Electricity Regulation - Africa Legal Network · KENYA Anjarwalla & Khanna 136 Getting the Deal...

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ElectricityRegulationContributing editorKirsti Massie

2018© Law Business Research 2017

Electricity Regulation 2018

Contributing editorKirsti Massie

White & Case

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Adam [email protected]

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© Law Business Research Ltd 2017No photocopying without a CLA licence. First published 2003Sixteenth editionISSN 1479-3210

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CONTENTS

2 Getting the Deal Through – Electricity Regulation 2018

Global overview 7Kirsti MassieWhite & Case

Angola 8Ricardo Andrade Amaro and Pedro Capitão BarbosaMorais Leitão, Galvão Teles, Soares da Silva & Associados, Sociedade de Advogados, SP, RL

Argentina 13Hugo Martelli Martelli AbogadosRogelio Baratchart Tecnolatina SA

Australia 19Andrew Monotti, Simon Cooke and William OsbornKing & Wood Mallesons

Austria 27Bernd Rajal and Nina ZafoschnigSchönherr Rechtsanwälte GmbH

Belgium 35Arnaud Coibion, Lothar Van Driessche, David Mailleux and Léonore De MullewieLinklaters LLP

Brazil 41Marcello Lobo, Flavia Piras Lodi and Pedro Icaro Lopes VargasPinheiro Neto Advogados

Canada 49Richard J KingOsler, Hoskin & Harcourt LLP

Chile 55José Manuel Larraín and David Acuña BachmannLarraín Rencoret Urzúa Abogados

Costa Rica 64Rubén Zamora-CastroAguilar Castillo Love

Croatia 68Ivana Manovelo, Miran Macesic and Anja GrbesMacesic & Partners LLC

Czech Republic 74Vít Stehlík and David WilhelmWhite & Case (Europe) LLP

Egypt 81Sherief Rashed, Kirsti Massie, Nayera Sherif and Tarek KfouryMHR & Partners in association with White & Case LLP

Germany 86Guido Hermeier and Kristin SpiekermannWhite & Case LLP

Ghana 94Kimathi Kuenyehia, Sarpong Odame and Reginald Nii OdoiKimathi & Partners, Corporate Attorneys

India 104Neeraj Menon, Amit Maheshwari and Arpita ChananaTrilegal

Indonesia 114Arfidea Dwi Saraswati, Gabriella M C Ticoalu and Tara Priscilla OgilvieAKSET Law

Ireland 121Peter McLay, Eoin Cassidy and William CarmodyMason Hayes & Curran

Japan 129Nagahide Sato and Sadayuki MatsudairaNishimura & Asahi

Kenya 136Karim Lalji and Edwin BaruAnjarwalla & Khanna

Korea 142Joonki Yi and Chin Pyo ParkBae, Kim & Lee LLC

Mexico 148Rogelio López-Velarde and Amanda ValdezDentons López Velarde, SC

Mozambique 156Rita Donato and Eliandro BulhaTaciana Peão Lopes & Advogados

Nigeria 162Ike C Ibeku, Ifeyinwa Ufondu and Shammah VidalBenchmac & Ince

Panama 169Erika Villarreal Z, José A Brenes and Ixalondra Chee ChongAnzola Robles & Asociados

Poland 176Michal Zieniewski and Mateusz ZawistowskiWhite & Case M. Studniarek i Wspólnicy – Kancelaria Prawna sp.k.

Portugal 182Ricardo Andrade Amaro and Pedro Capitão BarbosaMorais Leitão, Galvão Teles, Soares da Silva & Associados, Sociedade de Advogados, SP, RL

Russia 189Adam SmithWhite & Case LLC


www.gettingthedealthrough.com 3

CONTENTS

South Africa 196Joz Coetzer, Matthew Richards and Brenda MigwallaWhite & Case LLP

Spain 203Gonzalo Olivera and Alberto ArtésKing & Wood Mallesons

Turkey 209Değer Boden Akalın, Şeyma Olğun and Ayşegül ÖnolBoden Law

United Kingdom 219Kirsti Massie and Katy NormanWhite & Case LLP

United States 228Daniel Hagan, Jane Rueger and John ForbushWhite & Case LLP


KENYA Anjarwalla & Khanna


KenyaKarim Lalji and Edwin BaruAnjarwalla & Khanna

1 Policy and law

What is the government policy and legislative framework for the electricity sector?

Kenya’s energy policy is set out in Sessional Paper No. 4 of 2004 (the Energy Policy). The Energy Policy provides for the regulation of the entire energy sector including electric energy, petroleum and renew-able energy. With respect to the regulation of electricity, the policy con-tains a detailed raft of measures which include: (i) the development of a competitive market structure for the genera-

tion, supply and distribution of electricity; (ii) the establishment a rural electrification authority; and (iii) the promotion of entry of private entities into the sector and the

creation of a new energy regulator.

The policy guidelines under the Energy Policy were effected through the Energy Act, 2006 (the Energy Act). The Energy Act is currently the primary law governing the energy sector in Kenya. The Energy Act provides for the establishment of the Energy Regulatory Commission (ERC) as the single regulatory agency with the responsibility for eco-nomic and technical regulation of the energy sector. A number of regu-lations and guidelines have been promulgated under the Energy Act, including:• The Energy (Electricity Licensing) Regulations, 2012 which set out

the requirements to be fulfilled by any person desiring a licence or permit authorising him or her to take part in the generation, trans-mission, distribution or supply of electrical energy in Kenya.

• The Electric Power (Electrical Installation Work) Rules, 2006 which provide the requirements for the licensing of electricians and electrical contractors.

• The Energy (Complaints and Dispute Resolution) Regulations, 2012 which provide the mechanisms through which the ERC resolves complaints and disputes between a licensee and its customers.

Since the publication of the Energy Policy in 2004, a number of changes have taken place that have presented new challenges and opportuni-ties for the Kenya energy sector. These include growing concerns over climate change, Kenya’s new constitution adopted in 2010 and the long-term development blueprint, Vision 2030, adopted in 2008. This has necessitated the review of the Energy Policy with the government issuing a Draft National Energy and Petroleum Policy dated June 2015. The policy framework proposed under the Draft National Energy and Petroleum Policy is reflected in the Energy Bill, 2017, which has been published and will soon be before Parliament for debate.

The ERC is mandated under the Energy Act come up with national energy plans. In line with this, the ERC established a committee with responsibility for preparing and updating the Least Cost Power Development Plan (LCPDP), which is a 20-year development plan updated annually. The LCPDP is instrumental in identifying the pos-sible investments in the generation and transmission of power in the energy sector in Kenya; it also places a focus on coming up with tech-niques on how the demand for power can be met cost effectively.

The Ministry for Energy and Petroleum issued a Feed-in Tariff Policy in March 2008 (the FiT Policy) (which was later revised in December 2012) relating to the generation of power through wind, biomass, small-hydro, geothermal and solar. The FiT Policy seeks to

promote the generation of electricity from renewable energy sources and allows a power producer to sell renewable-energy-generated elec-tricity to an offtaker at a predetermined tariff for a given period of time. We, however, understand that the ERC is currently drafting new regu-lations to move away from the current FiT regime to a system based on competitive auction for renewable energy projects. Currently, the FiT Policy allows the award of projects without a requirement for tendering.

There are also numerous other laws which have an impact on the energy sector. Key among these include the Land Act, 2012, the Public Finance Management Act, 2012, the National Construction Authority Act, 2011, the Environmental Management and Coordination Act, 1999, the Public Private Partnerships Act 2013 and the Geothermal Resources Act, 1982.

The institutional framework in the Kenya electricity sector includes: • Ministry of Energy and Petroleum: this is the government ministry

in charge of creating energy policies and setting the strategic direc-tion for the growth of the energy sector.

• Energy Regulatory Commission: an independent body set up under the Energy Act to regulate the energy sector. Its functions include: issuing licenses and permits for all undertakings in the energy sec-tor; proposing regulations to the minister; enforcing compliance with sector regulations; setting and reviewing electric power tar-iffs and tariff structures; and approving all contracts for the sale of electrical energy (ie, power purchase agreements), transmission or distribution services.

• Energy Tribunal: an independent statutory tribunal set up under the Energy Act to hear appeals from the decisions made by the ERC.

• Rural Electrification Authority (REA): set up under the Energy Act and mandated to accelerate the pace of rural electrification across the country.

• Kenya Electricity Generating Company Limited (KenGen): a state corporation in charge of generating the majority of the electricity consumed in Kenya. Currently, KenGen produces about 72 per cent of electric power in Kenya with the remaining amount generated by independent power producers (IPPs). KenGen is listed on the Nairobi Securities Exchange (NSE) after the government of Kenya sold 30 per cent of its stake in the company in 2006.

• Kenya Power and Lighting Company Ltd (KPLC): KPLC’s man-date is the transmission and distribution of electricity. In exercis-ing this mandate, it is responsible for purchasing electrical energy in bulk from KenGen and other IPPs through bilateral agreements or through power purchase agreements approved by the ERC. The government has a controlling stake at 50.1 per cent of shareholding with private investors at 49.9 per cent. Kenya Power is listed on the NSE.

• Kenya Electricity Transmission Company Limited (KETRACO): KETRACO is a wholly state-owned company tasked with develop-ing the national transmission grid network and facilitating trade in electric power through its transmission network. It is the current policy for all new transmission infrastructure to be constructed, owned and operated by KETRACO.

• Geothermal Development Corporation (GDC): GDC is a wholly state-owned company established under the Geothermal Resources Act, 1982 to fast-track the development of geothermal resources in Kenya. Its mandate includes drilling steam wells, providing steam


Anjarwalla & Khanna KENYA


for the generation of electric power, managing geothermal reser-voirs and entering into steam supply contracts with IPPs.

2 Organisation of the market

What is the organisational structure for the generation, transmission, distribution and sale of power?

The table below summarises the organisational structure of Kenya’s electricity sector.

Body Role

Policy making and regulation

Ministry of Energy Creating energy policies and setting the strategic direction for the growth of the energy sector

Energy Regulatory Commission Independent body set up under the Energy Act to regulate the energy sector

Energy Tribunal Independent statutory tribunal set up under the Energy Act to hear appeals from the decisions made by the ERC

Rural Electrification Authority Accelerate the pace of rural electrification across the country

National Environmental Management Authority

Ensure that the activities undertaken in the energy sector do not affect the environment

Kenya Revenue Authority Collection of revenue (taxes) due from activities in the energy sector

Kenya Nuclear Electricity Board

Regulate the nuclear energy sector

Exploration and generation

Geothermal Development Corporation

Track the development of geothermal resources in Kenya

Kenya Electricity Generating Company Limited

Generates majority of the electric power in Kenya

Independent power producers Generate electric power

Kenya Electricity Transmission Company

Kenya Electricity Transmission Company Limited

Developing the national transmission grid network and facilitating trade in electric power through its transmission network

Kenya Power and Lighting Company

Kenya Power and Lighting Company

Transmission and distribution of electricity

Regulation of electricity utilities – power generation

3 Authorisation to construct and operate generation facilities

What authorisations are required to construct and operate generation facilities?

Under the Energy Act, any person who wishes to generate, import or export, transmit or distribute electrical energy is required to obtain a licence or permit from the ERC. This requirement is further enu-merated under the Energy (Electricity Licensing) Regulations, 2012 (Licensing Regulations) which set out the application process for vari-ous permits and licences.

Under the Licensing Regulations, no permit or licence is required to generate electricity where the electricity generated does not exceed 1,000kW and is generated for own consumption. A permit is required for the generation and supply of electrical energy not exceeding 3,000kW and a licence is required for generation, transmission, distri-bution or supply of electrical energy exceeding 3,000kW.

Where a project is to be undertaken under the FiT Tariff Policy regime, the project will require prior approval from the Ministry of Energy and Petroleum. The FiT Tariff Policy – Application and Implementation Guidelines provide that an applicant will have to sub-mit an expression of interest to the Ministry of Energy and Petroleum together with a FiT Project Application Form. If the application is

approved, the applicant can begin negotiations on the power purchase agreement with KPLC.

It is also worth noting that there are a number of other licences and permits required under other national and county laws that an applicant would be required to obtain in order to operate a generation facility, including an environmental impact assessment licence issued by the National Environmental Management Authority, approval of development permissions and building plans by the relevant county government and registration of the project site as a workplace with the Director of Occupational Safety and Health under the Occupational Safety and Health Act, 2007.

4 Grid connection policies

What are the policies with respect to connection of generation to the transmission grid?

Kenya has in place the National Transmission Grid Code (the Transmission Code) which was enacted in May 2017. The grid code is the primary technical document stipulating rules and regulations that various players in the electricity production chain are expected to abide by for efficient operation of the transmission system.

It is also the government’s current policy for all new transmission infrastructure to be constructed, owned and operated by KETRACO. This policy is in line with the unbundling of the energy sector in Kenya which provides for all existing transmission infrastructure to be held by KPLC, but for all new transmission infrastructure to be developed by KETRACO.

5 Alternative energy sources

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

Government policy and legislation in Kenya encourage the use of renewable sources of energy to generate power.

From a policy point of view, the Energy Policy highlights the role of the government in promoting the use of renewable sources of energy such as designing incentive packages to promote private sector invest-ments in renewable energy and other off-grid generation and govern-ment support in research and development in emerging technologies like wind energy generation. The FiT Policy also provides the frame-work for renewable sources of energy that may be used in the gen-eration of electricity. The FiT Policy requires power producers to sell renewable-energy-generated electricity to KPLC, which is the single offtaker currently operating in the Kenyan market and provides qualify-ing tariffs for a set period of time.

The primary legislation for the energy sector, the Energy Act, pro-vides for the development of renewable sources of energy including biomass, biodiesel, bioethanol, charcoal, fuel wood, solar, wind, tidal waves, hydropower, biogas and municipal waste.

In addition, there are several other regulations enacted to promote the use of renewable energy sources, such as the Energy (Solar Water Heating) Regulations, 2012, which require all existing premises with hot water requirements of a capacity exceeding 100 litres per day to install and use a solar heating system.

6 Climate change

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

Kenya has in place a number of policies and laws aimed at addressing the challenges brought about from climate change. In particular, Kenya recently enacted the Climate Change Act, 2016, which aims at improve-ment of efficiency and reduction of emissions through the uptake of technologies that support low carbon, and climate-resilient develop-ment. This is in addition to the National Climate Change Response Strategy, the National Climate Change Action Plan (NCCAP) and the Paris Agreement to which Kenya is a signatory.

Under the NCCAP, Kenya has pledged to cut its carbon emissions to 30 per cent below ‘business-as-usual levels’ by 2030, by expanding solar, wind and geothermal power, and bringing forest cover to up to




10 per cent of the country while reducing reliance on wood fuel. This has seen Kenya focus on diversifying her energy sources from thermal power to geothermal power. The use of geothermal power has steadily grown from 20 per cent of the total electrical energy produced in June 2013 to 40 per cent as at December 2016.

7 Storage

Does the regulatory framework support electricity storage including research and development of storage solutions?

Not applicable.

8 Government policy

Does government policy encourage or discourage development of new nuclear power plants? How?

Kenya is exploring the possibility of setting up nuclear power plants. In this regard, the Kenya Nuclear Electricity Board (KNEB) was estab-lished to help promote the development of nuclear electricity genera-tion in Kenya.

KNEB works under the guidance of the International Atomic Energy Agency (IAEA), which is the international body that promotes unified cooperation in nuclear energy for countries across the world. Its main aim is to promote safe and secure use of nuclear technolo-gies in various countries. KNEB, with the assistance of the IAEA, has developed a Draft National Nuclear Regulatory Bill, 2017 (the Draft Nuclear Bill) and a draft Nuclear Policy. Concurrently, the Energy Bill, 2017, which has been published and will soon be before Parliament for debate, provides for the establishment of the Energy and Petroleum Institute, which will promote the development and generation of nuclear energy in Kenya.

KNEB has already conducted pre-feasibility studies in Kenya for the proposed development of a nuclear power plant.

Regulation of electricity utilities – transmission

9 Authorisations to construct and operate transmission networks

What authorisations are required to construct and operate transmission networks?

Persons who wish to operate, manage or control facilities consisting of high-voltage electric supply lines for the movement of electrical energy in bulk between generating stations and transmission substations for the purposes of enabling supply to consumers are required to obtain a transmission licence or permit issued by the ERC.

A permit shall be required in respect of all undertakings transmit-ting electrical energy that does not exceed 3,000Kw, and a licence for the transmission of any electrical energy exceeding 3,000Kw.

10 Eligibility to obtain transmission services

Who is eligible to obtain transmission services and what requirements must be met to obtain access?

Entities that have obtained a transmission licence from the ERC may operate in transmission services, and in connection with distribution and supply entities, they may engage in supply of electrical energy to customers. It is, however, the government’s current policy that all new transmission infrastructure is developed, owned and operated by KETRACO. This policy is in line with the unbundling of the energy sector.

11 Government transmission policy

Are there any government measures to encourage or otherwise require the expansion of the transmission grid?

As part of its mandate, KETRACO is undertaking several new transmis-sion projects aimed at developing a robust grid system in order to keep up with economic activities taking place in Kenya, requiring greater generation capacity and, therefore, a robust grid system to meet the growing demands. KETRACO has identified priority projects for imple-mentation, totalling about 6,270km of transmission lines comprising 2,081km of 132kV, 1,278km of 220kV and 2,299km of 400kV AC lines, as

well as 612km of 500kV high-voltage direct current line. It is projected that by 2031 KETRACO will have constructed 16,000km of transmis-sion lines.

Kenya also provides an exemption from withholding tax on inter-est paid on loans from foreign sources for specifically investing in the energy sector including transmission lines. Further, instruments in respect of transactions relating to such loans from foreign sources for investing in the energy sector are exempt from stamp duty. A project company investing in a transmission network will qualify for these exemptions as it will be deemed to be undertaking an investment in the energy sector.

In addition, payments made to a non-resident construction con-tractor/sub-contractor (without a permanent establishment in Kenya) on account of services rendered under a power purchase agreement (which usually includes the construction of transmission or grid con-nection infrastructure) are exempt from withholding tax. A project company will also be entitled to an investment deduction equal to the amount of expenditure incurred in the construction of the transmission network.

12 Rates and terms for transmission services

Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?

The rates and terms for the transmission services are determined by the ERC. The ERC is required by the Energy Act to set the rates in a fair, transparent and predictable manner consistent with government policy and sensitive to stakeholder interests.

13 Entities responsible for grid reliability

Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?

The ERC is the main oversight body in the energy sector. The ERC enforces the provisions of the Energy Act and its regulations, plus codes and standards for the energy sector, and it prescribes the conditions that attach to the granting of such licences to ensure that the applicant is competent to maintain a reliable transmission grid. The ERC has the power to suspend or revoke licences and permits in cases where the licence holder wilfully neglects to conduct operations in accordance with the terms of the licence.

Regulation of electricity utilities – distribution

14 Authorisation to construct and operate distribution networks

What authorisations are required to construct and operate distribution networks?

Persons who wish to distribute electrical energy require a distribution licence issued by the ERC under the Energy Act. It is important to note, however, that KPLC is the sole distributor for electrical energy in Kenya.

15 Access to the distribution grid

Who is eligible to obtain access to the distribution network and what requirements must be met to obtain access?

Access to the distribution network is granted by KPLC subject to the terms and conditions of a power purchase agreement.

16 Government distribution network policy

Are there any governmental measures to encourage or otherwise require the expansion of the distribution network?

A key governmental initiative for the expansion of the distribution net-work has been the Rural Electrification Program implemented by the REA. The Rural Electrification Program, also known as the Last Mile Connectivity Project, is an initiative geared towards increasing electric-ity access to Kenyans across the country. It involves reducing the cost of accessing electricity for the customer and supply for the power provider by subsidising the cost of connecting to the grid. The project is a com-bined government of Kenya and donor-funded programme.




Currently, KPLC is the sole main distributor and supplier for elec-trical energy in Kenya. However, this monopoly could end if the Energy Bill, 2017 is enacted in its current form. The Energy Bill, 2017 proposes the creation of a legal framework to support the licensing of private par-ties and county governments to distribute electricity.

17 Rates and terms for distribution services

Who determines the rates or terms for the provision of distribution services and what legal standard does that entity apply?

KPLC is the main distributor of electrical energy in Kenya and it charges end consumers for power consumed. KPLC determines the electricity tariff which is then reviewed and approved by the ERC.

The ERC is required by the Energy Act to set the rates in a fair, transparent and predictable manner consistent with government policy and sensitive to stakeholder interest.

Regulation of electricity utilities – sales of power

18 Approval to sell power

What authorisations are required for the sale of power to customers and which authorities grant such approvals?

Pursuant to the requirements of the Licensing Regulations and the Energy Act, the ERC grants licences to entities that wish to supply elec-tricity to consumers.

19 Power sales tariffs

Is there any tariff or other regulation regarding power sales?

KPLC proposes retail tariffs that are then reviewed and approved by the ERC. If approved, the ERC publishes the approved rates in the Kenya Gazette specifying the date on which the rates are to take effect. The ERC is required by the Energy Act to set the rates in a fair, transparent and predictable manner consistent with government policy and sensi-tive to stakeholder interests.

20 Rates for wholesale of power

Who determines the rates for sales of wholesale power and what standard does that entity apply?

KPLC proposes retail tariffs which are then reviewed and approved by the ERC. If approved, the ERC publishes in the Kenya Gazette the approved rates as the Schedule of Tariffs for the Supply of Electrical Energy, which provides the different rates at which electrical energy may be supplied to consumers, including wholesale consumers, by KPLC. The ERC is mandated to regulate the energy sector in a fair, transparent and predictable manner consistent with government policy and sensitive to stakeholder interests.

21 Public service obligations

To what extent are electricity utilities that sell power subject to public service obligations?

Not applicable in Kenya, given that there is only one national utility, KPLC, which itself is a state corporation.

Regulatory authorities

22 Policy setting

Which authorities determine regulatory policy with respect to the electricity sector?

The Ministry of Energy and Petroleum is responsible for electrical energy policy formulation and development for the energy sector in Kenya.

23 Scope of authority

What is the scope of each regulator’s authority?

ERC is the primary regulator of the energy sector in Kenya. ERC’s scope of authority is outlined by the Energy Act and it includes, among oth-ers, the power to (i) issue, renew, modify, suspend or revoke licences

and permits for all undertakings and activities in the energy sector; (ii) formulate, enforce and review environmental, health, safety and qual-ity standards for the energy sector, in coordination with other statutory authorities; (iii) enforce and review regulations, codes and standards for the energy sector; and (iv) approve electric power purchase and network service contracts for all persons engaging in electric power undertakings.

24 Establishment of regulators

How is each regulator established and to what extent is it considered to be independent of the regulated business and of governmental officials?

The ERC is established by the Energy Act as an independent commission.

25 Challenge and appeal of decisions

To what extent can decisions of the regulator be challenged or appealed, and to whom? What are the grounds and procedures for appeal?

Any decision of the ERC can be challenged by a written appeal to ‘the Tribunal’ within 30 days of such decision. One may also launch an appeal against the decision of a licensing agent to the ERC within 30 days from the date the decision of the licensing agent is made.

Once the appeal is launched with the Tribunal or the ERC, the Energy Act requires a decision to be communicated within 45 days of receipt of the appeal by the Tribunal or the ERC.

A party aggrieved by the decision of the Tribunal can further appeal such decision at the High Court of Kenya.

Acquisition and merger control – competition

26 Responsible bodies

Which bodies have the authority to approve or block mergers or other changes in control over businesses in the sector or acquisition of utility assets?

The Competition Authority of Kenya (CAK), established under the Competition Act, 2010 (the Competition Act) is the main regulatory body with respect to approving or blocking mergers in Kenya.

At a regional level, as Kenya is a COMESA member state, the COMESA Competition Commission would have authority in a merger transaction where either the acquirer or the target operates in two or more COMESA countries, and certain asset/turnover thresholds of the merging parties are met.

The ERC is also mandated under the Energy Act to monitor, and ensure implementation and observance of, the principles of fair com-petition in the energy sector, in coordination with other statutory authorities.

27 Review of transfers of control

What criteria and procedures apply with respect to the review of mergers, acquisitions and other transfers of control? How long does it typically take to obtain a decision approving or blocking the transaction?

In Kenya, all mergers, whether inside or outside of Kenya, which result in a direct or indirect ‘change of control’ in an entity or section of a business in Kenya, and where the merging parties meet the assets and turnover thresholds, require the approval of the CAK. Change of control can occur through various means, including (i) acquisition of a major-ity shareholder or the right to appoint a majority of the directors, and (ii) acquisition of a minority interest (say 20 per cent) coupled with sig-nificant reserved powers or veto rights over key decisions of the target company, such as business plan and budget and appointment of key management.

Once the merging parties establish that a change of control has occurred, then the second limb of the test should be examined – whether the merging parties meet the assets or turnover thresholds. These thresholds are industry specific. For the energy industry, a merger would be notifiable if the combined turnover or assets of the merging parties in Kenya is between 100 million and 1 billion shillings.




Where a change of control occurs but the thresholds are not met, parties would still be required to make an application for exclusion from notification.

The CAK has a prescribed merger notification form, which contains four schedules, which should be completed by each of the merging par-ties and filed with the CAK in the case of both an exclusion and a full notification. The schedules to be completed depend on whether the merger parties have a horizontal or vertical relationship. Applications for a notification attract a filing fee of between 500,000 and 2 million shillings, while an application for an exclusion is free.

When making its determination, the CAK considers whether the merger is likely to prevent or lessen competition or create or strengthen a dominant position and whether there are any consumer welfare aspects. Generally, an exclusion application is determined within 14 days. Merger notifications are approved or disapproved within 60 to 75 days (although where CAK deems a matter complex, it can extend these timelines by a further 60 days). The time starts running when CAK deems a filing complete, not when the application is made. It is important to note that the Kenyan competition regime is ‘suspensory’ in nature, which means that parties are prohibited from completing the transactions without prior approval of the competition regulators. Payment of more than 20 per cent of the purchase price is considered to constitute implementation of a merger.

Separately, any transfer of a licence or permit issued under the Energy Act or a change in the controlling interest of a licensee requires the approval of the ERC. There is no time limit prescribed within which the ERC has to make its determination.

28 Prevention and prosecution of anticompetitive practices

Which authorities have the power to prevent or prosecute anticompetitive or manipulative practices in the electricity sector?

The CAK is mandated to investigate anticompetitive behaviour; how-ever, prosecutorial powers vest in the director of public prosecutions pursuant to the provisions of the Constitution of Kenya, 2010. The Competition Act also establishes the Competition Tribunal which is in the process of being operationalised.

Additionally, the ERC is mandated under the Energy Act to pro-mote the observance of the principles of fair competition in the energy

sector. In fulfilment of this mandate, the ERC may invoke its broad powers under the Energy Act to revoke or suspend licences and impose sanctions against entities that fail to observe such principles.

29 Determination of anticompetitive conduct

What substantive standards are applied to determine whether conduct is anticompetitive or manipulative?

The Competition Act defines what abuse of dominance is and what constitutes a restrictive trade practice. The CAK has also published several guidelines which detail the factors that it will take into consid-eration when determining anticompetitive conduct. These guidelines include the Guidelines in the Control of Unwarranted Concentration of Economic Power and Consolidated Guidelines on Substantive Assessment of Restricted Trade Practices under the Competition Act.

Restrictive trade practices, which are generally any practices or agreements between competitors at the same level of production and agreements among market players at different levels of production that distort or restrict competition, are prohibited. Undertakings that have a dominant position in the market will be considered to be engaging in unfair practices if such entities use their position to directly or indirectly impose unfair purchase or selling prices or any other unfair trading con-ditions on other trading parties in the market.

30 Preclusion and remedy of anticompetitive practices

What authority does the regulator (or regulators) have to preclude or remedy anticompetitive or manipulative practices?

The Energy Act and the Competition Act, 2010 empower the ERC and the Competition Authority of Kenya, respectively, to impose sanctions and penalties against any entities that take part in anticompetitive or unfair trade practices.

For an abuse of dominance or an offence relating to restrictive trade practices, such sanctions and penalties can include a fine of up to 10 million shillings and potential imprisonment of up to five years. The CAK may also impose a financial penalty of up to 10 per cent of the immediately preceding year’s gross annual turnover in Kenya of the undertaking in question. The CAK is further empowered, where it finds an undertaking has violated any provisions of the Competition Act (including abuse of dominance), after investigation, to:• restrain the undertaking from further engaging in the conduct;• direct any action to be taken by the undertaking concerned to rem-

edy or reverse the infringement or the effects thereof;• impose a financial penalty; or • grant any other appropriate relief.

The Energy Act may suspend or revoke licences of such entities while under the Competition Act, the penalty prescribed for an entity taking part in restrictive trade practices which are deemed to give the entity an unfair advantage over other traders in the market is an imprisonment term not exceeding five years or a fine not exceeding 10 million shil-lings, or both.

International

31 Acquisitions by foreign companies

Are there any special requirements or limitations on acquisitions of interests in the electricity sector by foreign companies?

Generally, there are no special requirements or limitations on acquisi-tions of interests in the electricity sector by foreign companies under the Energy Act. However, there may be barriers to the acquisition of interests by foreign companies in some cases by virtue of the structure of the market. For example, in relation to the generation of electricity, subject to particular laws around land ownership, foreigners can wholly own any IPP. However, KenGen, the largest generator of electrical energy in Kenya, is owned 70 per cent by the government, while the remaining 30 per cent is listed on the NSE. In the distribution of elec-tricity, KPLC is the sole distributor of electrical energy in Kenya. The government has a controlling stake in KPLC at 50.1 per cent sharehold-ing with the rest held by private investors on the NSE. It is important to note that foreign shareholding in companies listed on the NSE is limited

Update and trends

The Draft National Energy and Petroleum Policy, 2015 (the Draft Energy Policy)To further develop the potential for renewable energy sources and encourage foreign investment in the renewable energy space, the government of Kenya has published an updated version of the Energy Policy, the Draft Energy Policy, 2015. The Draft Energy Policy features a proposed new regulatory agency and coordination structure for upstream petroleum production, coal and renewable energy, and framework legislation on natural resources revenue management, which will include the creation of a sovereign wealth fund.

Energy Bill, 2017In addition to the Draft Energy Policy the Energy Bill, 2017 is cur-rently before Parliament for debate. If enacted, the Energy Bill will repeal the Energy Act and the Geothermal Resources Act and will consolidate the regulation of electricity and renewable energy under one framework. It is also envisaged that the Energy Bill, 2017 will liberalise the licensing of electricity generation, transmission and distribution. The Energy Bill, 2017 was recently gazetted on 13 October 2017 and we expect the Bill to be subjected to public com-ments and thereafter debated by Parliament.

The government has come under recent pressure from the public and the International Monetary Fund to review the liabilities it assumes under letters of support issued in support of projects. In this regard, we understand that the National Treasury is cur-rently developing a policy framework to govern the issuance of letters of support for projects by means of a clear review structure to be implemented by the government before it takes on such commitments. This will potentially affect future projects that seek government letters of support.




to 75 per cent. Transmission of electricity is undertaken by KETRACO and KPLC. KETRACO is wholly owned by the government.

In addition, there are local requirements set out in other applicable laws that a company or entity in Kenya would be required to abide by. For example, pursuant to the provisions of the Land Control Act (Cap 302), there are restrictions on the holding of agricultural land by for-eigners or private companies where all of the members are not citizens of Kenya.

32 Authorisation to construct and operate interconnectors

What authorisations are required to construct and operate interconnectors?

Not applicable.

33 Interconnector access and cross-border electricity supply

What rules apply to access to interconnectors and to cross-border electricity supply, especially interconnection issues?

Not applicable.

Transactions between affiliates

34 Restrictions

What restrictions exist on transactions between electricity utilities and their affiliates?

Not applicable.

35 Enforcement and sanctions

Who enforces the restrictions on utilities dealing with affiliates and what are the sanctions for non-compliance?

Not applicable.

Karim Lalji [email protected] Edwin Baru [email protected]

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