Successful together The Regulatory Regime- PPAs and IPP Leasing Models in Kenya Sebastian Wichmann Berlin 2 September 2015 1
Agenda 01 The Regulatory Process 02 Tax impact PPA vs Leasing 03 Rödl & Partner 04 Contacts 2
Agenda 01 The Regulatory Process 02 Tax Impact PPA vs Leasing 03 Rödl & Partner 04 Contacts 3
Power Purchase Agreements (PPAs) Regulatory Regime The Regulating Entities Ministry of Energy & Petroleum Energy Regulatory Commission (successor to Electricity Regulatory Board) Kenya Power or private off-taker Rural Electrification Authority The Process - Licensing KPLC vs Industrial Off-taker PPA and Generating Licence/Permit 4
Land Rights Leases and Licences Greenfield projects when acquiring land need to be aware of the designated land use Agricultural land ownership restricted Other types of user depends on the owner for instance Kenya Forestry Service or Wildlife Service. Speculation prior to projects need for confidentiality. Private land amalgamation of title 5
Agenda 01 The Regulatory Process 02 Tax Impact PPA vs Leasing 03 Rödl & Partner 04 Contacts 6
The Tax Regime PPA Model (IPP and Industrial Off-Taker) Corporation Tax Branch Subsidiary Transfer Pricing Issues VAT (Solar contractors Inputs VAT and Import Duty exempt) Withholding Tax; Kenya Germany DTA Cash flow impact Recent developments Legal Notice No. 165 (August 2015) & Energy Bill 2015 7
Tax Implications Leasing Model An IPP can opt to provide the entire power generation facility under an operating lease or finance lease arrangement Income Tax Act definitions - operating lease and finance lease Resident vs. non-resident lessors Tax benefits and positive cash flow impact 8
Repatriation of Profits Repatriation of profits As a branch As a subsidiary Tax efficient options Nature of payment Kenya-Mauritius DTA WHT rates Kenya-Germany DTA WHT rates Dividends 5% 15% Interest 10% 15% Royalty 10% 15% 9
Agenda 01 Land Rights 02 Power Purchase Agreements 03 Rödl & Partner 04 Contacts 10
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Questions? 14