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Artificial intelligence (AI) is now a pervasive phenomenon in the digital world, offering a wide range of everyday uses. At the same time, AI introduces new and unpredictable risks, including the possible invasion of privacy. This article aims to analyse the implications of AI on data privacy and proposes various approaches to mitigate these risks in a rapidly evolving digital environment.

The Constitutional underpinning of data protection is the right to privacy under Article 31 of the Constitution of Kenya, 2010. Further, the Data Protection Act, 2019 (the Act) was enacted to give effect to the right to privacy. Under section 37 of the Act, commercial use of data is expressly forbidden except where consent is obtained, the data subject is anonymised, or the use of data is authorised under written law.

Against this backdrop, AI systems typically involve commercial use of data, as it involves gathering, storing, and analysing vast amounts of personal data, to generate appealing output which can be sold to third parties. Therefore, there is need to adopt ethical data management practices aimed at forestalling potential data breaches thereby guaranteeing the secure and responsible use of data.

Key Concern

The era of Big Data – characterised by the surge in data collection, creation, and storage due to the expansion of the internet – is a key enabler of the rapid rise of AI. As AI continues to proliferate globally, it is expected that the demand for data will similarly increase thereby pushing companies to collect more and diverse types of data from data subjects. In their relentless pursuit of vast data collection, these companies may bypass the underlying principles of data protection under section 25 of the Act. Therefore, this largely unchecked collection of data presents distinct privacy risks that transcend individual concerns, escalating to societal-level threats. Furthermore, the Act, although comprehensive, falls short of addressing the complexities of AI development and the consequential privacy issues that arise.

Issues Arising

Predictive AI, which refers to a computer program’s ability to recognize patterns, predict behaviours, and project future events using statistical analysis, relies on vast data sets to conduct advanced pattern analysis. Faced with these demands for data, AI developers like OpenAI have had to seek alternative sources of data to construct and train their models.

Generative AI models can also produce original output that resembles human creativity, such as text, images, music, or code, based on the data they have been trained on. These AI models have captured public attention with their widespread use and have sparked concerns about how they are trained, particularly regarding the data they use and the potential privacy risks associated with interacting with them.

A major issue with these AI models is a lack of transparency around how companies acquire their training data, leading to significant privacy concerns. Real-life examples demonstrating the privacy risks posed by AI systems include the following:

• In 2024, a group of eight (8) newspapers sued ChatGPT maker OpenAI and Microsoft, accusing the tech giants of unlawfully using millions of copyrighted news articles without authorization or compensation to train their AI chatbots.
• In 2024, a YouTuber sued OpenAI for transcribing and using his videos to train its artificial intelligence system.
• Closer home, Vodacom Tanzania was sued in a USD 4.3 Million lawsuit by Sayida Masanja, a businessman, who claimed that the telecom operator fed his personal information to OpenAI’s ChatGPT without his consent thereby infringing his privacy.

As AI technologies advance, new avenues for privacy violations are emerging, such as the potential for generative AI systems to infer personal information about individuals or allow users to target others by generating defamatory or impersonating content. As such, there is a likelihood of future product liability lawsuits by data subjects in Kenya being instituted against AI developers like OpenAI. Further, the data gathered can be exploited to deliberately target individuals for identity theft, fraud, and other cybercrimes. These systems also produce predictive or creative outputs which, through relational inferences, can affect people who were not part of the training datasets or who may have never used these systems. Research shows that when personal, confidential, or legally protected data is included in training datasets, AI systems can retain and later reveal this data as part of their outputs.

As technology becomes increasingly intertwined with our lives, automated systems based on group membership can amplify social biases and stereotypes, leading to adverse decisional outcomes for large segments of the population. People often engage with systems that they may not perceive as highly technical, such as applying for a job, yet AI algorithms may influence whether their applications are reviewed. Another example of how pervasive AI has become is in the healthcare sector where AI systems are increasingly being utilised to analyse patient data as well as support both diagnosis and treatment. These systems collect and examine sensitive medical information, which necessitates robust safeguards to maintain patient privacy.

Given the challenges AI poses to data privacy, as outlined above, it is concerning that we currently rely on AI companies to remove personal information from their training data. Despite the data subject’s rights to erasure and to be forgotten, developers can resist such requests by claiming that the provenance of the data used in training AI cannot be proven – or by ignoring the requests altogether. What is needed is a shift towards ensuring that data collection for AI training aligns with the principles of data protection enshrined under the Act.

Conclusion and Recommendations

Currently, Kenya lacks a dedicated or specific AI legal and regulatory framework. However, several existing regulations and initiatives are pertinent to AI development and usage. The Act serves as a foundational legislative piece for safeguarding data in Kenya.

Additionally, the Computer Misuse and Cybercrimes Act, 2018 addresses offences related to digital platforms, which could encompass malicious applications of AI within the country.

In 2018, the Kenyan government also established the Blockchain and Artificial Intelligence Task Force which investigated the potential of AI in the public sector and recommended the creation of an AI policy and regulatory framework for Kenya.

While these measures represent significant progress in mitigating the risks associated with unrestrained data collection and commercialization, the following recommendations can further support AI compliance with data privacy standards:

1. i) Implementing legal frameworks that regulate data intermediaries, that is, data controllers and processors. This can serve as a robust governance mechanism, establishing third parties with clearly defined fiduciary responsibilities aimed at protecting the interests

of data subjects. The rationale behind data intermediaries is that an exclusive focus on individual privacy rights may be too narrow, necessitating a more comprehensive and collective approach to data governance. In the case of Large Language Model training – that refers to trained AI models such as ChatGPT – huge datasets are collected and generated, and it would be arduous for each individual linked to this data to negotiate for their data rights. Data intermediaries then come in to give a collective solution as they would play a big role in mediating the relationship between individuals and companies. These entities would function as cooperatives that aggregate data from various sources thereby solving the challenge relating to the volume of consents required in this situation. They would be tasked with managing access to this data in a way that aligns with the values and priorities of the data subjects, ensuring that their interests are safeguarded throughout the AI development process (i.e., through licensing agreements).

1. ii) Enactment of the proposed Kenya Robotics and Artificial Intelligence Bill, 2023 as well as implementation of the Artificial Intelligence Code of Practice. These dual regimes would collaborate to advance the responsible and ethical development of AI technologies by providing clear guidelines for organisations. These guidelines would emphasise transparency, explainability, and controllability in AI systems. A robust legislative and regulatory framework will define the responsibilities of AI stakeholders throughout the AI lifecycle, requiring organisations to disclose AI data sources and mitigate risks, particularly those related to data breaches. AI providers will be responsible for monitoring operations, overseeing model development and updates, assessing user and community impacts, and ensuring compliance with legal and ethical standards.

iii) Adopting a supply-chain approach to data privacy. AI is pegged on the training of data pieces or data input which influences the AI output. This necessitates the need to ensure data set accountability and transparency all through its lifecycle from input to output, thereby broadly looking at the entire data ecosystem that feeds AI to ensure compliance. It is therefore essential to embed data protection throughout the entire lifecycle of technologies used to train AI models, ensuring that personal data is automatically safeguarded within these systems.

Following its promulgation, the Constitution of Kenya, 2010 (the Constitution), has been hailed as being transformative and progressive. In this regard, one of the notable transformations that the Constitution has brought about is the guarantee of access to justice as provided for under Article 48.

The Constitution also clearly sets out judicial authority and outlines its limits under Article 159 and further lays out the guiding principles for the Courts to adhere to in exercising this authority— that justice is to be administered to all irrespective of status; justice is not to be delayed; alternative forms of dispute resolution are to be encouraged; and justice is to be administered without undue regard to procedural technicalities.

This latter edict, that justice is to be administered without undue regard to procedural technicalities, has sparked significant debate and controversy given that there have been numerous instances where litigants have seemingly thrown procedural rules and constraints to the wind and nonetheless expected favourable outcomes on the substance of the dispute. This issue was addressed in Raila Odinga & 5 Others v IEBC & Others (2013) eKLR, in which the Court had this to say on the effect of Article 159 of the Constitution:

“Our attention has repeatedly been drawn to the provisions of Article 159(2)(d) of the Constitution which obliges a court of law to administer justice without undue regard to procedural technicalities. The operative words are the ones we have rendered in bold. The Article simply means that a Court of law should not pay undue attention to procedural requirements at the expense of substantive justice. It was never meant to oust the obligation of litigants to comply with procedural imperatives as they seek justice from the Courts of law …”

The Courts have continued to demonstrate that a fallback on Article 159 is not always the legal panacea one might expect. On the forefront of upholding this position is the Judicial Review Division of the High Court, which in recent decisions has come to be the shielding grace to litigants who may have been shortchanged as a result of an administrative decision or action taken by a body in authority on account of substantive justice where procedure has not been accorded much regard.

Judicial Review

Judicial Review is the authority vested in the Courts in appropriate proceedings before it, to declare a decision or action by an authoritative body either contrary to, or in accordance with the Constitution or other governing law with the effect of rendering the decision invalid or vindicating its validity. Put simply, it gives effect to the Constitutional principle of checks and balances.

Judicial Review is primarily concerned with the decision-making process and as such, when Courts conduct Judicial Review proceedings, they are in essence ensuring that the decisions made by the relevant bodies in authority are lawful. Consequently, should the Courts find that a decision made by a body is unlawful (be it for reasons such as disregarding procedural technicalities), then the Courts can set aside that decision. The role of the Court is therefore supervisory, and the Court is refrained from delving into a merit review or adopting an appellate approach – which is ordinarily not the function of Judicial Review.

Consolidated Cases

In recently decided consolidated Judicial Review cases, the Court has upheld and enhanced the position that adherence to statutory procedural requirements is not a mere suggestion, notwithstanding the provisions of Article 159 of the Constitution. The backdrop against which these Judicial Review proceedings were filed were historical land injustices alleged to have been suffered by the applicants.

In ELC JR No. 3 of 2020 (R v National Land Commission & 3 Others ex parte James Finlay’s Kenya Ltd & Others) it was the Kenya Tea Growers Association’s (KTGA) case that the National Land Commission (the NLC) in seeking to address the historical land injustice claims lodged on behalf of the communities in the area by the County Governments of Kericho and Bomet, had not adhered to the procedural dictates outlined in section 15 of the National Land Commission Act (NLC Act), and further that the NLC had not granted KTGA an opportunity to be heard.

In ELC JR No. 4 of 2020 (R v National Land Commission & 2 Others ex parte Kakuzi PLC) Kakuzi PLC (Kakuzi) sought Judicial Review relief on the grounds that it carries out intense agricultural activities on the suit properties in question and that the NLC sometime in 2018 served them with a hearing notice in respect of the historical land injustice claims relating to the said parcels of land. Kakuzi sought and was granted interim conservatory orders staying the historical land injustice proceedings which the NLC was conducting. The NLC nonetheless proceeded with the hearings and gazetted recommendations arising therefrom.

In ELC JR No. 5 of 2020 (R v National Land Commission & 2 Others ex parte Eastern Produce Kenya Limited) Eastern Produce Kenya Limited (Eastern Produce), sought Judicial Review Orders on the grounds that the NLC gazetted recommendations arising from a historical land injustice complaint by Kimasas Farmers Co-operative Society against Eastern Produce (Kimasas).

According to Eastern Produce, the effect of the recommendations by the NLC was that various sub-divisions done by Eastern Produce were done illegally and should be cancelled, with the land parcel in question being allocated to Kimasas. These recommendations were to be implemented by the Chief Lands Registrar and the Ministry of Lands.

The common thread arising in these consolidated cases was the historical land injustices meted upon the residents living within the respective areas, which the NLC sought to remedy. The Court found that the NLC indeed had the mandate to adjudicate upon historical land injustices as per section 15 of the NLC Act. However, what was in dispute was the manner and procedure through which NLC conducted these proceedings.

It was contended by the applicants in all three (3) cases that the NLC carried out the respective historical land injustice proceedings without issuing them with due notice to attend and participate in the proceedings and without affording them an opportunity to appear before the NLC and as such, the proceedings were devoid of procedural soundness with respect to guaranteeing fair administrative action. The applicants therefore approached the Court seeking Judicial Review remedies as against the recommendations gazetted by the NLC premised on the fact that in conducting the proceedings, it failed to adhere to procedural dictates outlined in the NLC Act.

In determining the degree of procedural fairness required, the Court assessed the nature of the decision being made, and the process followed in making it. The NLC in conducting the historical land injustice proceedings notwithstanding their recommendations, sought to remedy long-standing land injustices affecting the residents in the areas. What therefore arises is a substantive justice aspect in remedying historical land injustices being pitted against procedural requisites.

The Court thus assessed the procedure followed and whether it met the standard for procedural fairness and found that in all the proceedings conducted, the NLC did not adhere to the dictates of procedural fairness. As such, the Court proceeded to grant the Judicial Review orders sought, including quashing the decisions of the NLC.

In so doing, the Court stated that from the onset, there was no evidence of notification to the applicant to attend the hearings which the Court held to be contrary to the NLC Act, Article 47 of the Constitution and section 4(3) of the Fair Administrative Action Act, 2015. It stated that whereas the nature of the NLC’s mandate with respect to historical land injustices was more investigative than adversarial, it did not take away the need to notify any party to the proceedings and allow it an opportunity to be heard. Failure to do so amounted to a grave procedural violation of the right to fair administrative action and rendered the decision arising out of the proceedings a nullity.

The preceding discussion highlights that Courts are not shy to find in favour of a litigant who has been subjected to proceedings in which procedural fairness has seemingly been sacrificed at the altar of substantive justice. While empathy may be extended to those who have experienced historical land injustices, the NLC holds a paramount obligation to uphold procedural fairness when addressing such matters.

Upshot

As was stated by the Court in Nicholas Kiptoo Arap Korir Salat v Independent Electoral & Boundaries Commission & 6 Others (2013) eKLR, Article 159 of the Constitution, which commands Courts to seek to render substantive justice, was not meant to aid in the destruction of rules of procedure and create an anarchial free-for-all in the administration of justice. The rules and timelines serve to make the process of judicial adjudication and determination fair, just, certain, and even-handed.

Litigants are therefore duty-bound to pay attention and adhere to procedural dictates in the course of their respective cases and ought to beware that a reliance on Article 159 of the Constitution can only come to assist litigants who have themselves adhered to the rules and procedures set to aid in the administration of justice.

While it is trite that all admissible evidence must be relevant, is it the case that all relevant evidence must be admitted? In this article, we embark on a discussion on what is considered illegally obtained evidence under Kenyan law in civil cases and how the Supreme Court has treated illegally obtained evidence in recent decisions.

The Common Law Position

Prior to the promulgation of the Constitution of Kenya, 2010 (the Constitution), Kenyan Courts largely looked to common law on how to deal with illegally obtained evidence in civil cases. At common law, there was no prohibition on adducing any evidence before a court of law, provided that it was relevant to the matters in controversy.

Summing up this position is the holding of the Privy Council in the case of Kuruma, Son of Kaniu v The Queen (1955) AC 197 where it was held “…the test to be applied both in civil and in criminal cases in considering whether evidence is admissible is whether it is relevant to the matters in issue. If it is, it is admissible and the Court is not concerned with how it was obtained.” The position of the Privy Council in the Kuruma case relied upon the decision in Reg. v Leatham (1861) 8 Cox C.C.C 498 where it was iterated rather starkly, “It matters not how you get it, if you steal it even, it would be admissible in evidence.”

Similarly in Helliwell v Piggot-Sims (1980) FSR 356 it was held that “…so far as civil cases are concerned, it seems to me that the Judge has no discretion. The evidence is relevant and admissible. The Judge cannot refuse it on the ground that it may have been unlawfully obtained in the beginning.”

The Supreme Court of the United States of America also had an opportunity to weigh in on the admissibility of illegally obtained evidence in the case of Olmstead v United States (1928) 277 US 438 where it held “…the common law did not reject relevant evidence on the ground that it had been obtained illegally.”

The position set out in the foregoing authorities, i.e., that all relevant evidence is admissible regardless of how it was obtained, has formed the basis of many decisions by Kenyan Courts on the issue of illegally obtained evidence in civil cases, at least until the year 2010.

The promulgation of the Constitution however brought in a different perspective on the issue of illegally obtained evidence. In particular, the Constitution provides as follows in Article 50 (4):

“Evidence obtained in a manner that violates any right or fundamental freedom in the Bill of Rights shall be excluded if the admission of that evidence would render the trial unfair or would otherwise be detrimental to the administration of justice.”

This provision departs from the common law position by providing exceptions to the rule that all evidence, if relevant, is admissible.

Supreme Court Decisions

We now consider two (2) decisions of note handed down by the Kenyan Supreme Court in which the Court considered the issue of illegally obtained evidence with respect to public documents being Njonjo Mue & Another v Chairperson of Independent Electoral and Boundaries Commission & 3 Others (2017) eKLR (the Njonjo Mue case) and Kenya Railways Corporation, the Attorney General and The Public Procurement Oversight Authority v Okiyah Omtatah Okoiti, Wyclife Gisebe Nyakini, The Law Society of Kenya and China Road and Bridge Corporation (2023) eKLR (the SGR case).

The Njonjo Mue Case

The Njonjo Mue case was a Presidential Election Petition which sought to challenge the results of the Presidential Election held on 26th October 2017, whereby the Independent Electoral and Boundaries Commission (IEBC) declared H. E. Uhuru Muigai Kenyatta the President elect. In urging their case, the Petitioners sought to rely on internal memos (the Memos) sent to the Commissioners and staff members of the IEBC. H. E. Kenyatta filed an application urging the Court to expunge the Memos from the Petition, on the basis that the documents had been illegally obtained.

In so contending, H. E. Kenyatta argued that the IEBC had issued a clarification indicating that the contents of the Memos were neither discussed nor sanctioned by it and that it only came to know about the Memos from the media. It was further contended that the Memos raised matters which were yet to be resolved by the IEBC, were not authenticated, were produced in piecemeal and taken out of context, with a view to aid the Petitioners’ case.

In rendering its decision, the Supreme Court considered that “…information held by the State or State organs, unless for very exceptional circumstances, ought to be freely shared with the public. However, such information should flow from the custodian of such information to the recipients in a manner recognized under the law without undue restriction to access of any such information.” The Supreme Court ultimately made a finding that the Petitioners had failed to account for how they accessed the Memos and had breached the provisions of sections 27 of the IEBC Act and Articles 24 (1) and 35 (1) of the Constitution, pertaining to access to information. As such, the Memos were expunged from the Petition.

The SGR Case

The SGR case is the Supreme Court’s latest pronouncement on the issue of illegally obtained evidence. This case commenced in the High Court where Okiya Omtatah Okoiti, Wyclife Gisebe Nyakina and the Law Society of Kenya (the 1st, 2nd and 3rd Petitioners) filed Petitions against the Kenya Railways Corporation, the Attorney General, the Public Procurement Oversight Authority and China Road and Bridge Corporation (the 1st, 2nd, 3rd and 4th Respondents)

challenging the procurement process for the construction of the Standard Gauge Railway (SGR) contending inter alia that the single sourcing or direct procurement for SGR was illegal and that the entire procurement process run afoul various sections of the Public Procurement and Asset Disposal Act of 2005 (PPDA) and the Public Finance Management Act, 2012. Of relevance to this article, is that the petitioners sought to rely on various correspondence between officers of government institutions, the financier of the SGR Project, the 1st, 2nd and 4th Respondents, and the Office of the Deputy President (the Correspondence). The Respondents filed a Cross-Petition seeking inter alia the expungement of the Correspondence contending that their production was contrary to Articles 31 and 35 of the Constitution, and section 80 of the Evidence Act (Cap. 80) Laws of Kenya.

After hearing the Petitions, Lenaola, J (as he then was) dismissed the Petition and allowed the Cross-Petition to the extent of expunging the Correspondence. On appeal, the Court of Appeal affirmed the High Court’s finding on the issue of inadmissibility of illegally obtained evidence. However, the Court of Appeal allowed the Petition to the extent of declaring that the 1st Respondent had failed to comply with Article 227 (1) of the Constitution and sections 6 (1) and 29 of the PPDA.

Finding themselves partially aggrieved by the decision of the Court of Appeal, the Respondents filed Petitions of Appeal in the Supreme Court. In response, the 1st and 2nd Petitioners filed a Cross-Appeal challenging the Court of Appeal’s findings, notably the decision to expunge the Correspondence. In defending their position, the 1^st and 2nd Petitioners intimated that they obtained the Correspondence from whistleblowers who feared for their safety and thus required anonymity in exchange for providing the highly confidential documents. The Supreme Court found this reason unacceptable, citing the existence of bodies such as the Witness Protection Agency (under section 3A of the Witness Protection Act, 2006) that would have protected the whistleblowers had they provided the Correspondence through the right channels. Further, the explanation was found wanting as it was bereft of details.

Interestingly, some of the Correspondence consisted of documents tabled before Parliament and were being debated in some of Parliament’s committees. This, according to the 1st Petitioner, made the impugned documents public documents. However, citing Parliamentary privilege and the power of Parliament to call for evidence including documents under Article 125 of the Constitution, the Supreme Court held that the impugned documents did not mutate into public documents for this reason, and would thus remain inadmissible.

Conclusion

In a marked departure from the previously prevailing common law position that freely allowed for adducing of relevant evidence no matter how it was obtained, the position of Kenyan Courts, as pronounced by the Supreme Court in the foregoing decisions, is that the production of illegally obtained evidence in Court is prohibited, more so in the case of public documents that are produced in violation of the law. It thus appears that in balancing the competing interests, the Court lends greater weight to safeguarding procedural fairness than what the probative value of the evidence might be. The message from the Supreme Court may thus be aptly summarized thus: The Courts will not look favourably upon a litigant who rushes to Court alleging the violation of the Constitution while relying on evidence obtained in violation of the very same Constitution.

Now in its third year, the Oraro & Co. for the Ozone Run has emerged as a cherished event, eagerly anticipated by the community it has built. Held on 21st September 2024, in the lush settings of the Karura Forest, this year’s run not only celebrated our collective achievements in raising awareness about mangrove conservation but also reflected on the remarkable journey we have undertaken thus far, together. As participants laced up their sneakers and took to the picturesque trails, the atmosphere was charged with purpose, reminding us that each step taken is not merely an act of fitness but a stride toward a more sustainable and hopeful future.

The 2024 Theme: ‘The Power of Mangroves’

Mangrove forests are vital to coastal resilience, serving as natural buffers against storm surges and significantly mitigating the impacts of cyclones and hurricanes. Their intricate root systems filter pollutants and enhance water quality, benefiting both marine life and the local communities reliant on clean water. Additionally, mangroves are biodiversity hotspots, supporting a diverse array of species, including commercially important fish. Protecting these ecosystems is essential for preserving rich biodiversity and preventing habitat loss. Furthermore, mangrove conservation empowers local communities by providing sustainable livelihoods, particularly through fishing, making it a crucial element in the fight for environmental sustainability.

Vanga Blue Forest – The 2024 Beneficiaries

This year, the proceeds from the run will support Vanga Blue Forest, a vital community-led mangrove conservation and restoration project located in southern Kenya.

Vanga Blue Forest was developed when the communities of Vanga, Jimbo, and Kiwegu recognized the benefits that its sister project, Mikoko Pamoja, brought to local people and the environment. Launched in 2019, Vanga Blue Forest aims to provide long-term incentives for mangrove protection and restoration through active community involvement.

Governed by the Vanga, Jimbo, and Kiwegu Community Forest Association (VAJIKI CFA), this initiative aims to protect and restore 460 hectares of mangroves, including the stunning mangroves of Sii Island. The Association for Coastal Ecosystem Services, a registered charity in Scotland, acts as the project coordinator. Vanga Blue Forest significantly contributes to combating climate change by capturing and storing over 5,500 tonnes of carbon dioxide each year. Additionally, the project prioritizes reforesting areas previously cleared for salt pans and establishing timber nurseries to address local needs, fostering both environmental restoration and community resilience.

Reflecting on Three Years of the Ozone Run 

2022: The Inaugural Run

In 2022, Oraro & Company Advocates made a significant commitment to environmental stewardship by launching the Oraro & Co. for the Ozone Run, a flagship initiative aimed at contributing towards global efforts in combating climate change. Partnering with Ngong Road Forest Sanctuary, the inaugural event celebrated World Ozone Day by raising awareness about the impacts of deforestation. This inaugural run not only highlighted the critical importance of reforestation and conservation but also reaffirmed the firm’s commitment to environmental protection, successfully raising funds for the planting of 1,100 indigenous tree seedlings in the sanctuary.

2023: A Commitment to Beat Plastic Pollution

In 2023, aligning with the global call to action for World Environment Day under the theme #BeatPlasticPollution, we proudly presented the second edition of the Oraro & Co. for the Ozone Run, dedicated to combating one of the gravest environmental challenges of our time. By inviting various stakeholders to participate, we created a platform for collective action in the movement to reduce plastic waste and protect our ecosystems. This year’s run aimed to raise awareness about the detrimental effects of plastic pollution – its contamination of water bodies and harm to marine life – while also addressing its significant contribution to greenhouse gas emissions and climate change.

The funds raised from this run benefited Gjenge Makers, enabling them to purchase a crusher that significantly enhanced their production capacity of cabro blocks made from recycled plastic. This investment allows them to expand their innovative work in creating sustainable building materials from recycled plastic waste, amplifying their positive impact on both the environment and local communities. By boosting their capabilities, Gjenge Makers is now better equipped to tackle plastic pollution while providing solutions that contribute to a greener future.

2024: A Wave of Mangrove Action

In 2024, we rode the tide of community spirit with the Oraro & Co. for the Ozone Run, themed ‘Protecting Our Shores: The Power of Mangrove Trees.’ This year’s event powerfully underscored the essential role that mangroves play in safeguarding coastal ecosystems and mitigating climate change. As participants fully immersed themselves in the experience, they responded to the urgent call for marine conservation, emphasizing the significance of these natural buffers that protect shorelines and promote biodiversity.

By raising awareness of the critical benefits of mangrove restoration, we united runners, colleagues, clients, families, and environmental advocates in a shared mission to keep our shores vibrant and resilient. Together, we demonstrated that collective action makes waves in the fight for a sustainable future.

A Heartfelt Thank You

To all our participants, sponsors, clients, colleagues, family, friends and vendors we extend our deepest gratitude for your unwavering support throughout the years. Your commitment to the Oraro & Co. for the Ozone Run has been instrumental in driving our mission forward and raising awareness about critical environmental issues. Each step you took, every donation made, and all the encouragement shared have collectively created a powerful ripple effect. Together, we are not just participants, donors or service providers; we are champions of a cause that transcends distance and time. Thank you for being an integral part of this journey toward a more sustainable future. Your involvement inspires us to strive for greater heights and make a lasting impact for generations to come.

Looking Ahead

As we look to the future, the Oraro & Co. for the Ozone Run is committed to evolving and expanding its impact. We invite everyone to continue this journey with us. Together, we can continue to amplify our voices, joining other active local and global voices in creating a movement that emphasizes the importance of a sustainable future.

Remaining Committed

The Oraro & Co. for the Ozone Run has transformed into more than just an annual event; it is a testament to what can be achieved when a community comes together for a common cause. As we celebrate the successes of the past three years, we remain committed to raising awareness about ozone issues and fostering a healthier environment for all. With every step we take, we move closer to a future where clean air and thriving ecosystems are a reality for generations to come. Let’s continue this journey together – breathe easy, live green.

Liquidated Damages (LDs), also known as Liquidated and Ascertained Damages (LADs), are clauses that establish a predetermined amount that the breaching party must pay to the other party for a specified breach and operate as an exclusive remedy in respect of that breach. The primary purpose of these clauses is to pre-define the damages payable in the event of a breach, ensuring that the damages are compensatory rather than punitive.

Historical Origins and Development

Penal bonds were commonly used before the introduction of LDs. These bonds involved a promise to pay a specified sum if another obligation was not fulfilled. Initially, common law Courts upheld and enforced these penal bonds – however, Courts of equity intervened, offering relief by restraining actions based solely on penalties.

After the penal bond, the agreed sum for breach of contract emerged, reversing the previous approach where penalties were the primary obligation in agreements. In the 18th Century, a party could choose to sue either for the penalty or for damages.

It was not until 1801 when the doctrine of LDs was first established, pursuant to which a plaintiff could only recover the actual damage proven, even under common law. This implied that if the sum was a pre-estimate of the loss, it would not be regarded as a penalty and could be recovered as LDs.

Difference between LDs and Penalties

The distinction between an LDs clause and a penalty clause in a contract is critical as it affects the enforceability of the stipulated sum in case of breach. First, a stipulated sum will be classed as a penalty where it is in the nature of a threat fixed in terrorem of (i.e., to scare) the other party, coercing them to act in a particular way with the intention of preventing a breach of the contract. Generally speaking, when a stipulated sum is described as being in terrorem it implies that the amount is not a genuine pre-estimate of loss, but rather a punitive measure which is designed to coerce the other party into fulfilling their obligations under the contract out of fear of the severe penalty.

Secondly, a stipulated sum is considered to be a penalty if it is extravagant and unconscionable in comparison with the loss that could be proven to have followed from the breach. In addition, when a single stipulated sum is applied to various types of breaches— some of which may carry substantial financial consequences, while others are relatively minor— it raises a presumption that the sum is intended as a penalty. This presumption, though not definitive, suggests that the sum is not a genuine pre-estimate of damages but rather a punitive measure designed to discourage breaches of any kind.

Pros and Cons

In construction contracts, LDs clauses are a critical tool used to manage and allocate risks associated with potential breaches, particularly delays in project completion. While LDs clauses offer significant advantages in terms of certainty and risk management, they also come with potential drawbacks that must be carefully considered during contract negotiation.

Pros

One of the primary benefits of LDs clauses is that they define the contractor’s liability for a specified breach, leaving both parties with certainty on the potential consequences of a breach. It is difficult to predict additional costs within contractual relationships, particularly those related to delays, with the result that establishing fixed monetary liability on the outset offers valuable clarity to both parties. For the contractor, agreeing to LDs provisions reduces uncertainty surrounding potential penalties for missing the completion deadline, allowing for more accurate risk assessment.

In the case of Ravina Agencies Limited v. Coast Water Works Development Agency (2024) KEHC 3264 (KLR) the Court examined a contractual provision stating that the payment of LDs would not affect the contractor’s liabilities. The Court observed that: – “There is no dispute that the Defendant deducted Kshs 4,415,299.88 from the sums due to the Plaintiff for completed works. The deduction is reflected in the Certificate for Interim Payment dated 14th October 2015, at page 88 of the Plaintiff’s Bundle of Documents. The explanation given by DW1 was that the aforesaid sum was deducted as liquidated damages on account of the delay the Plaintiff in completing the works and as pointed out herein above, notice to this effect was given by the Defendant vide its letter date 28th July 2015…

From the uncontroverted evidence presented herein, it took the Plaintiff 1½ years to complete the project. In the premises, the Defendant was within its rights to charge liquidated damages as provided for in Clause 52.1 of the General Conditions of Contract…”

In addition, LDs negate the need for the innocent party to prove the actual loss suffered, as LDs are recoverable as a debt, thereby bypassing the need for costly proof of damages. The clause enables a contractor to conduct a cost-benefit analysis to assess whether it is more commercially advantageous to pay the stipulated damages or pursue other options. Furthermore, the specified level of LDs serves as a ceiling for damages payable, thereby preventing a party from altering the amount even if the actual loss surpasses the stipulated LDs.

LDs also save time and expenses. By agreeing on a rate for LDs, the need for costly and lengthy legal proceedings to determine the employer’s losses from a breach is eliminated. Instead, the employer can simply deduct the damage from an interim or final payment to the contractor, following the issuance of a “pay less” notice. Although the contractor must pay the LDs, they avoid the legal costs that would otherwise be incurred in proceedings to determine the general damages owed to the employer for the breach.

Further, from a commercial perspective, the employer’s reasons for imposing LDs are likely to include the desire to deter breach of contract or, at least, to encourage compliance by the contractor in the contract.

Cons

Typically, LDs clauses are designed to apply only to specific breaches. However, there are instances where an employer may attempt to impose LDs for a different type of breach. Conversely, though less common, an employer might argue that a particular breach falls outside the scope of the LDs clause, while the contractor contends that it does. For example, if the employer suffers a substantial and unforeseen loss, they might seek to bypass the exclusive remedy provided by the LDs clause in favor of pursuing general damages.

Issues related to LDs in a subcontract arise from the terms agreed upon during contract negotiations. One challenge is passing down LDs from the main contract to the subcontract.  If the subcontract stipulates a lower LDs amount than the main contract, the main contractor’s ability to pass on LDs deductions to the responsible subcontractor is limited to the lesser amount. This exposes the main contractor, as it will be forced to cover the shortfall in the LDs deducted by the employer.

Consequently, if a subcontractor’s delay causes a corresponding delay for the main contractor under the main contract, the amount recovered from the subcontractor would be borne by the employer. In cases where LDs are the exclusive remedy for delay, the main contractor would receive no additional compensation for direct losses caused by the subcontractor’s delay beyond the LDs paid to the employer under the main contract.

LDs clauses generally do not allow a party to recover a higher sum than the stipulated amount, even if the actual damages are significantly greater. This situation often arises when the stipulated sum is intended to cover a range of varying and potentially unprecedented breaches. In the case of Diestal v Stephenson (1906) 2 KB 345, a contract for the sale of coal stipulated that the defaulting party would pay one (1) shilling for every tonne not delivered. Despite the seller’s greater loss due to non-delivery, the Court held that the seller was limited to recovering only the stipulated amount.

In an ideal contractual setting, LDs would be negotiated between parties of equal bargaining power, ensuring both parties agree on terms that are balanced. This may, however, not be the case in public contracts awarded through tendering processes whereby contracts may be presented on a “take it or leave it” basis with the contracting authority having pre-determined LDs.

Alternative Remedy

An alternative remedy or option to LDs is the extension of time, where the employer (normally acting through its designated architect) permits the contractor’s request for an extension of time with respect to the completion deadline as a result of a relevant delay event specified in the contract. These events include, but are not limited to force majeure, variations to design, industrial action, abnormal weather conditions, or delays caused by the employer’s failure to hand over the site on time.

Conclusion

LDs clauses serve as a powerful tool in contract management, offering clear benefits in risk allocation, cost certainty, and streamlined dispute resolution. However, they also come with limitations, such as the risk of unenforceability if deemed punitive and the challenge of applying them to unforeseen breaches. Parties must carefully draft LDs clauses to balance fairness with commercial needs, ensuring they are neither excessive nor too restrictive. Ultimately, the decision to include LDs should align with the parties’ overall risk management strategy and project objectives.

The Governments of Zambia and Tanzania, jointly manage a 1,710km long TAZAMA Pipeline. TAZAMA (acronym of Tanzania and Zambian Mafuta (oil in Swahili) Authority) pipeline was built to overcome the Zambian oil crisis that emerged after the white settler community in Rhodesia (now Zimbabwe) issued a unilateral declaration of independence in 1964 and frustrated Zambia’s petroleum imports through their country. The pipeline runs from the Tanzanian capital of Dar-es-Salaam to Ndola, a hub of the Copperbelt Province of Zambia. The pipeline was built between 1967 and 1968 by the Italian national oil company, Ente Nazionale Idrocarburi (ENI).

Crude stock was transported through the pipeline for the exclusive purchase, refinery and wholesaling under the Government of the Republic of Zambia (GRZ) owned Indeni Petroleum Refinery (which was a 50-50 joint venture with Total of France). No Oil Marketing Company (OMC) was permitted to import the crude stock to feed into the pipeline.

Following years of Indeni Refinery plant decline as well as crude oil financing hurdles, a policy decision was made to transform the pipeline and enable it to transport “low sulphur gas oil” (LSGO). The conversion was successful and to facilitate OMCs to import LSGO. To facilitate this, GRZ through the Ministry of Energy and after consultation with stakeholders, approved “TAZAMA Pipeline Open Access Guidelines” (the Guidelines). From an efficiency view point, the previous monopoly of importation, refinery and wholesale under State control, while servicing some strategic public interest, was not sustainable and prone to mismanagement, corruption and created a barrier to development of a robust oil supply chain in Zambia. It is hoped that the implementation of these well-intentioned Guidelines shall not be marred by, among others:

• unfair, rigid or unpragmatic contract terms that may be included under paragraph 3.1 of the Guidelines;
• selection and registration process for OMCs to access the Pipeline under paragraph 4 of the Guidelines shall not be onerous in documentation, high in “registration fees”; prone to political patronage and undue time-wasting paper work;
• a “high powered” 9-member Evaluation Committee at paragraph 4.1.2, of which 3 must be employees of the Ministry of Energy. It is not clear from the Guidelines how the other 6 members shall be appointed, notwithstanding that 3 members from the same Ministry is a recipe for interference in the professional evaluation process in an “open access” regime;
• a bi-annual review of the Guidelines “and as and when required”, with the Ministry’s finger on the trigger as the key determinant of the review process under paragraph 7 of the Guidelines.

Otherwise, kudos to Zambia’s Energy Regulation Board (ERB), the OMCs and the Ministry of Energy for the Guidelines that are expected to foster competition, provide for effective and efficient use of the pipeline, and hopefully, facilitate sustainable availability of the LSGO.

So far, Zambia’s fragile roads to and from Tanzania in the north and to and from the ports of Beira and Durban in Mozambique and South Africa respectively, are lined with oil tankers hauling fuel into Zambia (including those proceeding to the Democratic Republic of Congo –  DRC). It is not yet clear the extent to which Indeni is able to satisfy the local market, as well as take advantage of exports, if any, to the DRC, through the utilization of the pipeline.

While the open access Guidelines are in place, the test of the efficacy of the Guidelines will be seen in terns of the extent of application of the principle of “competitive neutrality” i.e., the fair, transparent, and non-discriminatory application of the Guidelines and notably, procurement process for both State-owned/managed actors and the private sector players. The competition law of Zambia binds the State to the same competition rules, insofar as the State or an enterprise owned, wholly or in part, by the State engages in trade or business for the production, supply, or distribution of goods or the provision of any service within a market that is open to participation by other enterprises.

It is therefore not surprising that the International Monetary Fund (IMF), reportedly in November 2024 included the implementation of the Guidelines as a key performance indicator with the Zambian Government. According to news reports, this primarily is aimed as ensuring that Indeni shall be subjected to competitive bidding process together with the private sector bidders.

With a nine-member evaluation committee having 3 members who are employees of the Ministry of Energy, with the tender drafting itself being undertaken by the Ministry of Energy itself, the actualization of competitive neutrality will be under the hawkish eyes of the IMF and the powerful OMCs.

On 21st April 2023, the Supreme Court delivered its Judgment in Dina Management Limited v County Government of Mombasa & 5

Others (2022) KESC 24 (KLR) wherein it dismissed the Appellant’s Petition of Appeal. The decision sent seismic shock waves across the Kenyan legal terrain the reverberations of which arguably upended an entire system of land law. The history of the case dates back to September 2017, when it is claimed by the Appellant (Dina Management Limited) that the 1st Respondent (the County Government of Mombasa), without prior notice, forcefully entered the property known as MN/1/6053 situated in Nyali Beach, Mombasa County (the Suit Property), which was registered to the Appellant, and demolished the entire perimeter wall facing the beachfront and also proceeded to flatten the developments on the suit property.

Prior to filing of the Petition of Appeal, the Appellant and the 1^st Respondent had filed Petitions before the Environment and Land Court (the ELC), which were consolidated to be heard as one (1) case. Among the issues for determination before the ELC was whether the Appellant should suffer the faults (if any) of the third parties in the matter. On this issue, the ELC found that the Appellant could not be protected as a bonafide purchaser without notice as it failed to demonstrate that it had conducted due diligence before purchasing the Suit Property.

Aggrieved by the decision of the ELC, the Appellant moved the Court of Appeal, which, in delivering its Judgment on the issue, agreed with the ELC that the Appellant cannot enjoy protection under the doctrine of the bonafide purchaser. The Court of Appeal’s rationale was that because the Suit Property was originally acquired unlawfully, the title in the property could not qualify for indefeasibility. It is against this background that the Appellant filed the present Petition of Appeal in the Supreme Court.

The Supreme Court’s determination

In its Judgment, the Supreme Court indicated that to establish whether the Appellant is a bonafide purchaser, there was need to go to the root of the title, right from the first allotment.

It was not in contention that the Suit Property was first allocated to the former President, H. E. Daniel arap Moi, in 1989, and that the applicable law at the time relating to physical planning was the Land Planning Act (Cap. 303) Laws of Kenya, which was later repealed by Physical Planning Act (Cap. 286) Laws of Kenya, which has since been repealed by the Physical and Land Use Planning Act, No. 13 of 2019.

Under the Development and Use of Land (Planning) Regulations, 1961 made under the Land Planning Act, public open spaces were classified as land designated for public purposes. At the time, the Suit Property was designated as an open space. It is on this premise that the Supreme Court held that the Suit Property was a public utility and could not be described as unalienated land that was available for allotment as urged by the Appellant.

Nonetheless, the Supreme Court, in giving the Appellant the benefit of the doubt, discussed the procedure for allocating unalienated land. In its analysis, the Supreme Court pointed out that a Letter of Allotment, being one of the primary documents used in the allocation of land, should be accompanied by a Part Development Plan, which document was not produced in Court as evidence of the allocation of the Suit Property to the seller. As such, the Supreme Court found that the said allocation would have been irregular in any event.

Consequently, it was held that because the first allocation of the Suit Property had been irregularly obtained, there was no valid legal interest which could pass to the seller, who in turn could pass to the Appellant. The Supreme Court’s rationale was that the Appellant ought to have been more cautious in undertaking its due diligence, when purchasing the Suit Property.

While the Petition of Appeal raised various issues for determination, the crux of this article is the Supreme Court’s interpretation of the doctrine of the bonafide purchaser in light of the Curtain Principle.

The Curtain Principle

The Curtain Principle is one of the foundational principles of the Torrens system of registration of land. The Torrens system, which finds its roots in Australia, is a system of land registration under which the Certificate of Title is sufficient evidence of good title. There are three (3) principles underpinning this system, that is: the Mirror Principle, the Curtain Principle, and the Insurance Principle. More specifically, the Curtain Principle stipulates that there is no need to look beyond the register, as the Certificate of Title contains all information about the title. In essence, a purchaser need not make inquiries or search previous titles as the current Certificate of Title serves as proof of ownership.

The Curtain Principle is enshrined under section 26 of the Land Registration Act, No. 3 of 2012 (the LRA) under which a Certificate of Title issued by the Registrar is deemed to be conclusive evidence of ownership of land. However, the Supreme Court, in its Judgment, departed from the Curtain Principle on the basis that for a purchaser to seek refuge behind it, he must demonstrate that he is a bonafide purchaser, and should be able to go to the root of the title which he holds.

The Doctrine of the Bonafide Purchaser

The Curtain Principle may be interpreted alongside the doctrine of the bonafide purchaser as the two are both founded on the same rationale. Black’s Law Dictionary (8th Edition) at page 1271 defines a bonafide purchaser as follows:

“One who buys something for value without notice of another’s claim to the property and without actual or constructive notice of any defects in or infirmities, claims, or equities against the seller’s title; one who has in good faith paid valuable consideration for property without notice of prior adverse claims. Generally, a bonafide purchaser for value is not affected by the transferor’s fraud against a third party and has a superior right to the transferred property…”

Until recently, the Courts took the position that purchasers could seek refuge under section 26 of the LRA. The rationale behind this is that the responsibility to ensure the accuracy of the register and the authenticity of titles lies with the Government, and not individuals, which is by law required to pay compensation for any fraud or other errors committed during registration.

The Court of Appeal in Tarabana Company Limited v Sehmi & 7 Others (2021) KECA 76 (KLR) aligned itself with this position in stating that:

“With due respect to the learned trial Judge, the means of determining whether the Appellant’s title was indefeasible and not subject to challenge is spelt out under section 26 of the LRA. What was required was to determine whether the Appellant was in any way involved in the process through which the 4th Respondent obtained title, which the learned Judge found was irregular and with which we agree. There was no evidence adduced before the trial court to show that the Appellant played any role, or was involved in any way in the said process. If title was acquired by fraud, or misrepresentation, illegal, unprocedural or corrupt scheme, the same was before the Appellant came into the picture. We therefore find that the appellant was a bonafide innocent purchaser for value for these reasons, and its title could not and cannot be challenged.”

However, the foregoing is tempered by an alternative school of thought, which is what was followed by the Supreme Court. Under this school of thought, it is posited that the doctrine of the bonafide purchaser should not allow a purchaser free rein to throw caution to the wind, and a purchaser is required to undertake sufficient due diligence at all stages, including satisfying himself on the propriety of the origin and history of the title. In this regard, the Court of Appeal

in the case of Arthi Highway Developers Limited v West End Butchery Limited & 6 Others (2015) eKLR was succinct in stating that:

“For a purchaser who claims that due diligence was carried out at all stages, we find it difficult to believe that there was no explanation sought from the Registrar of Titles about the mysterious disappearance of the original Deed file from the strong room of the land registry. It was common knowledge, and well documented at the time, that the land market in Kenya was a minefield and only a foolhardy investor would purchase land with the alacrity of a potato dealer in Wakulima market.”

In reiterating this position, the Supreme Court in its Judgment pronounced itself as follows:

“…where the registered proprietor’s root title is under challenge, it is not enough to dangle the instrument of title as proof of ownership. It is the instrument that is in challenge and therefore the registered proprietor must go beyond the instrument and prove the legality of the title and show that the acquisition was legal, formal and free from any encumbrance including interests which would not be noted in the register.”

Conclusion

The Judgment of the Supreme Court in Dina Management Limited v County Government of Mombasa & 5 Others is a clear departure from the Curtain Principle that underpins the Torrens system. In essence, it is the Supreme Court’s position that a purchaser cannot claim to be a bonafide purchaser if he cannot go to the root of the title and, in effect, cannot seek refuge under the Curtain Principle. It is therefore advisable for a purchaser to investigate all titles preceding the current one, and it is no longer enough to rely on a Certificate of Title as conclusive proof of ownership.

The Supreme Court’s Judgment, in our view, is a double-edged sword. While it may discourage fraud in land transactions, which is a growing menace, departing from the Curtain Principle may prove to be problematic in the sense that it defeats the purpose of section 26 of the LRA, and altogether discourage the buying and selling of land in this country.

This article serves as a continuation (Part 2) of the Hydra Headed Challenges of the Proposed Privatization of the Electricity Company Of Ghana (ECG)  an Op-Ed, delving deeper into the topic, expanding on key insights, and addressing additional perspectives to provide a more comprehensive understanding.

11. Impact on the Government’s 24-hour Economy Strategy

One of the Government’s flagship policies – the 24-hour economy is yet to be fully rolled out.  So far, it has gained interest and also been viewed with skepticism in some quarters. Obviously, businesses who opt to run around the clock operations will require around the clock stable power supply. Will the tariff policy of a private sector ECG take the 24-hour economy into account? Will the tariff be designed to encourage the adoption of the 24-hour economy by selected businesses so that they are encouraged to operate around the clock as a result of deliberate lower tariff at low peak periods?

12. Multiple Prepaid Meters

There are a multiplicity of prepaid meters currently in use by ECG customers and in recent years, ECG frequently introduced “new meters” almost at will. What will the harmonization strategy be? Will the end-user have to continue with this or will there be a metering uniformity approach? Will any harmonisation measure result in cost to the consumer?

13. Will ECG’s Assets be Disaggregated Between “Core” and “Non-Core” Assets?

ECG possess assets (asset such as “spare land”) that may not necessarily be required for the operations of a utility entity.  Will the company’s assets be segmented and if so, will there be a “non-core assets” category that GoG may auction to earn some income to offset any accrued debt it will absorb?

14. A History of Failure of State-Owned Enterprises (SOEs)

In the late 80s and early 90s, quite a number of statutory corporations (ECG being one of them) were converted into private limited liability companies. The expectation at the time was that these SOEs (apart from those subsequently divested to the private sector) will be run as private sector corporate entities and make profits. The case of ECG is very similar to that of many other SOEs – it has become more indebted as a limited liability company than it was when it was a statutory corporation. On the other hand, other electricity distribution companies managed by the private sector (e.g. Genser and Enclave Power) must obviously be making profits otherwise, they would not have attracted private sector investments. The lesson is that it is not whether the entity is owned by the state, it is whether it is properly managed as a business. How will the privatization approach ensure that the private sector operator does not make ECG a more indebted entity?

     15. Transfer Pricing Prevention and Dividend Strategy

There are numerous examples of entities in which Government hold shares but for which Government earns no dividends and ends up being saddled with debt.

If GoG retains equity, what will be GoG’s position on dividends as a condition for sale? Will there be a mandatory dividend policy? Will there be benchmarks or cost parameters modelled in a manner to ensure GoG can forecast dividends after a specified period (when ECG becomes profitable). Can such dividends be drawn down ahead of the end of year financial statements?  Can GoG borrow against such projected dividends?

16. Compact with USA Millennium Development Authority (MIDA), Millenium Challenge Corporation (MCC)

Will GoG receive any grant for ECG aspects under Ghana’s second Compact with the USA (focused on the power sector “Compact”)? Will there be additional capital expenditure incurred by the Government? Will the new government of USA continue with the Compact? What will be the implication of either scenario?

17. Impact of Access to Electricity

Since the GoG has a policy to increase citizens’ access to electricity, especially in deprived communities, how will this be achieved in a commercial led ECG operations?

18. Separating the Wheat from the Chaff

How will Government set parameters to separate serious bidders who have the technical and financial muscle from those who are just adventurers seeking transactional opportunities? Naturally, there may be “middlemen” who may parade the appropriate corridors – how will GoG minimize this and ensure there is greater transparency in the process?

19. Requirements to List on the Ghana Stock Exchange (GSE)

Will the new owner be required to list ECG on the GSE in order that ordinary Ghanaian can own shares and if so, will there be a requirement to list a specified percentage of the equity (in order to retain a percentage of dividends in local currency)?

20. Local Content and Growth of Private Sector

There are a number of “local content” related issues that must be factored into the process.

• There is an assumption that Ghanaian entities do not have financial wherewithal to take over a company like ECG.  This may be true but there are other areas of already deepening local participation which can be further deepened.

How will the framework ensure that the private entity purchases inputs (e.g. cables and meters) from local suppliers?  Without such arrangements, purchase from sources outside Ghana could adversely affect local players especially because ECG is a near monopoly.

Examples include:

• Supply of cables (Nexans Kabelmetal Ghana Ltd., Reroy Cables Ltd, Tropical Cable & Conductor Ltd., etc. )
• Manufacture of meters and transformers (e.g. Alpha TND Ltd., Westrafo Gh Ltd, Ghana Electrometer)
• The marketing and sale of credit to the final consumer can be separated from distribution.  If this is done, will the marketing and sale be reserved for local vendors and if yes, how will these vendors be selected by the foreign-led entity in a transparent process without politically exposed persons leveraging their influence to lodge themselves into the chain?  Presently, the Energy Commission License Manual provides for separate licenses for distribution and sales so it may be important to indicate how the private entity will be given both licences.
• Further, how does GoG seek to achieve the over ambitious local content targets set out in the Local Content and Local Participation Guidelines issued the Energy Commission.

21. Potential Impact on GoG’s Industrialization Agenda

The Government has expressed its intention to pursue a value addition strategy. Already, many manufacturers claim they have been struggling to remain competitive as a result of the high cost of capital and high cost of utility. No country can industrialise if it is selling power to strategic industries for more than $0.06 per KWh (Ghana is selling above that price).  Since a private sector led ECG will naturally be profit driven, what strategy will GoG use to balance the cost of power to industry (and the need to lower tariff to selected industries) in order to achieve the industrialisation objectives?

22. How will it Affect the Integrated Aluminium Industry

The potential of the integrated bauxite to aluminium sector as a game changer is well known.  Whereas parts of this industry (e.g. VALCO and potential refinery) will remain bulk purchasers in the deregulated market (and will not rely on ECG), allied industries further downstream (e.g. entities involved in aluminium based fabrication of household items) will need ECG. It is therefore important that the privatization of ECG is not considered in isolation since these downstream industries are major job creators.

23. Climate Change, “Legacy Hydro”, Power Source Mix and Matters Arising

Recently, a lot of finance which goes to the power sector are designed to achieve green transition objectives in order to attract climate finance.  This trend is likely to impact the sources from where a private sector led ECG procures funds for future investment. The ability to attract financing will also depend on the sources from which ECG gets its power to distribute.

Is there going to be a conscious policy on the power mix so that overtime (and in line with Ghana’s energy transition policy) the selected operator will increase the renewables component of the power mix that it distributes?

• There are already allied measures such as the Renewable Energy Fund which has not been funded – how will the fund be populated and will ECG be required to increase purchases from renewables?
• Net metering from household solar users– will the private sector entity be required to continue the net-metering arrangement and which incentives will GoG give to encourage private operators to continue with climate friendly net metering arrangements?

24. Legacy Hydro and Volta River Authority (VRA)

How will GoG leverage the advantage of the comparatively low generation cost from its Akosombo Dam (which is essentially a “legacy hydro” asset) in order to create a mix that enables GoG to provide targeted industry friendly tariff.

25. Board Appointees

If the Government has representatives on the board how would these representatives be chosen and how do they ensure that Government interests is protected at all times? What reporting mechanisms will GoG put in place to ensure the requirement in Ghana’s Public Financial Management law for government representatives to report to the Ministry of Finance is complied with (currently it is more flouted than obeyed).

26. Leveraging Ghana’s Position in the Trajectory of the West Africa Power Pool (WAPP) to Make Ghana an Energy Hub

Ghana’s location gives it an edge to become an energy hub in the WAPP trajectory.  Perhaps with the right policies ECG can be transformed into a major power exporter to anchor Ghana’s power hub strategy. How will GoG align the privatized ECG operations to increase export to the West Africa sub-region through an enhanced distribution network under a power hub strategy?

27. Public Utilities Regulatory Commission (PURC) Role and the Proposed PURC Integration into the Energy Commission

Under the previous government, there were suggestions about merging the tariff regulator (PURC) with the Energy Commission (the sector regulator). Will the current Government pursue this and if so, how will this affect the independence of the tariff regulator especially in a private sector ECG?

28. Potential Impact of InternationalMonetary Fund (IMF) Programme

To what extent will assumption of ECG’s accrued liabilities make Ghana’s debt stock any worse and how can the potential impact be minimized?  Will this affect any re-negotiation with IMF in the current programme and if so, will it lead to policy changes that will lead to the assumption of higher risks by investors or cause policy inconsistencies?

29. New Investment Asset Class?

What benchmarks will the new owners be required to meet to develop ECG and its power distribution mandate into new asset class for which the investing public will be interested?

30. Impact on NEDCo and GRIDCo

Some indirectly related (but nevertheless relevant) questions will naturally pop up in the minds of potential investors so these must be thought about by policymakers.  Examples include the following:

• If the ECG privatization model is successful, will the model be replicated for Northern Electricity Distribution Company (NEDCo)? [Apparently,   there has been a very recent assessment of the lapses in NEDCo’s invoicing practices which was carried out by a very experienced power sector consultant and a lot of lessons may avail the new Minister on this].
• Will VRA and Ghana Grid Company (GRIDCo) be next in line? Irrespective of whatever happens to ECG, will GRIDCo’s operations be split between the infrastructure and operator roles to deepen private sector role in the transmission operations?
• Independent system operator – will an independent transmission system operator be appointed for GRIDCo?
• Transmission losses – it has been reported that ECG experiences transmission losses which adds to its costs. One report indicates transmission losses is about 20%. How will it be ensured that the losses are minimized and the cost is not passed on to the consumer?

31. External Pressure

How will GoG manage “external pressure” especially geo-strategic soft power – it is generally assumed that some public sector decisions are subject to such external pressure for geo-strategic reasons. How will GoG balance this vis-à-vis technical, commercial and Ghana’s own economic transformation strategy?

32. Redundancy And Matters Related To Labour

PUWU has already expressed its reservations about the privatization.  This is not surprising because privatization always encounter workers’ resistance.  How will this be managed in order not to send wrong signals of potential risks to investors? How will potential cost related to redundancy be handled? What labour rationalization strategies will be adopted to minimize cost repercussions – such as redundancy and social cost of any layoffs?

33. Public Perception and Issues Bordering on Transparency

How will public trust in the transparency of the privatization of ECG be built? – public goodwill will be necessary for the future operation.

The Government of Ghana (GoG) has signaled its intention to return to the privatization of Ghana’s power distribution utility company (ECG). There are currently no details as to how this will be done. For several reasons, however, any mention of the privatization of ECG immediately triggers public interest. This is not just because of the opposition to the process expressed by the Public Utility Workers Union (PUWU) of the Trades Union Congress (TUC) but also because of other antecedent issues including the recent Power Distribution Services (PDS) scandal (which happened during the last incarnation of ECG privatization). Accordingly, whatever approach the Government uses, the issues that it will face will be numerous extending beyond the electricity sub-sector. [In an earlier paper my colleague, Ferdinand D. Adadzi wrote on some of the legal issues that arise in the context of Ghana’s PPP Act, Act 1039].

This Op-Ed is not meant to debate whether ECG should be privatized or not. It assumes the privatization will go ahead. It only seeks to draw attention to some of the multiple issues that must be well examined in advance of the start of the exercise. Among other things, the goal of this Op-Ed is to help focus public discussions away from the usual political divide. It is the hope of the author that the issues mentioned in this Op-Ed, will help steer the public debate past the usual political lines of “for” and “against”.

Unintended Impact of Problem Solving

Obviously, the proposed privatization of ECG is meant to solve some perennial problems including but not limited to the high level of indebtedness.

The author holds the view that, in any attempt to find a solution to a problem, it is important to ensure that the solution itself does not trigger more problems. Particularly, in the case of ECG, there are chances that the privatization will impact other national and strategic goals during or after the privatization. Whilst this Op-Ed is not intended to provide a detailed analysis or solutions, it is meant to get the public and policy makers to bring most, if not all critical issues into the equation, ahead of concluding on the approach to privatization.  Hopefully, this will also help reduce the politicization of an otherwise technical and strategic exercise.

1. Accrued Liabilities and Matters Arising

It is anticipated that for the privatization to be attractive to the private sector, GoG will absorb the accrued debt of ECG as private sector operators are not likely to be interested in assuming responsibility for prior liabilities. The critical question, therefore, becomes – how will the debt be ring-fenced and retired by GoG over a defined period? Further, since ECG’s debt will continue to accrue interest after the privatization, will there be a freezing strategy on the debt to ensure it does not worsen GoG debt profile?

Whilst absorbing the liability, how will the Government take account of previous loans to ECG (GoG on-lending) – will it capitalize any yet to be amortized on-lending?

2. The Potential Ripple Effect of Electricity Tariff

Like any public utility, the distribution of electricity has immense social and economic impact with its inescapable ripple effect. For example, higher tariffs impact livelihoods, add to the cost of doing business and trigger inflation. The privatization strategy must, therefore, come with a multifaceted tariff strategy within which the private sector proponents may operate. Without a clear Government tariff strategy, the natural disposition of the private sector will be to minimize cost, recoup investment quickly and maximize profit. Such tariff strategy would be necessary to inform how the tariff regulator makes decisions on requests for future tariff increases.

3. Consequential Questions to be Addressed in Respect of the Tariff Strategy

There will be several consequential questions that must be addressed pursuant to whatever tariff strategy is adopted.  These include the following:

(a) Lifeline Consumers

The PURC rate setting guidelines categorizes lifeline, medium and high consumers. Will Government give subsidies to “lifeline consumers” (in order to prevent the obvious social impact of commercial tariffs on lifeline consumers) and if so, will this be treated by the operator as a Public Service Obligation (PSO) in which case the PSO will lead to a potential recourse to the public purse? Or will the private sector make “lifeline concessions” and price it into a cross-subsidization tariff structure? Either approach will potentially have both economic and political impact.

(b)  Industry Versus Household Tariff

It is reported that about 40% of consumption is household and about 45% are special load consumption of high consuming industries. Will there be discriminatory tariff for strategic industries which have multiplier job creation potential?  Will the tariff strategy specifically require a higher tariff to domestic consumers as against selected industries? Will the GoG require beneficiaries of such lower tariff to demonstrate that it has translated into jobs and taxes accruing to the GoG?

(c) Direct Tariff Negotiations With Bulk Buyers

How will the policy on direct tariff negotiations of a private-sector-led ECG be regulated to prevent undermining bulk suppliers such as VRA?  What will be the threshold Energy Commission will set on what constitutes bulk consumption in order to deliberately drive the growth of both light and heavy industries?

This is particularly important since the bulk consumers are in the “deregulated market” of the power sector. Even within the current regime, there have been allegations of instances where ECG, for commercial reasons, has allegedly negotiated tariffs (below that of generation companies in the deregulated market) which created challenges for some big manufacturers as whether to buy from ECG (in the regulated market) or directly from generation companies (e.g. VRA) in the deregulated market.  The question is – to what extent can the private sector led ECG negotiate directly with bulk buyers and to what extent can the tariff regulator prevent ECG from undercutting bulk tariff agreed prior in time with generation companies?

4. A History of Knee Jerk “Absorption of Tariff”

Ghana has had a long history of policy makers who, after allowing utility prices to rise, are faced with the reality of public complaint especially from lower income earners (who constitute the bulk of the voter population and indirectly influence public policy formulation). In panic response, they announce knee jerk policies often designed to “absorb the increases in tariffs”. Such absorption  subsequently leads to higher public debt. The consequential macroeconomic instability falls back on businesses who are called upon to pay more taxes in order to stabilize the adverse macro-economic impact. Will there be a strategy to avoid a recurrence?

5. Potential Impact on Water Supply

There is a direct link between the availability of power supply to water pumping stations and regularity of water supply to water consumers. It is often alleged that Ghana Water Company (GWCL) is frequently in arrears of its payment obligations to ECG. How will the inter-company (ECG-GWCL) relationship be handled in order to ensure that the invoicing and debt collection strategies of a private sector led ECG, does not lead to disconnection of power supply to water pumping stations.  The social impact of such a scenario is obvious and needs no further elaboration.

6. A Debt-Ridden Company or Potential Cash Cow?

ECG is definitely a debt-ridden company now, but it is also a potential cash cow (otherwise, no private business will show interest).  How will the privatization strategy achieve a balance between any requirement for GoG’s debt absorption (or write off) with benefits from the future profits that will accrue to ECG.

7. Equity Structure

Will GoG retain equity in the privatized ECG and if so, will all or part of GoG’s equity be on “carried interest” basis? If not, what happens if government is required to make capital contributions to equity?  Will the Ghanaian tax payer have to cough up money towards future capital calls and what mechanisms will be put in place to ensure that there is reasonable return on capital to both the private sector and GoG sides of the enterprise?

8. Continuing Contracts and Transfer Pricing

As a going concern, ECG will have continuing contracts including the obligation to purchase fuel and other inputs. Allegedly, these are lucrative contracts as reported in the media. How are these contracts to be treated after the privatization to ensure transfer pricing is minimized in order to secure dividends accruing to the GoG side of equity holders.

9. The Take or Pay Obligation in ECG Power Purchase Agreements (PPAs)

How will GoG handle the take or pay obligation clauses in PPAs with Independent Power Producers (IPPs)?  Will they be passed on to the private sector to re-negotiate and whose responsibility will it be to continue buying fuel for the IPPs?  Will there be a recourse to the GoG even after the private sector takes over?

10. Waterfall Mechanism/Energy Sector Levy Act (ESLA)

As in the case of the Tema Oil Refinery (TOR) levy, which was imposed years ago, the waterfall mechanism/ESLA did not achieve the goals they were set up for.  How will these previous solutions be married into the privatization process and what carry on effect will it have?

There are many challenges facing us as a country, which the expectation is that the new government will urgently address. One that seems to be quite immediate is the power supply challenges, which are now topical due to the news that scheduled maintenance of the West Africa Gas Pipeline was rescheduled and fuel supply challenges may cause that to result in some power outages. The government, in its first week in office, has to urgently deal with the problem to avoid such disruption to power supply for both domestic and industrial use. In the midst of the various press releases and statements on dealing with the imminent power supply challenges, the Government has mentioned that it may look at privatisation of ECG. The President and his nominated minister of energy indicated that the government is looking at the option of privatisation or private participation.

Privatisation or Private Participation & the Models

Privatisation as a tool to get private sector parties involved in public service delivery involves a number of different models that must be carefully thought through based on the specific problems identified and the role private sector parties must perform in order to overcome such a problem(s). Privatisation, in the strict sense, involves the transfer of ownership, control and management of a state-owned enterprise or entity to a private sector party. However, in the broad sense, it can mean any involvement of a private sector party in the delivery of traditional public service, usually through a right granted contractually by the government to enable the private sector party to deliver the public infrastructure and related services.

The recent unsuccessful private sector participation (PSP) in the operations of the very entity at the center of the discussion – the Electricity Company of Ghana Ltd (ECG) – is strictly not privatisation. The PSP was an arrangement to get a private sector player involved in the power distribution under the ECG without transferring the ownership and control of ECG. This was implemented under the second Compact signed between the Government of Ghana and the United States of America. Many reasons account for the unsuccessful implementation of the concession arrangement opted for under the PSP under the Compact.

Full privatisation strictly undertaken will involve the transfer of ownership of the public sector entity, which generally is the transfer of the shares. There can be partial privatisation, where the government continues to hold some ownership. Privatisation can also be implemented as an asset transfer arrangement. As many will recall, a number of privatisations were implemented during the PNDC era, where a number of statutory corporations were divested under the auspices of the Divestiture Implementation Committee. In order to divest ownership, the statutory corporations were converted to companies pursuant to the Statutory Corporation (Conversion to Companies) Act and its legislative instruments that listed fifty-one corporations to convert. Interestingly, this included ECG, which was converted from the Electricity Corporation of Ghana, a statutory corporation, to the Electricity Company of Ghana Ltd, a private company limited by shares whose shares are solely owned by the government. That is, whilst it was converted, it was not privatised, and the government still retained the full ownership as a sole shareholder.

Other models for getting the private sector involved in the provision of public infrastructure and related service delivery include various options under public-private partnerships (PPPs). Various contractual arrangements are used, including concessions, operations and maintenance, build-operate-transfer, build-own-operate-transfer, rehabilitate-operate-transfer, and many more models, which are covered under the Public Private Partnership Act, 2020. Management Contracts are not covered under the PPP Act but come under the Public Procurement Authority Act. Outsourcing without the transfer of operational and financial risk also does not come under the PPP Act but remains an option for involving private participation.

Considerations for ECG Privatisation

A decision to adopt privatisation or private participation as a solution must be based on many considerations. First, in deciding to involve private participation in ECG’s operations, one needs to have in mind that there are two general competing interests at stake. A private party’s ultimate interest is to maximise profit and shareholders’ value, whilst that of a public entity or government is to have sustained provision of services at the most affordable tariff. The private and public parties do not, therefore, have the same perspective. A private party is focused on its investors, whilst a public party is focused on the consuming public. The government entering into such public-private arrangements must, therefore, have clear key performance indicators to ensure sustainable provision of services at affordable tariffs. This is particularly the case given the near monopoly ECG enjoys, at least in the southern sector.

Secondly, if the numerous problems facing the power sector are traced to the distribution segment of the power sector, be it technical and commercial losses, political interference, inefficient management, improper procurement, technological challenges, setting of realistic tariffs, collection of revenue, etc., or a combination of any of these, are to be overcome through some form of private participation, the right model for the private participation must be determined. Clear identification of the problem must drive the decision on whether privatisation or any form of private participation is the right tool and, if it is, what model must be adopted. The emphasis here is that a proper diagnosis of the problems facing the power sector is required for a determination of the solution to implement. Private sector involvement in the sector may not be appropriate to resolve all the problems facing the sector. For example, if the problem is with realistic tariffs, the involvement of the private sector will not change the under-recovery of the cost of power generation, transmission and distribution.

If private sector involvement is the proposed and most efficient solution, one must determine the right model for such involvement. As pointed out above, there are many models to involve a private sector party. This could involve actual privatisation, where the government divests its interest wholly or partially. In seeking to do this, the right legal framework must be strictly followed with proper economic, technical, commercial and financial due diligence informing clear benchmarks that must be set for the divestiture. It must be quickly added that even though this is an option, it is an unlikely model given the strategic nature of ECG, its critical role in the power sector and the security concerns.

Other models under the PPPs can also be looked at. The PSP option implemented under the Compact resulted in the grant of concession to the private party consortium. The current framework for PPPs in Ghana is the Public Private Partnership Act, 2020. Other than specific exemptions, any contractual arrangement between the public entity and private party for the provision of public infrastructure and services traditionally provided by the government, where the private party performs all or part of the infrastructure or service delivery function of the government and assumes defined risks over a significant period comes under the purview of the PPP Law.

As noted, outsourcing of specific services, be it management of the operations under a management contract or revenue collection, will not come under a PPP arrangement once there is no assumption of financial and operational risks by the private party. This must be guided by the Public Procurement Act.

For the implementation of any of these models to have any significant impact in the medium to long term, the structure of implementing the selected model must be informed by key considerations, including proper value for money assessment, clear and measurable output specifications based on key performance indicators, transparency and fairness in the adopted procurement process based on the proper procurement cycle with clear steps and objective measurable criteria, safeguards for public interest, environmental and social consideration, affordability, proper risks allocation, well-drafted contracts with clear obligations and performance indicators, etc.

One of the problematic requirements in the implementation of the selection of a private party involvement is the requirement of local content and local participation, particularly where the technical and financial capabilities required can only be satisfied by foreign players. Currently, the regulations fixed the minimum equity level for local participation at 30% at the start and moving up to 51% in ten years. This is the area where political patronage comes into play, leading to issues of corruption. A situation where a local party without the necessary financial and technical capability but with the right political association is imposed on a foreign counterpart generally leads to challenges as the very problem of political interference in the management of public operators is transferred into the private party management.

Successful privatisation or public-private contractual arrangement requires expertise from different fields – technical (electricity, asset evaluation, loss reduction expert, service quality standards), financial (valuation, financial modelling, tariff analysis, funding structure, etc.), legal (regulatory, contract drafting and review, environment and social regulations, license and permits, etc.), economic (market analysis, cost-benefit analysis, policy impact assessment, risks, etc.), environment and social, project management, risk management, institutional, and governance, etc. The right transaction advisor with the combined relevant expertise is required. In addition, this does not simply call for engaging a foreign consultant. The problems are local. A transaction advisor must appreciate the local nuances of each relevant field to understand what is required.

Last but not the least, any decision on privatisation or private participation in the operations of ECG must be taken after broad stakeholder consultations. It is important to get input from relevant stakeholders to make an informed decision and garner implementation support. The stakeholder engagement should not be listed to regulators and government entities but include business associations, civil societies, relevant labour unions and other relevant stakeholders.

Conclusion

Whilst this article does not argue that privatisation or private participation is the solution to the power sector challenges, it indicates that adopting privatisation or private participation in any of its many forms must be based on a proper assessment of the challenges, clear identification of the problem and a well-thought-out solution. If privatisation or private participation is to be adopted, the model must be fit for purpose. The appropriate framework must be adopted, and the right advisors must be engaged to guide the process, which must be devoid of political patronage. Above all, there must be broad base stakeholder engagement to have buy-in and support for any decision and its implementation.