as ultimately, all Lamu people will benefit from the new Lamu projects. He noted chiefs have a lot of influence and can combat propaganda, as people still believe what a chief says and this has a big impact on communities. He asked the chiefs to look out for issues that concern him including ensuring that no one invades other people’s land, especially with violence, that they curb burning of bushes to eliminate historical land barriers, watch out for illegal cutting of forest trees and ensure that there are no more night weddings / night discos – as they had to put an end to the practice of school girls being married off.

See Part II which includes a visit to the proposed power plant site.