World Bank Webinar on 28 th June 2016

1. Communication and Social License Issues in Kenyan PPPs: Emerging Trends& Precedents World Bank Webinar on 28th June 2016 Presented by: Kaara Wainaina, External Affairs Expert, PPP Unit Kenya

2. Presentation Outline Introduction& context of Stakeholder Engagement Notable Infrastructure Projects in Kenya’s Infrastructure Leading PPP Projects& Feasibility Findings Social License Trends& Lessons learnt Conclusion

3. Introduction& Background • Kenya became a British Colony in 1920- 1963 • Government decisions on infrastructure largely by fiat. • In 1964 Kenya became a republic, the trend continuing. • Economic growth was main thrust for projects, now more awareness& clamor for sustainable development. • Starting in 80’s towards 90’s democratic space expanded. • In the first 25 years of the country, little consultation with hosts/users of various infrastructure projects. 1

4. Introduction& Background: Continued • Currently Kenyans have great influence on investment in the country& infrastructure projects in particular. • The current constitution promulgated in 2010 that gives citizens many rights& strong protection of property. • Kenya Constitution 2010, provides many rights as regards, information, movement& residence, property, environment, consumer rights, land etc. • With a more progressive constitution citizenry& corporate world now highly sensitive to granting/earning social legitimacy in projects. 2

5. Notable Investment in Kenya’s Infrastructure • A floating pontoon bridge connecting Mombasa with Mainland in 1931-1980. • Olkaria 1 Geothermal plant in 1981 (Public Funding) – Minimal Stakeholder Engagement • Many Independent Power Producers since mid 90’s. Most operational today. • In 1997, Safaricom formed as mobile subsidiary of Telkom Kenya. In 2000 Vodafone Plc acquires 40% in Safaricom • 2006, Kenya-Uganda Railways Concessionaire signed • In 2007, France Telecom acquired 51% of Telkom Kenya • In 2012 construction of 280MW Olkaria geothermal plant (Publicly funded) • In 2014, Kinangop Wind Plant project commences, cancelled early 2016 due to conflicts 3

6. Case Study One: Rift Valley Railways Concessionaire • Construction of ‘lunatic express’ by British between 1896-1896. • At its height employed 25,000 employees. • Between 80’s and 90’s huge decline due to multiple factors. • In early 2000’s various attempts to reform, saw large staff retrenchment • Concession signed in 2006 marked with high public expectations after years of under-performance. • Staff rationalization continued in phases, with many legal battles for years, some yet to be concluded. • Protracted legal battles with former staff& sub optimal operations, continue to evoke great disappointment with the concession. 4

7. Case Study Two: Olkaria 280MW Geothermal Plant • Olkaria I in 1981 with minimal local community engagement. Olkaria II saw improvement in local community engagement. • Project to construct largest geothermal plant (280MW) planned in 2009. • RAP prepared in 2010, 2 years ahead of ground breaking. • Project site affecting 3 villages& a cultural centre of Masaai pastoral community in Naivasha. • Project further complex as it involved an environmentally sensitive site, next to a park. • Communal land ownership customs difficult to navigate. • A couple of industrial disputes between contractors and local casual laborers. 5

8. Case Study Two: Olkaria 280MW Geothermal Plant • Quite often protests from neighboring communities who felt they should share the benefits package. • Local communities at times petitioning financiers, well aware many highly sensitive to reputational risks. • Despite several back steps, PAPs successfully resettled, Olkaria 280MW plant commissioned last year in 2015. • PAPs resettlement concluded a few days to the plant commissioning in August 2015. 6

9. Case Study Three: Lamu Coal Plant • In 2014, Kenya invited bids for BOO of first coal plant in the country for 960 MW. • Petition on procurement which was dismissed in court. • Lamu town is a UNESCO World Heritage site as the oldest Swahili settlement in East African coast. • ESIA Currently being undertaken in line with Kenya’s environmental protection law. • Save Lamu, a lobby of 30 local NGO’s oppose the project due to environmental concerns. • Fortunately project land already identified , of key interest is whether environmental concerns can be overcome. • RAP being implemented in a multi-agency approach. 7

10. Case Study Four: Kinangop Wind Project • 60 MW Greenfield Wind Power Project • Initially started as JV of KenGen& EcoGen Wind Farms in 2004. • Project located in Nyandarua, a rich agricultural zone in central region of Kenya. • In 2008 Aeolus Kenya acquired rights to develop the project. • Operation& Maintenance Outsourced to GE (US). • In 2013, Africa Infrastructure Investment Fund& Norfund took over ownership. 8

11. Kinangop Wind Project, Continued…. • Problem began with the onset of negotiations with affected land owners • There were agreements with most individual land owners -38 had signed 60 year leasehold • Wider Local community also claimed there were no discernible benefits for them • Change of hands of the project ownership also affected trust in land negotiations. 9

12. Kinangop Wind Project, Continued…. • Other allegations unfounded such as fear of ‘radiation’ ‘humming turbines causing miscarriages’ ‘making livestock infertile’. • Upcoming local politicians seizing on the crisis to gain political mileage ahead of 2017 general election. • Non state actors, local& international complicating the discussion. • Project collapsed early in the year, project movers citing Force Majeure. • Some of local leadership opposing the project, attempted to re-engage the investors. 10

13. Leading PPP Projects in Kenyan Pipeline • DBFO of 482 km Mombasa-Nairobi Highway (A109) • DBFO of 174 km Nairobi-Nakuru Highway (A104) • DBFO of approx 800 metres 2nd Nyali Bridge in Coastal Port City of Mombasa. • O&M of 50 km Nairobi-Thika Highway (A2) recently built • O&M of 28.6 km of Nairobi Southern Bypass, newly built • The projects just concluded or concluding feasibility studies • The DBFO’s will require substantial land acquisition, hence PAPs resettlement. • Feasibility studies both revealing and encouraging to implement the projects as PPPs 11

14. Feasibility Findings on Nairobi- Mombasa Road (A109) • DBFO of 482 highway between Port City Mombasa& Capital Nairobi • Willingness to pay strong for all projects, for A109 75% responded “Yes” or “Maybe” • 55% in A109 able to afford US$ 0.065/PCU/km. The lower the toll the higher the willingness and vice versa • Key to paying tolls being improved level of service& attendant low vehicle maintenance costs& saved man hours • Open System tolling preferred as opposed to Closed System Tolling, Electronic Tolling which is seamless preferred 12

15. Feasibility Findings on Nairobi- Nakuru Road (A104) • DBFO 174 road connecting Nairobi to Nakuru, part of Northern Corridor. • Tolling rates proposed $6 cents/km (Ksh 6/km) for cars and using multiplier effect with international practices and PCU factor (A104). • Savings from vehicle operating costs& time approx twice. • Net scenario for freight raising cost by US$0.24 from US$ 2.15/km to US$ 2.39. • Discounts for frequent& local traffic as well as exemption for emergency services • Land should be acquired ahead of the project. 13

16. General Sentiment on Road Tolling • Acceptable where clear benefits are visible, especially clogged road. • Media supportive but questioning key elements, such as provision of free alternatives on tolled roads& prudent use of tolls raised. • Civil& consumer right lobbies also calling for care not to infringe on any rights, especially movement& non-discriminatory. • The government has been strategic& firm. Underlining the process will be inclusive, participatory and well thought out. • There is need for more discourse on benefit of road tolling to avoid seeing toll roads as ‘new tax’ but ‘quality roads with a cost’. • More discussion needed on sticky elements especially the Roads Maintenance Levy (A levy to maintain the entire road network& which has just been revised upwards). 14

17. Land Acquisition& Resettlement: Trends • The most important issue in project implementation& as attains attaining social license • Profiteering by some communities. In one extreme a community rooted for approach with most PAP displacement • In many cases local communities not opposed to projects, using concerns, real& imagined as bargaining chips • NGO’s exploiting acquisition disputes to build profile. • Neighboring communities not affected by project also demanding benefits accruing to immediate PAPs • Projects located in remote areas, locals demanding essentially all govt. services missing 15

18. Land Acquisition& Resettlement Reflections • Should be handled by state • State should plan& budget early • Its ideal to acquire all land prior to • project commencement • Comprehensive& Broad consultations • with PAPs critical • Acquisition should neither be hasty • nor prolonged- organic growth of PAPs alter the game plan significantly over time. • Effective grievance resolution mechanism an important tool • Where all acquisition is not practical, phasing the project may assist. • Through Land Commissioning, government standardizing approach to ease process 16

19. Managing User Fee (Toll) Trends& Precedents • For PPP with end user fee element, social license assumes very significant proportions. • Thorough and comprehensive engagement on improved service is key • Critical to explain how fees are determined& reviewed • Explaining the ‘how to’ pay the fees/tolls applicable key. • Emphasizing improved service as opposed to the fee, wins • Strong political will fundamental 17

20. Conclusion: Thank You All for your Attention “You don’t get your social license by going to a government ministry& making an application or simply paying a fee…It requires far more that money to truly become part of the communities in which you operate” Pierre Lassonde, President of Newmont Mining Corporation Contact Information: kaara.wainaina@pppunit.go.ke @KaaraWainaina 19