In recent years, Kenya has seen a significant increase in infrastructure related investments, majority of which focus on transportation and energy. This, coupled with Kenya’s potential for scalable renewable energy projects, strongly positions the country to play an instrumental role in the African energy market.
For many of these types of projects, however, issues relating to land have cast a dark shadow on the prospects of actualizing their goals. It goes without saying that land is an integral part of any infrastructure project. However, over and above the already complex and bureaucratic processes associated with land acquisition, disagreements over compulsory acquisition of land for project development and cancellation of titles over irregular ownership are now becoming more commonplace. The importance of land rights to the bankability of a project cannot be over-stated especially because a good number of the associated risks subsist throughout the life of the project.
It is, therefore, not surprising that investors are wary when it comes to the land related aspects of a project. This article seeks to analyse some of the pertinent land issues which impact investors in energy infrastructure projects.
The first, and perhaps most significant issue, is the requirement for Land Control Board consent. The Land Control Act makes it mandatory for parties to obtain Land Control Board consent for transactions involving the sale, transfer, lease, charge and subdivision etc. of agricultural land, which includes land not within a municipality or township. Given the land-intensive nature of energy infrastructure projects, most project sites are located in rural areas invariably making the land agricultural.
The Land Control Boards are charged with ascertaining that certain conditions are met before granting their consent. More importantly, a Land Control Board is required to refuse consent where the application is by a non-citizen or a private company having any non-citizen shareholder. This poses a significant challenge considering the capital intensive nature of infrastructure projects, which in most instances calls for some level of foreign investment.
The Act does provide for an exemption from the Land Control Board consent requirement where presidential exemption has been Gazetted but considering the complexity in obtaining such exemption, majority of project developers have been forced to seek innovative ways to navigate the LCB consent requirement, including through the creation of project companies which are initially wholly owned by Kenyan citizens or incorporating or converting project companies to public companies, which curiously are not as limited in terms of ownership of agricultural land. On the other side of the spectrum however, are countries such as South Africa which only require government consent when it comes to subdividing agricultural property.
The recently enacted Energy Act, 2019 requires national and county governments to facilitate acquisition of land for energy infrastructure development. One of the suggestions floated is that the government could facilitate such land acquisition by exempting energy, and indeed all infrastructure projects, from the provisions of the Land Control Act. If granted, this would definitely go a long way towards easing the set-up of projects in Kenya.
The second issue lies in the fact that non-Kenyans cannot hold Freehold title over land. The law only allows foreigners to hold leasehold interest of a maximum of 99 years. This restriction is common on the continent and countries such as Uganda and Ghana have similar requirements. This is in contrast to countries such as South Africa and Egypt where foreigners can hold freehold interest over property.
The silver lining in the Kenyan context though, is that the maximum duration of the leasehold interest (99 years) is longer than the expected life of energy projects which span between 20-30 years.
Another issue revolves around community engagement. Inadequate or inconsistent community consultation can be fatal to a project, especially where community members hold a subjective and inflated estimation of their entitlement.
It is not unusual for disputes to arise where the community is concerned over what it considers to be poor compensation for land, the effects of projects on the community and the perception of meagre benefits from infrastructure projects. The importance of the “social license” was most recently demonstrated in the case of the Kinangop Wind Power project which collapsed on the basis of land and community disputes, thereby underpinning the importance of a proper and continuous community management plan.
Project developers must therefore consult effectively with communities in order to recognize legitimate land rights, assess the impact of the project on local land rights and livelihoods and establish conditions for a productive relationship with the community.
Finally, in addition to acquiring land rights over the main site where the plant will be developed, developers also have to consider easements and other analogous land rights to cater for the transmission and distribution networks for the power that the proposed plant is to generate. This is often an arduous task which involves negotiations with and compensation of multiple land owners.
This challenge is not exclusive to the private sector and is also a major hurdle for government agencies such as Kenya Electricity Transmission Company Limited.
Furthermore, Kenya has gained some notoriety on the issue of protecting proprietary rights for an innocent purchaser for value of a fraudulent title. Having a decentralised and somewhat manual land registry system has meant that the validity of a title documents can at times not be authoritatively verified. Further, the conflicting judicial interpretation regarding the protection of property rights for an innocent purchaser for value has made it a risky business to invest in land in Kenya. However, significant land reforms designed to counter this problem, are underway. The move to digitize the land registry records is a welcome attempt to curb fake title deeds.
In conclusion, it is evident from the foregoing that land acquisition challenges can be a disincentive for investors in the infrastructure development space in Kenya. Positive strides are already being made to address the concerns enumerated above but there is still more to be done.
Although land related project challenges are not peculiar to Kenya, the situation in Kenya is exacerbated by the prevalence of relatively small parcels of land which are either privately owned or which constitute community land. This inevitably means that a project investor will have to dedicate significant time and resources to deal with a series of land related hurdles.
Conversely, in neighbouring Tanzania, all land is vested in the government to hold on behalf of its citizens. Foreign companies can obtain a right of occupancy from the government, provided that they have a Certificate of Incentives issued by the Tanzania Investment Centre. Uganda on the other hand has similar land ownership structures to those of Kenya but the Uganda Investment Authority has a one stop shop for investors, which includes an embedded land registry function which assists in verification of land ownership. Perhaps then, there are some practices which Kenya can borrow from her neighbours, in order to reduce the current land acquisition difficulties faced by investors in the energy sector.
The article was featured in the EastAfrican and can be accessed here.