Kenya: A Projects & Energy Overview

Kenya’s Projects and Infrastructure Sector: Regulatory Recalibration and the Evolving PPP Landscape

Introduction

Infrastructure is central to Kenya’s economic growth, yet the nation has faced a persistent annual infrastructure financing gap of approximately USD2.1 billion for over a decade. Rapid population growth and sustained economic expansion have placed severe pressure on existing systems, much of which is no longer adequate to meet demand. To address this without increasing sovereign debt, Kenya has pivoted toward government-driven investment through Public-Private Partnerships (PPPs). Following economic stabilisation, with projected growth rates of 4.7% in 2024, the sector has entered a phase of selective growth defined by tighter regulation, the revival of stalled projects and the expansion of energy capacity.

The legal and institutional framework for PPPs

Kenya’s PPP framework is anchored in the Public Private Partnerships Act, 2021, which governs the project lifecycle from identification to oversight. While the Act aligns with international best practices, its effectiveness is occasionally constrained by institutional implementation gaps. The framework is supported by subsidiary legislation, including the PPP Regulations (2014) and the Project Facilitation Fund Regulations (2017), which provide the necessary governance and financing structures.

Institutionally, the regime adopts a centralised model: the National Treasury ensures fiscal affordability, while the PPP Directorate manages technical structuring and bankability. In practice, project momentum is largely dictated by the institutional capacity of contracting authorities. Those with superior internal co-ordination consistently deliver stronger outcomes. Although the resulting approval process is multi-layered, this rigorous approach strengthens project discipline and provides the long-term predictability essential for private investors.

Policy shifts and regulatory developments

Kenya’s PPP landscape is undergoing a strategic shift under the Fourth Medium Term Plan (2023–2027) and the Bottom-Up Economic Transformation Agenda (BETA). Current policy strictly separates projects with commercial potential for PPPs from those requiring direct budget funding. This evolution prioritises high-impact sectors: renewable energy (geothermal), affordable housing, transport (roads and aviation) and food security.

A defining trend is the rigorous emphasis on Value for Money (VfM) and the management of fiscal exposure. The PPP Act 2021 has institutionalised a framework where project viability is scrutinised early. Notably, several road and irrigation projects were recently terminated before financial close because their proposed availability payments were deemed unaffordable. Furthermore, the forthcoming Critical Infrastructure Protection Bill (2024) is designed to safeguard energy, transportation and water sectors against operational and security risks.

Energy sector – meeting the capacity gap

Kenya’s power infrastructure is currently operating at near-maximum capacity. Peak demand recently reached an all-time high of 2,439 MW against a generation capacity of 2,344 MW. This tight margin underscores the urgency for new projects, as peak demand is projected to rise to 2,696 MW by 2027.

To alleviate these dynamics, the government lifted the moratorium on Power Purchase Agreements (PPAs), requiring a transition to competitive procurement through auctions within 12 months. New regulations are further liberalising the market: the Energy (Electricity Market, Bulk Supply and Open Access) Regulations 2024 aim to break the state monopoly by enabling private firms to sell electricity directly to consumers. Additionally, the Net Metering Regulations 2024 allow consumers to feed excess solar power into the national grid, stimulating private investment in decentralised generation.

Bankability and the role of the SPV

At the core of these projects is the special purpose vehicle (SPV), incorporated under the Companies Act, 2015. The SPV ring-fences project risks and isolates liabilities from sponsors’ balance sheets. Because SPVs often lack standalone assets, bankability, the project's ability to attract financing, is essential.

Project planning by the public sector is pivotal to this bankability. Early market engagement helps gauge private sector interest, while comprehensive VfM analyses benchmark PPPs against traditional procurement. Standardised tools, such as risk matrices and contract templates, further support predictability. Equally critical is a contractual structure that allocates risk in a commercially manageable way, aligned with the risk-bearing capacity of each stakeholder.

Risk allocation as a strategic tool

Proper risk allocation is the most critical tool for achieving national government functions. PPPs can deliver greater value than conventional procurement because they rely on private sector budget constraints. While governments may have the capacity to inject funds continuously, private investors are constrained by capital allocation, creating stronger incentives for cost control. Risk allocation involves assigning construction, operational, political, regulatory and environmental risks to the party best able to manage them. Success depends on two questions: which party can best influence the probability of the risk, and who is best positioned to manage the consequences.

Upstream petroleum and strategic assets

In the extractives sector, the South Lokichar Basin development represents a push to leverage domestic oil assets. Gulf Energy E&P BV targets production of up to 50,000 barrels per day, with first oil expected by 2026 and peak production by 2032. This project reflects a projected capital investment of USD6.1 billion over a 25-year contract.

Concurrently, the government is pursuing an IPO of a 65% stake in the Kenya Pipeline Company, expected to raise approximately KES106.3 billion. This represents a broader strategy to monetise state assets. However, regional competition is emerging from Uganda’s USD5 billion East African Crude Oil Pipeline (EACOP), which could challenge Kenya’s position as a regional transit hub.

Emerging risks and financing constraints

Despite the strategic importance of these sectors, private investment in PPP projects saw a sharp decline of 91%, falling from USD353 million in 2023 to USD33 million in 2024. This decline was largely attributed to the cancellation of large contracts at the end of 2024 due to fiscal tightening.

Lenders remain cautious regarding offtaker creditworthiness and foreign exchange exposure. To address these constraints, the Cabinet approved the National Infrastructure Fund and the Sovereign Wealth Fund. These initiatives are intended to mobilise long-term capital and improve project bankability in a market where lending structures have become increasingly conservative.

Conclusion

Kenya’s infrastructure sector is in a phase of selective growth, characterised by increased scrutiny and an emphasis on delivery certainty. While PPPs are central to industrialisation, legal frameworks alone are insufficient. Future success will depend on the government's ability to provide financial and non-financial incentives while introducing mechanisms to reduce reliance on contingency funding. For investors, significant opportunities remain across energy and extractives, provided they can navigate a rapidly recalibrating regulatory environment.