Category Archives: KPLC

KPMG on Kenya Taxes in 2021

KPMG East Africa has a summary of some tax proposals in the Finance Bill that will be used to plug the country’s ambitious Kshs 3.6 trillion 2021/22 budget.

Here are some excerpts

For investors

  • Depositories are to enhance the identity of investors i.e buyers and sellers of securities.
  • Creation of post-retirement medical funds in retirement benefits schemes.
  • Clarifies the definition of an infrastructure bond.
  • A capital markets tribunal shall deal with matters before it within 90 days.
  • Moving from 16% to exempt after July 1, 2021, are the transfer of assets into real estate investment trust (REIT’s) and asset-backed securities.

Competition

  • Opens up reinsurance to players other than Kenya Re to certify reinsurance contracts.
  • Opens the door to private electricity companies; no longer required to offer their supply to the national grid and they are eligible for investment deductions. Also, if government licenses them, they can compete with KPLC.

Prosecutions

  • Tax cases will not stop where there is an ongoing criminal or civil case.
  • Abolishes the amnesty on rental income tax before 2013 (which had since expired).
  • Rewards for informing on tax dodgers; The Kenya Revenue Authority (KRA) can reward up to Kshs 500,000 (up from 100,000) for information and up to 5% or Kshs 5 million of taxes recovered.
  • Taxpayers are to keep records for 7 years and KRA can assess claims of up to 7 years from the date of a taxpayer’s last return.

Digital Taxes and market

  • PIN’s required for digital marketplace transactions.
  • Digital service tax is removed from residents (only applies to non-residents).
  • Non-resident businesses can maintain records in convertible currencies (not necessarily Kenya shillings).

Large investors

  • To stop base erosion and profit shifting, multinationals / ultimate parent companies are required to file a report on their activities (revenue, profit, taxes paid, employees, assets, cash) in Kenya within 12 months of their financial year-end.
  • Ends group VAT registration for groups of companies; each entity will report its own VAT on transactions.
  • To encourage large investments, there is an exemption for import declaration fee (IDF) and railway development levy (RDL) for investments over Kshs 5 billion or with the approval of the Treasury Cabinet Secretary.

Value Added Tax

  • Introduces VAT on bread.
  • Several items move from 16% to exempt, which means the Treasury CS can exempt them on request. These include infants foods, medical ventilators, lab reagents, gas masks, x-ray equipment, anti-malaria kits and doses, and artificial body parts.
  • Also moving from 16% to exempt, are vehicles for oil & mining companies, and equipment for solar & wind generation.

Other

  • A 20% betting tax returns after being briefly for a year.
  • Bank loan fees no longer incur excise duty.
  • Remove a requirement for VAT regulations to be approved ahead by Parliament; instead they will be shared with legislators under the statutory instruments Act.
  • Withholding tax in oil and mining sectors will be 10%
  • Removes the 10 year limit on carrying tax losses
  • Excise tax goes up on motorcycles and is introduced on jewellery and nicotine substitutes.
  • Reintroduces excise duty on locally-manufactured sugar confectionery and white chocolate that was removed in 2019.

E.A. Power & Lighting, 1929

The financial results of the East Africa Power & Lighting Company were published in London in July 1930 and reported by the East African Standard in Nairobi later that month.

Excerpts:

  • Revenue from sales for the year after generation costs was £86,891. Other revenue was £1,334 from the meter department.
  • Repairs, maintenance and distribution cost £11,964, salaries were £11,649, while directors fees and head offices expenses were £5,265, leaving a balance on the revenue account of £65,044.
  • The authorized share capital of the company was £700,000 with £570,000 issued, of which £270,000 are (7%) preference shareholders. Capital expenditure of the company was £432,462, with investments of £50,000.
  • The profit carried forward of Shgs 1,334,797 (equivalent to £66,739/17) was allocated as a dividend of Shgs 378,000 to the preference shareholders, depreciation was Shgs 220,000, to the general reserve was Shgs 60,000, re-issue of capital of Shgs 120,000 and a reduction of capital expenditure of Shgs 45,857.
  • This left a balance of Shgs 330,940 out of which a final dividend of 4% (making a total of 7% for the year) would be paid, and the staff provident fund would get Shgs 60,000, while Shgs 30,490 would be carried forward.
  • The company was negotiating with the Government for permission to develop further hydro-electric resources. The Financial Times described the discussions as “progressive” and that a favourable decision would soon be reached to hasten the execution of the work. They were also considering an additional plant in the Mombasa area to meet the increasing demand.
  • The number of consumers in Nairobi in 1929 was 3,084, an increase from 2,292 in 1927, while Mombasa had 1,424 consumers, an increase from 994 in 1927.
  • Owing to his absence from the Colony, Mr. J. Cumming, who joined the board in 1928, resigned his position as a director. The Hon. D. Finch Hatton was re-elected, while Mr. R. G. Vernon of Nairobi was appointed to fill a temporary vacancy on the board.

More:

  • From KPLC: In 1922, two utilities in Nairobi and Mombasa merged under a new company incorporated as the East African Power and Lighting Company (EAP&L).
  • See a more detailed story on the history of the company and a recent one on investing.

Coal Energy in Kenya

This week, there was a debate on the future of coal in Kenya and its place in the energy mix for the country. It took place at the Strathmore (University) Extractives Industry Centre (SEIC) Nairobi, and was co-hosted by WWF Kenya). The government plans to put up a coal plant on maInland Lamu and a private developer Amu Power was selected to build it, and is seeking approval from the energy regulatory commission to commence construction.

Excerpts:

Coal around the world

  • There are 3 new coal plants in Africa, and Japan & Korea will build 60 new ones to replace their old coal & nuclear ones.
  • There are now more global jobs in solar than coal, and solar has gone from 1 GW production in 2003 to 70 GW this year.
  • Trump got votes from Appalachian coal states where jobs were lost. But coal shares are down as gas has replaced coal.
  • With or without Kenya, the world is going green – Ethiopia aims to get to 100% renewable., Germany gets 20% renewable (all in the last 8 years), US has gone from 2 to 7% renewable (in 10 years), South Africa gets 2 GW from solar, and Rwanda’s 8.5MW solar is the largest in the region.

Lamu

  • No projects happen at Lamu because NGOs on the beach want it to stay marginalized and oppose port, coal, roads etc.
  • Lamu has high unemployment leaving youth exposed to Al-shabab & drugs. This project will have 1,800 jobs for locals.
  • It is not the job of private company to create jobs or improve security in Lamu – that is the government’s role
  • “Save Lamu”  groups oppose the plant because all its side-effects have not been quantified,  and it will destroy far more (fishing) jobs than it creates.

Other Sources and Energy Mix

  • Amu Power’s 1050 MW will add 50% to Kenya’s 2,200 MW electricity from the coal plant that is 20 kilometers from Lamu town.
  • A country’s rate of development depends on availability of cheaper and reliable energy supply. Developed countries get 60% from coal/nuclear and just 3% from renewables on average.
  • Solar is okay for isolated homes, but it will not recover the cost of national power generation and distribution.
  • Geothermal costs $4-5 million per well per well & each one generates 5MW – so how many can Kenya get? It’s very expensive for government & IPP’s who often sink many dry wells
  • Geothermal depends on nature to generate the steam and you can’t tweak the inputs, unlike with coal & nuclear where you can vary the inputs to match demand.
  • Industries need coal. Moyale which gets electricity from Ethiopia hydro only has supply three days a week
  • Even today people on the grid will not turn on electric cookers – the main energy sources in Kenya are charcoal and wood, and they are larger pollutants than coal.
  • Kenya imports all glass because we don’t have the energy to make glass.
  • Coal is Kshs 7.5 per unit compared to kshs 20 from diesel-fired plants.

Environment

  • The US has lake signs that “if you fish here, don’t eat the fish” – Kenya will likewise have to monitor coal pollution risks
  • Kenya emissions (excluding extractives) will be 150 MT of carbon by 2030 and the government has committed to reduce this by 30%. How?
  • How will the plant dispose of the ash, carbon dioxide and acid rain? Lamu does not have infrastructure
  • An EIA (environmental impact assessment) audit process in Kenya is a compromised one. They are done by auditors hired by investors and will never oppose projects.
  • Amu Power will use three new clean coal technologies at the plant.
  • The government must check that industry and investors comply with environmental standards – there was a toxic battery factory in Mombasa. County and national governments need to do their own monitoring.
  • Energy projects are financed by lenders have strict conditions.e .g IFC/World Bank finance many thermal plants, and they can’t allow plants that compromise the environment. The Amu power one is guaranteed by the African Development Bank.

France & Kenya and Renewable Energy

Yesterday there was forum on renewable energy in Nairobi. It was organized by the Embassy of France and the Kenya government to show executives from French energy companies opportunities to invest in renewables and other energy projects in Kenya and Africa. Aqylon, Engie, GreenYellow, Quadran,  Sogea Satom, Total , UrbaSolar, Vegrent, and Vinci representatives were part of the group.

French companies built hydro dams in Kenya

French companies built hydro dams in Kenya

Excerpts

  • Large silent corporations include Engie which produces 3 GW in Africa and Vinci which has EUR  800  million of revenue, and 14,000 staff in Africa.
  • SUNREF from AFD/KAM provides tailored finance for green energy to Kenyan companies through Bank of Africa,  CBA,  Diamond Trust and Cooperative Bank. 11 companies have now been financed, and some that have got SUNREF green energy finance include KTDA, Meru dairy, Strathmore University, and Redland Roses.
  • Kenya has 10 independe power producers (IPP’s) producing 650 MW (28%) of its electricity – shows how vibrant it is for investors.
  • Regional electricity sharing in future: Kenya produces 2,200 MW, Ethiopia 4,284 MW (90% from hydro), Tanzania 1,583 MW (65% from thermal), and Uganda 900 MW (80% from hydro)
  • GreenYellow works with factory, malls, hotels, to finance & build (heat/cold/solar/light) systems that reduce their energy costs by 30%
  • UrbaSolar is working with Kenyatta University on a 100% self-consumption plant that will reduce electricity bills by 80% (20% is night).
  • Total is constructing a 40 MW solar plant at Isiolo with Green Millenia, while Kenya’s rural electrification authority (REA) has got funding to do a 50 MW one near Garissa.
  • KenGen which provides 80% of Kenya’s electricity, has tendered for an Olkaria 5 plant, and will build an industrial park there.
  • There’s opportunity in Kenya off-grid & mini grid electricity, but there’s no legal framework for integrating with the national grid integration & projects sometimes face land acquisition or compensation delays.
  • Solar has not picked up in Kenya, but with drop of photovoltaic prices, there’s lots of interest here now – Energy Permanent Secretary J. Njoroge told the companies..  He also said renewable energy is intermittent – it can only be used up to a certain % of Kenya’s electricity grid supply. Later there was  mention of CSP solar plants which are more complex & expensive than traditional PV ones which but do give stable solar electricity.

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.