THE LOCAL CONTENT BILL, 2023
Status Timeline
Proposed
Active now
Public Review
Pending
Debate
Pending
Executive
Pending
Final
Pending
Local Content Development Committee Established
Section 9 establishes the Local Content Development Committee to oversee, coordinate, and manage local content development in Kenya. Under Section 10, the Committee's duties include recommending minimum local content standards to the Cabinet Secretary, reviewing operators' plans, and auditing performance reports.
Mandatory Pre-Activity Local Content Plans
Under Section 25, operators must prepare and submit a long-term local content plan to the Committee before applying for or bidding for a licence, permit, or interest. The plan must incorporate specific sub-plans, including:
- An employment and skills development plan
- A research and development plan
- A technology transfer plan
- A financial services plan
- Succession plans for positions held by non-Kenyans
Preferences for Kenyan Goods, Services, and Banks
The Bill introduces strict local procurement and banking rules:
- Procurement: Section 44 requires operators to maintain a bidding process that ensures equal opportunity for local companies, granting preference to local bids where the price difference does not exceed 10%.
- Banking: Section 41 requires operators and connected entities to open bank accounts and conduct transactions through indigenous Kenyan banks, which are defined as having 100% Kenyan or majority Kenyan shareholding.
Stiff Fines and Contract Cancellation for Non-Compliance
Section 57 outlines severe penalties for violations of the Act:
- False Statements: Submitting false plans or documents carries a fine of up to KSh 2 million, up to 3 years' imprisonment, or both.
- Fronting: Assisting a foreigner to act as a front to evade local content requirements carries a fine of up to KSh 3 million, up to 5 years' imprisonment, or both.
- Failure to Submit Plans: Operating without a local content plan or failing to submit annual reports carries a fine of 5% of the proceeds of the extractive activity (not exceeding KSh 2 million) or contract cancellation.
Bill No.
Bill No. 50 of 2023
Gazette No.
Supplement No. 224 of 2023
Background
The Local Content Bill, 2023 is designed to maximize local value capture along the extractive industry value chain in Kenya. By establishing a centralized regulatory regime, the Bill aims to promote the development of indigenous skills, encourage the local procurement of goods and services, and secure Kenyan equity ownership and participation in gas, oil, other petroleum, and mineral extraction projects.
Key Amendments
The Bill centralizes local content rules by repealing sector-specific local content provisions in existing laws:
- Mining Act (Cap. 306): Amends the Act by repealing Sections 46, 47, 49, and 50 (Section 62).
- Petroleum Act (Cap. 308): Amends the Act by deleting Part VI in its entirety (Section 63).
- Energy Act (Cap. 314): Amends the Act by repealing paragraph (ee) of Section 10, as well as Sections 206 and 207 (Section 64).
New Obligations
- Local Content Plans: Before executing any extractive activity, operators must submit a long-term local content plan and subsequently submit annual plans matching their yearly work programmes (Section 25).
- Employment and Succession: Operators must prepare employment and skills development plans (Section 29). Under Section 32, they must submit a succession plan for any position currently held by a foreigner, ensuring that a local understudy takes over the role within a period determined by the Committee.
- Research and Development: Section 40 mandates that operators set aside an annual percentage of gross revenue (as prescribed by the Cabinet Secretary) for research and development activities in Kenya, allocating 50% to Kenyan universities and 50% to internal research facilities.
- Local Banking Services: Operators and connected entities must open bank accounts and transact business through indigenous Kenyan banks (Section 41).
- Bidding Preference: Tenders must be advertised and awarded in Kenya. Preference must be given to local companies where their price does not exceed the lowest foreign bid by more than 10% (Section 44).
Penalties
- False Submissions: Making false declarations to the Committee carries a fine of up to KSh 2 million, up to 3 years' imprisonment, or both (Section 57(1)).
- Deceptive Fronting: A Kenyan citizen or foreigner conniving to bypass local content rules through fronting faces a fine of up to KSh 3 million, up to 5 years' imprisonment, or both (Section 57(2) and (3)).
- Failure to Satisfy Requirements: Carrying out extractive operations without an approved plan, or failing to file reports, attracts a fine of 5% of the proceeds from the extractive activity (capped at KSh 2 million) or the cancellation of the operator's contract (Section 57(4)).
- General Offences: Any offence under the Act for which no specific penalty is provided carries a fine of up to KSh 800,000, up to 12 months' imprisonment, or both (Section 57(5)).
Transitional Provisions
- Existing Contracts: Section 61 provides that all existing oil, gas, and mining contracts, agreements, or memoranda of understanding entered into before the commencement of the Act shall remain in force. However, any agreements entered into after the commencement of the Act must fully conform to its provisions.
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