Nairobi explores alternative financing through green bond

Nairobi County Deputy Governor Njoroge Muchiri addresses participants gathered during the validation workshop on green bonds at Nairobi Hotel on November 13, 2023. [Samson Wire, Standard]

Nairobi County will need to formulate climate financing regulations to enable it to issue green bonds as an alternative funding source.

A consultant, Agusto & Co, who assessed the county's potential to issue a green bond also included pending bills and the city's high wage bill among the key issues to be addressed by the county government. The revelations were made on Tuesday during a validation workshop at a Nairobi hotel that assessed the findings of the assessment.

Nairobi Governor Johnson Sakaja listed green spaces, pollution and waste management as the key challenges the county is facing.

He said the county values the partnerships it has established with development partners among them finance institutions at home and abroad.

"But it is also essential, in my view, to seriously explore the possibility of the green bond," the governor said.

"The policy options we need to consider — everything from changing how the city moves to how we build, to how we manage our waste — will need to be paid for".

Water, sanitation, housing, and energy are some of the potential areas in which green funds would be invested.

However, in order to be given approval to raise the money from the market through a green bond, the county would need to formulate County Climate Change Fund (CCCF) regulations.

Agusto &Co Regional Director Ikechukwu Iheagwam said that while Nairobi has a Climate Action Plan (2020-2050), overarching regulations are important for such a venture.

"Without CCCF, it would be difficult to raise money on green bond," he said. 

He said the county's high wage bill which stands at 49.8 per cent of revenue is above the threshold provided in the Public Finance Management (PFM) Act of 35 per cent.

In addition, the county also has pending bills amounting to Sh107 billion.

Mr Iheagwam said capital accessed through the bond is debt that should be paid, which means the county needs to improve its rating to attract funding.

"For the investors, they want to be sure because this financing is not a grant or free, it is concessionary but it has to be paid off."

The consultant gave the county a Bbb rating, which is satisfactory.

Nairobi City County director for donor coordination Kefa Omanga acknowledged the lack of a regulatory framework and said the administration is working on it.

"At the moment we do not have a framework to qualify for green finance. Once we leave this room, we will seek a way to mobilise these structures," he said.

The county has six options on how to raise finance through green bond: county green bond (when the county issues the bond by itself), county agency green bond (where an agency affiliated to the county, for example, water company, issues the bond), or it can also be done through a special purpose vehicle where the county can incorporate a company and issue a bond through it.

Green bonds can also be issued through a public-private partnership with the county, multisector bond or multi county bond.

Capital Markets Authority product development and uptake manager Justus Agoti said green bonds have an advantage to both the issuer and the investor due to the tax incentives provided.

"If I put in Sh100, I will get interest or dividends free of tax. And that is an advantage to the issuer and investor.

"It means the moment you get more investors you will get more subscription," said Mr Agoti.