CREDIT NUMBER 7051-KE Financing Agreement (Second Accelerating Reforms for an Inclusive and Resilient Recovery Development Policy Financing) between REPUBLIC OF KENYA and INTERNATIONAL DEVELOPMENT ASSOCIATION CREDIT NUMBER 7051-KE FINANCING AGREEMENT AGREEMENT dated as of the Signature Date between REPUBLIC OF KENYA ("Recipient") and INTERNATIONAL DEVELOPMENT ASSOCIATION ("Association") for the purpose of providing financing in support of the Program (as defined in the Appendix to this Agreement). The Association has decided to provide this financing on the basis, inter alia, of: (i) the actions which the Recipient has already taken under the Program and which are described in Section I of Schedule I to this Agreement; and (ii) the Recipient's maintenance of an adequate macroeconomic policy framework. The Recipient and the Association therefore hereby agree as follows: ARTICLE I - GENERAL CONDITIONS; DEFINITIONS 1.01. The General Conditions (as defined in the Appendix to this Agreement) apply to and form part of this Agreement. 1.02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the General Conditions or in the Appendix to this Agreement. ARTICLE II- FINANCING 2.01. The Association agrees to extend to the Recipient a credit, which is deemed as Concessional Financing for purposes of the General Conditions, in the amount of in the amount of five hundred twenty million Dollars (USD 520,000,000) (variously, "Credit" and "Financing"). 2.02. The Maximum Commitment Charge Rate is one-half of one percent (1/2 of 1%) per annum on the Unwithdrawn Financing Balance. 2.03. The Service Charge is the greater of: (a) the sum of three-fourths of one percent (3/4 of 1%) per annum plus the Basis Adjustment to the Service Charge; and (b) three-fourths of one percent (3/4 of 1%) per annum; on the Withdrawn Credit Balance. 2.04. The Interest Charge is the greater of: (a) the sum of one and a quarter percent (1.25%) per annum plus the Basis Adjustment to the Interest Charge; and (b) zero percent (0%) per annum; on the Withdrawn Credit Balance. -2- 2.05. The Payment Dates are March 15 and September 15 in each year. 2.06. The principal amount of the Credit shall be repaid in accordance with the repayment schedule set forth in Schedule 2 to this Agreement. 2.07. The Payment Currency is Dollar. 2.08. Without limitation upon the provisions of Section 5.05 of the General Conditions, the Recipient shall promptly furnish to the Association such information relating to the provisions of this Article II as the Association may, from time to time, reasonably request. ARTICLE III - PROGRAM 3.01. The Recipient declares its commitment to the Program and its implementation. To this end, and further to Section 5.05 of the General Conditions: (a) the Recipient and the Association shall from time to time, at the request of either party, exchange views on the Recipient's macroeconomic policy framework and the progress achieved in carrying out the Program; (b) prior to each such exchange of views, the Recipient shall furnish to the Association for its review and comment a report on the progress achieved in carrying out the Program, in such detail as the Association shall reasonably request; and (c) without limitation upon the provisions of paragraphs (a) and (b) of this Section, the Recipient shall promptly inform the Association of any situation that would have the effect of materially reversing the objectives of the Program or any action taken under the Program including any action specified in Section I of Schedule I to this Agreement. -3- ARTICLE IV - REMEDIES OF THE ASSOCIATION 4.01. The Additional Event of Suspension consists of the following, namely, that a situation has arisen which shall make it improbable that the Program, or a significant part of it, will be carried out. 4.02. The Additional Event of Acceleration consists of the following, namely, that the event specified in Section 4.01 of this Agreement occurs and is continuing for a period of sixty (60) days after notice of the event has been given by the Association to the Recipient. ARTICLE V - EFFECTIVENESS; TERMINATION 5.01. The Additional Conditions of Effectiveness consist of the following: (a) the Association is satisfied with the progress achieved by the Recipient in carrying out the Program and with the adequacy of the Recipient's macroeconomic policy framework. (b) the Loan Agreement has been executed and delivered and all conditions precedent to its effectiveness or to the right of the Recipient to make withdrawals under it (other than the effectiveness of this Agreement) have been fulfilled. 5.02. The Effectiveness Deadline is the date ninety (90) days after the Signature Date. 5.03. For purposes of Section 10.05 (b) of the General Conditions, the date on which the obligations of the Recipient under this Agreement (other than those providing for payment obligations) shall terminate is twenty (20) years after the Signature Date. ARTICLE VI- REPRESENTATIVE; ADDRESSES 6.01. The Recipient's Representative is its Cabinet Secretary for The National Treasury and Planning. 6.02. For purposes of Section 11.01 of the General Conditions: (a) the Recipient's address is: The National Treasury Treasury Building P.O Box 30007-00100 Nairobi, Kenya; and -4- (b) the Recipient's Electronic Address is: Facsimile: 254 20 330426; 254 20 218475 6.03. For purposes of Section 11.01 of the General Conditions: (a) The Association's address is: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America; and (b) the Association's Electronic Address is: Telex: Facsimile: 248423 (MCI) 1-202-477-6391 -5- AGREED as of the Signature Date. REPUBLIC OF KENYA By Authorized Representative Name:floan.C6b.) Ukur 'an i, EM H Title: CJmn ( da u Flannin Date: [9R Wct 2022 INTERNATIONAL DEVELOPMENT ASSOCIATION By Authorized Representative Name: F / Title: COL)A/TIZ / Date: 202-Z -6- SCHEDULE1 Program Actions; Availability of Financing Proceeds Section I. Actions under the Program The actions taken by the Recipient under the Program include the following: A. Fiscal and debt reforms to make spending more transparent and efficient, and enhance domestic debt market performance 1. To strengthen the transparency of public procurement and reduce opportunities for corruption, the National Treasury has approved the e-GP policy framework, which includes the e-GP: (i) strategy; (ii) implementation roadmap; (iii) business model; and (iv) business processes and specifications. 2. The Cabinet has taken a decision for rationalizing the public investment project portfolio, using criteria that include: (i) the completion progress of the project, (ii) the adequacy of financing needed to complete the project beyond the current budget cycle, (iii) the priority status of the project considering development priorities, and (iv) the availability of sufficient data on the project to measure implementation progress and impact. 3. To strengthen the domestic bond yield curve and increase secondary market liquidity through a transparent and active structured issuance strategy that ensures regular, predictable benchmark-bond issuances linked with active liability management, the Central Bank of Kenya has adopted and published the guidelines for, and is implementing, the treasury bonds benchmark program. B. Electricity sector and PPP reforms to strengthen the cornerstone utility (KPLC), place Kenya on an efficient, green energy path, and boost private infrastructure investment 4. To improve the operational and financial performance of KPLC: (i) a competitive selection process for the managing director of KPLC has been introduced for the currently vacant position, (ii) a revenue protection program (RPP) covering high value consumers is being implemented. 5. The Ministry of Energy has approved a five-year power generation and transmission development plan (2021 - 2026) to guide the competitive procurement of clean energy, at least-cost and aligned with demand. 6. The Recipient has enacted the Public Private Partnerships Act (2021), to enhance project selection and implementation processes, and clarify the roles and -7- responsibilities of key participants in the PPP cycle, for efficient and timely delivery of PPP projects. C. Strengthen environmental and natural resource governance, combat climate change, and improve healthcare including pandemic response 7. In order to enhance environmental management and mainstream climate change governance, the Cabinet has approved the Environmental Management & Coordination Bill (2022). 8. To equip county governments to mobilize own-source revenues based on property and to improve land price transparency, the Cabinet has approved the National Rating Bill. 9. To enhance access to water and sanitation services, and improve the management and conservation of water resources: (i) the MoWSI has approved the medium-term framework for a National Water and Sanitation Investment Program (NAWASIP); (ii) the Water Resources Authority has designated six basin areas under section 24 of the Water Act 2016; and (iii) the MoWSI has stipulated new water use charges and water conservation levies. 10. To strengthen Kenya's infectious and non-infectious disease prevention and response capabilities, including by consolidating existing public health emergency preparedness and response functions under one authority, the Recipient has established the Kenya National Public Health Institute. Section II. Availability of Financing Proceeds A. General. The Recipient may withdraw the proceeds of the Financing in accordance with the provisions of this Section and such additional instructions as the Association may specify by notice to the Recipient. B. Allocation of Financing Amounts. The Financing is allocated in a single withdrawal tranche, from which the Recipient may make withdrawals of the Financing proceeds. The allocation of the amounts of the Financing to this end is set out in the table below: Allocations Amount of the Financing Allocated (expressed in USD) (1) Single Withdrawal Tranche 520,000,000 TOTAL AMOUNT 520,000,000 -8- C. Withdrawal Tranche Release Conditions. No withdrawal shall be made of the Single Withdrawal Tranche unless the Association is satisfied: (a) with the Program being carried out by the Recipient; and (b) with the adequacy of the Recipient's macroeconomic policy framework. D. Deposit of Financing Amounts. 1. Notwithstanding the provisions of Section 2.03 of the General Conditions: (a) the Recipient shall open, prior to furnishing to the Association the first request for withdrawal from the Financing Account, and thereafter maintain the following two dedicated accounts on terms and conditions satisfactory to the Association: (i) a dedicated account in Dollar ("Foreign Currency Dedicated Account"); (ii) a dedicated account in Kenyan Shillings ("Local Currency Dedicated Account"); and (b) all withdrawals from the Financing Account shall be deposited by the Association into the Foreign Currency Dedicated Account. Upon each deposit of an amount of the Financing into the Foreign Currency Dedicated Account, the Recipient shall deposit an equivalent amount into the Local Currency Dedicated Account. 2. The Recipient, within thirty (30) days after the withdrawal of the Financing from the Financing Account, shall report to the Association: (a) the exact sum received into the Foreign Currency Dedicated Account; (b) the details of the account to which the Kenyan Shillings equivalent of the Financing proceeds will be credited; (c) the record that an equivalent amount has been accounted for in the Recipient's budget management systems; and (d) the statement of receipts and disbursement of the Foreign Currency Dedicated Account. E. Audit. Upon the Association's request, the Recipient shall: I. have the Dedicated Accounts audited by independent auditors acceptable to the Association, in accordance with consistently applied auditing standards acceptable to the Association; 2. furnish to the Association as soon as available, but in any case not later than four months after the date of the Association's request for such audit, a certified copy of the report of such audit, of such scope and in such detail as the Association shall reasonably request, and make such report publicly available in a timely fashion and in a manner acceptable to the Association and -9- 3. furnish to the Association such other information concerning the Dedicated Accounts and their audit as the Association shall reasonably request. F. Closing Date. The Closing Date is February 28, 2023. -10- SCHEDULE2 Repayment Schedule Principal Amount of the Credit Date Payment Due repayable (expressed as a percentage)* On each March 15 and September 15: commencing September 15, 2027 to and 1.65% including March 15, 2047 commencing September 15, 2047 to and 3.40% including March 15, 2052 * The percentages represent the percentage of the principal amount of the Credit to be repaid, except as the Association may otherwise specify pursuant to Section 3.05 (b) of the General Conditions. APPENDIX Deflnitions 1. Basis Adjustment to the Interest Charge" means the Association's standard basis adjustment to the Interest Charge for credits in the currency of denomination of the Credit, in effect at 12:01 a.m. Washington, D.C. time, on the date on which the Credit is approved by the Executive Directors of the Association, and expressed either as a positive or negative percentage per annum. 2. "Basis Adjustment to the Service Charge" means the Association's standard basis adjustment to the Service Charge for credits in the currency of denomination of the Credit, in effect at 12:01 a.m. Washington, D.C. time, on the date on which the Credit is approved by the Executive Directors of the Association, and expressed either as a positive or negative percentage per annum. 3. "Cabinet" means the cabinet of the Republic of Kenya referred to in article 152 of the constitution of Kenya, 2010. 4. "Central Bank of Kenya" means the central bank of the Republic of Kenya referred to in article 231 of the constitution of Kenya, 2010; or any successor thereto. 5. "Dedicated Accounts" means both the Foreign Currency Dedicated Account and the Local Currency Dedicated Account. 6. "e-GP" means electronic government procurement system which aims to increase efficiency and transparency in public procurement of goods, works and services through the use of information and communication technologies in public procurement. 7. "Environmental Management & Coordination Bill (2022)" means a bill whose object is to incorporate fundamental and contemporary international principles of environmental protection; and strengthen the policy, legal and institutional framework on environmental management and coordination in Kenya. 8. "Foreign Currency Dedicated Account" means the account referred to in Part D.1(a)i of Section II of Schedule I to this Agreement. 9. "FY" means the Republic of Kenya's financial year commencing on July 1 and ending on June 30 of the following calendar year. -12- 10. "General Conditions" means the "International Development Association General Conditions for IDA Financing, Development Policy Financing", dated December 14, 2018 (revised on August 1, 2020, April 1, 2021, and January 1, 2022). 11. "Kenya National Public Health Institute" means the body corporate established by the President of the Republic of Kenya through the Kenya National Public Health Institute Order, 2022 issued on January 18, 2022. 12. ."KPLC" or "Kenya Power and Lighting Company PLC" mean the public company domiciled in the Republic of Kenya, and with the Government of Kenya as its principal shareholder, whose business is the transmission, distribution and retail of electricity. 13. "Loan Agreement" means the loan agreement in support of the Program between the Republic of Kenya and the Bank, dated the same date as this Agreement, as such loan agreement may be amended from time to time. "Loan Agreement" includes all appendices, schedules and agreements supplemental to the Loan Agreement. 14. "Local Currency Dedicated Account" means the account referred to in Part D. 1 (ii) of Section II of Schedule I to this Agreement. 15. "Ministry of Energy" means the Republic of Kenya's. ministry responsible for energy matters and any successor thereto. 16. "Ministry of Water, Sanitation and Irrigation" and the acronym "MoWSI" mean the Republic of Kenya's ministry responsible for water resources and any successor thereto. 17. "National Rating Bill" means the bill approved by Cabinet whose principal object is to provide for the framework for imposition of rates on land and buildings by county governments; provide for the valuation of ratable property under one law; provide for the appointment and powers of valuers; provide for the establishment, powers and functions of the national rating tribunal. 18. "National Water and Sanitation Investment Program" and the acronym "NAWASIP" means a framework document providing for a shared intergovernmental strategy for expanding access to water and sanitation in Kenya. 19. "PPP" means public private partnerships. 20. "Public Private Partnerships Act (2021)" means Act no. 14 of 2021 of the laws of Kenya enacted provide for the participation of the private sector in the financing, construction, development, operation or maintenance of infrastructure or development projects through public private partnerships; to streamline the -13- regulatory framework for public private partnerships; to repeal the Public Private Partnerships Act, 2013; and for connected purposes. 21. "Program" means: the program of objectives, policies, and actions set forth or referred to in the letter dated February 2, 2022 from the Republic of Kenya to the Association declaring the Republic of Kenya's commitment to the execution of the Program, and requesting assistance from the Association in support of the Program during its execution and comprising actions taken, including those set forth in Section I of Schedule 1 to this Agreement, and actions to be taken consistent with the program's objectives. 22. "Signature Date" means the later of the two dates on which the Republic of Kenya and the Association signed this Agreement and such definition applies to all references to "the date of the Financing Agreement" in the General Conditions. 23. "Single Withdrawal Tranche" means the amount of the Financing allocated to the category entitled "Single Withdrawal Tranche" in the table set forth in Part B of Section II of Schedule I to this Agreement. 24. "The National Treasury and Planning" or "The National Treasury" mean the Republic of Kenya's ministry responsible for finance and any successor thereto. 25. "Water Act 2016" means Act no. 43 of 2016 of the laws of Kenya enacted to provide for the regulation, management and development of water resources, water, and sewerage services; and for other connected purposes. 26. "Water Resources Authority" means the body corporate established under section 11 of the Water Act 2016 whose functions include: (a) regulating the management and use of water resources and; (b) determining, setting and collecting water use charges and fees.