annual report & financial statements 2016

ANNUAL REPORT& FINANCIALSTATEMENTS2016

Defined Contribution

Annual Report 2016

THE KENYA POWER & LIGHTING COMPANY LIMITED STAFF RETIREMENT BENEFITS SCHEME 2006 (DEFINED CONTRIBUTIONS)

Trustees and Professional Advisors 04

About the Fund 05

Key Highlights

Fund Structures

07

07

Chairman’s Report 10

Secretary’s Report

Trustees’ Profile

18

24

Statement on Corporate Governance 27

Statement of Trustees’ Responsibilities

Report of the Board of Trustees

34

33

Report of the Independent Auditor 35

Financial Statements

• Statement of Changes in Net Assets Available for Benefits 37

• Statement of Net Assets Available for Benefits 38

• Statement of Changes in Member’s Funds 39

• Statement of Cash Flows 40

• Notes to the Financial Statements 41-80

CONTENTS

Annual Report 2016


TRUSTEES AND PROFESSIONAL ADVISORS

TrusteesErnest Nadome - Chairman Abubakar Swaleh Beatrice Meso Kosgey KolilDavid Songok Dr. Ben Chumo - Retired on 28 February 2017Dr. Ken Tarus - Appointed on 1 July 2016Zilpa Ayara - Elected on 23 July 2016Johnstone Sakwa - Elected on 23 July 2016Lawrence Yego - Retired on 30 June 2016 Mediatrice Wangira - Retired on 23 July 2016 Salim Athman - Retired on 23 July 2016

SecretaryHenry Kyanda

Registered officeRetirement Benefits Scheme TrusteesStima PlazaKolobot Road, ParklandsP.O. Box 1548-00600Nairobi

Investment ManagersCo-op Trust Investment Services LimitedP.O. Box 48231 - 00100Nairobi

Stanlib Kenya LimitedP.O. Box 72866 - 00100Nairobi

CustodianKenya Commercial Bank LimitedP.O. Box 30664 - 00100 Nairobi

BankerCo-operative Bank of Kenya LimitedP.O. Box 48231Nairobi

Principal Legal AdvisorsKaplan & Stratton AdvocatesP.O. Box 40111 - 00100Nairobi

AuditorErnst & Young LLPCertified Public AccountantsKenya Re Towers, UpperhillOff Ragati Road.P.O. Box 44286 - 00100Nairobi

ActuariesActuarial Services East Africa Ltd.P.O. Box 10472 - 00100Nairobi

Alexander Forbes Financial Services(East Africa) LimitedP.O. Box 52439-00200Nairobi

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Annual Report 2016


The Kenya Power & Lighting Company Limited, Staff Retirement Benefits Scheme 2006 (“the Fund”) was established by a Trust Deed and started operations on

1 July 2006. The Fund was formed for the employees of the Kenya Power & Lighting Company Limited (“Kenya Power”) as a result of the closure of Kenya Power’s Defined Benefit Scheme (“DB Fund”). The Fund is governed by a Trust Deed and Rules which have been approved by the Retirement Benefits Authority (RBA).

The main purpose of the Fund is the provision of retirement benefits to the members upon attainment of the retirement age of sixty years, and where applicable, benefits for the dependants of deceased members. The Fund is approved by Kenya Revenue Authority as a retirement benefits scheme for the purposes of the Income Tax (Retirement Benefits) Rule No. 4 and is treated as an ‘exempt registered scheme’ for the purposes of that Act (1st Schedule 14). However, income generated from contributions in excess of the KShs 20,000 per month per member statutory limit is subject to tax.

ABOUT KENYAPOWER PENSION FUND

5

Annual Report 2016


VISION

To be the best-in-class occupational scheme inwhole of Africa.

MISSION

To deliver value and quality of life in retirement to our members.

CORE VALUES

• Integrity• Accountability• Courteous service• Stewardship

Fund BenefitsThe Fund is a Defined Contributions Scheme. Upon retirement a member receives 1/3 of his benefits as a lumpsum and an annuity for life of such an amount as shall be then purchased by 2/3 of his/her benefits according to immediate annuity rates applicable at the time of purchase from an insurance company selected by the member.

MembersThe members of the Fund comprises of active in service employees of the sponsors and deferred members. The current sponsors include Kenya Power and Lighting Company Limited, Kenya Electricity Transmission Company Limited and Kenya Nuclear Power Board. Eligible members are permanent and pensionable employees.

SECRETARIAT

Board ofTrustees

Members(In service members,

defered members

Custodian Auditors

FundManagers

Actuary

THE FUND STRUCTURE

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Annual Report 2016


SECRETARIAT

Board ofTrustees

Members(In service members,

defered members

Custodian Auditors

FundManagers

Actuary

THE FUND STRUCTURE

KEY HIGHLIGHTS

26.8%

12.9%13.5%

7.5% 7.0%

0%

5%

10%

15%

20%

25%

30%

2012 2013 2014 2015 2016

% R

etur

n on

Inve

stm

ents

Year

Return on Investments

1,705.1 1,567.5

1,881.1

1,225.5

1,503.6

0

500

1,000

1,500

2,000

2012 2013 2014 2015 2016

Amou

ntKS

hs. M

illio

ns

Year

Increase in Net Assets

5.16 6.73 8.61 9.83 11.34

0

5

10

15

2012 2013 2014 2015 2016

Fund

Val

ue(K

Shs.

Billi

ons)

Year

Fund Growth

6,117 6,087

6,394

6,792

7,180

6,0006,2006,4006,6006,8007,0007,200

2012 2013 2014 2015 2016

Tota

l Num

ber

Year

Membership Growth

The Fund’s objective is to achieve a superior return on investment through development and management of a diversified

portfolio that also mitigates against investment risks. The gross return on investment for 2016 was 7%. (2015: 7.5%). The

performance was weighed down by volatility in the capital markets that adversely affected the performance of the equity

asset class.

Key Highlights

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Annual Report 2016


KEY HIGHLIGHTS

26.8%

12.9%13.5%

7.5% 7.0%

0%

5%

10%

15%

20%

25%

30%

2012 2013 2014 2015 2016

% R

etur

n on

Inve

stm

ents

Year


1,705.1 1,567.5

1,881.1

1,225.5

1,503.6

0

500

1,000

1,500

2,000

2012 2013 2014 2015 2016

Amou

ntKS

hs. M

illio

ns

Year


5.16 6.73 8.61 9.83 11.34

0

5

10

15

2012 2013 2014 2015 2016

Fund

Val

ue(K

Shs.

Billi

ons)

Year

Fund Growth

6,117 6,087

6,394

6,792

7,180

6,0006,2006,4006,6006,8007,0007,200

2012 2013 2014 2015 2016

Tota

l Num

ber

Year

Membership Growth

0.00%

0.50%

1.00%

1.50%

2012 2013 2014 2015 2016

0.43

%

0.57

%

0.45

%

0.51

%

0.56

%

Year

Admin. Expenses

KEY HIGHLIGHTS

26.8%

12.9%13.5%

7.5% 7.0%

0%

5%

10%

15%

20%

25%

30%

2012 2013 2014 2015 2016

% R

etur

n on

Inve

stm

ents

Year


1,705.1 1,567.5

1,881.1

1,225.5

1,503.6

0

500

1,000

1,500

2,000

2012 2013 2014 2015 2016

Amou

ntKS

hs. M

illio

ns

Year


5.16 6.73 8.61 9.83 11.34

0

5

10

15

2012 2013 2014 2015 2016

Fund

Val

ue(K

Shs.

Billi

ons)

Year

Fund Growth

6,117 6,087

6,394

6,792

7,180

6,0006,2006,4006,6006,8007,0007,200

2012 2013 2014 2015 2016

Tota

l Num

ber

Year

Membership Growth

The increase in net assets was Kshs 1.5 billion during the year (2015: 1.22 Billion). This increase is the net movement of

the returns from investments, contributions received during the year as well payments of the retirement benefits to exiting

members.

The net asset available for members continues to grow steadily over the years. At the end of the current financial year, the Net assets available for members stood at Kshs 11.34 Billion (2015: 9.83 Billion). The Trustees rolled out various strategic initiatives aimed at expanding the assets under management.

The Fund membership grew to 7,180 from 6,792 recorded in the previous year which was a 6% growth. This was mainly

attributed to the higher number of new entrants compared to exiting members during the year.

Over the years the Fund has been able to maintain administrative expenses to the Fund Value below the recommended

limit of 1% which is an affirmation of the sound financial management systems and controls established by the board.

KEY HIGHLIGHTS

26.8%

12.9%13.5%

7.5% 7.0%

0%

5%

10%

15%

20%

25%

30%

2012 2013 2014 2015 2016

% R

etur

n on

Inve

stm

ents

Year


1,705.1 1,567.5

1,881.1

1,225.5

1,503.6

0

500

1,000

1,500

2,000

2012 2013 2014 2015 2016

Amou

ntKS

hs. M

illio

ns

Year


5.16 6.73 8.61 9.83 11.34

0

5

10

15

2012 2013 2014 2015 2016

Fund

Val

ue(K

Shs.

Billi

ons)

Year

Fund Growth

6,117 6,087

6,394

6,792

7,180

6,0006,2006,4006,6006,8007,0007,200

2012 2013 2014 2015 2016

Tota

l Num

ber

Year

Membership Growth

8

Annual Report 2016


Statement of changes in Net Assets Available for Benefits

2012 2013 2014 2015 2016

Kshs '000' Kshs '000' Kshs '000' Kshs '000' Kshs '000'

Contributions receivable 820,499 909,703 1,031,937 1,089,401 1,262,584

Benefits payable (37,910) (57,870) (109,963) (471,383) (391,275)

Net surplus from dealing with members 782,589 851,833 921,974 618,018 871,309

Returns on Investments

Net returns on investments 950,795 755,464 1,005,762 665,075 702,575

Other income - 4,023 - - 4,624

Administrative expenses (22,323) (38,022) (38,900) (50,434 (63,766)

Taxation Charge (5,990) (5,842) (7,769) (7,164) (11,106)

Increase In Net Assets For The Year 1,705,071 1,567,456 1,881,067 1,225,495 1,503,636

Statement of changes in Net Assets Available for Benefits

ASSETS

Investments & Property 5,114,648 6,749,189 8,476,428 9,780,838 10,831,000

Other assets 72,488 101,009 177,717 148,342 551,262

TOTAL ASSETS 5,187,136 6,850,198 8,654,145 9.929,180 11,382,262

LIABILITIES

Benefits payable 293 84 161 1,158 15,311

Other Liabilities 23,572 122,679 44,179 92,998 30,217

Tax Payable 4,191 899 2,202 - -

TOTAL LIABILITIES 28,056 123,662 46,542 94,924 45,528

NET ASSETS AVAILABLE FOR MEMBERS 5,159,080 6,726,536 8,607,603 9,833,098 11,336,734

REPRESENTED BY MEMBERS FUNDS 5,159,080 6,726,536 8,607,603 9,833,098 11,336,734

9

Annual Report 2016


I would like to express my gratitude on behalf of the

Board to the Sponsor and all our stakeholders who have

continued to work tirelessly to support the Fund as it navigates

through the challenging economic and investment

environment.Dear members, it is my pleasure to welcome you all to the

11th Annual General Meeting of our Fund, Kenya Power Pension Fund and to present to you the Annual Report and

Accounts of the Fund for the financial year ended 31st December, 2016. I am indeed honored as this is my first year of serving as the Chairman of the Fund.

ECONOMIC HIGHLIGHTSGlobal economyThe Global economy grew by 2.9% in 2016 which was a decline from the growth levels of 3.1% registered in 2015. The decline was attributed to a constrained international trade as well as the effects of uncertainties occasioned by the world phenomenon key among these being the exit of the United Kingdom from the European Union as well as elections in the United States.

CHAIRMAN’S REPORT

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Annual Report 2016


Domestic economyThe Kenyan economy grew by 5.8% in 2016 compared to 5.7% in 2015. This growth was mainly driven by growth in the tourism, information & communication, real estate as well as transport and storage sectors. The growth was constrained by decline recorded in the agriculture, manufacturing and financial services sectors.

Investment environmentInflation was contained within the Central Bank of Kenya (CBK) target band (2.5% -7%) to average at 6.3% compared to an average of 6.1% during the same period in 2015. The slight increase in inflation was primarily due to increases in prices of food and beverages during the period under review. This rise was however countered by significant decreases in prices of utilities and transport.

On the foreign exchange front the local currency registered some stability against major currencies during the year supported by monetary policy measures taken by CBK, resilient diaspora remittances and healthy forex reserves. The Shilling weakened by 0.2% and 12.8% against the US Dollar and the South African Rand while gaining by 3.0% and 16.1% against the Euro and Sterling Pound respectively. It also gained 6.9%, 0.8% and 9.3% against Uganda shilling, the Tanzanian shilling and Rwandan franc respectively.

The Nairobi Securities Exchange (NSE) 20 share index and the NSE All Share Index declined by 21.1% and 8.5% respectively in 2016. This downturn was precipitated by a host of global and local factors. One of the local factor was the amendment of the Banking Act in September 2016 which introduced caps on the lending rates to be charged by the commercial banks as well as interest to be paid for customers’ deposits. The investors’ sentiments and the perceived negative impact of the caps on the performance of the banking sector resulted to decline in the share prices of the banks listed in the Nairobi Securities Exchange.

The 2016 period registered a decline in interest rates as compared to 2015 with the indicative rates for the short term securities declining. The 91 day rate averaged 8.6% compared to 11.0% for 2015. The 182 day and the 364 Treasury Bills averaged 10.9% and 11.7% compared to 12.2% and 12.9% respectively in 2015. Stability of interest rates continued to be the focus of the CBK as it aims to spur the economic growth.

Rising value of land as well as dynamics in the entire property value chain continued to pose the biggest challenge to successes in the property market for developers, occupiers/owners and investors. The investment space for properties continued to record volatility in the various aspects which affected the supply and demand of the various property products. It is expected that such volatility will continue in the coming periods with demand and supply expected to experience shifts.

PENSION INDUSTRY AND REGULATORY ENVIRONMENTThe industry regulator Retirement Benefits Authority, (RBA) whose mandate is to develop the Retirement Benefits Industry and to provide policy advice to the government on matters relating to the retirement benefits sector has played a major role in creating national awareness of the sector. RBA engages in pertinent research that informs priority areas of development and policy directions. Through the regulator, various innovative products including occupational, individual and umbrella Schemes have been developed to help cater for members during their retirement. The Pension industry has continued to grow over the years with the total pension industry asset value as at the end of 2016 being over Kshs 1.0 trillion.

The Trustee Development Program Kenya (TDPK) training has played an important role in ensuring that there is prudent management of Funds and thereby maintain confidence in the management of the pension funds. All Trustees of pension schemes in Kenya were required to undergo the training by 31st December 2016. The Fund complied fully with this regulatory requirement.

During the year, legislative and regulatory changes were contained in the 2016/2017 budget. Among the changes introduced which were effective 9th June 2016 included the following;

a) In order to protect Trustees against victimization or discrimination while performing their duties, an amendment was made that a Trustee shall not be victimized, removed from office of trustee or discriminated against for having performed the function of office in accordance with the Trust Deed and Rules of a scheme or any law without due process of the law.

11

Annual Report 2016


b) Contributions by or on behalf of a member together with interest and other accrued income thereon shall vest on a member immediately. Previously the member was only entitled to the Employer’s contributions after one year of service.

c) Regulation 14 of the RBA Regulations was amended to provide for the schedule of rates of contributions to allow for additional voluntary contributions by a member in respect of funding of a medical fund to be accessed at retirement.

d) Regulation 19 was also amended to ensure that the scheme rules provide for a member who may wish to transfer a portion of the member’s benefits to medical-cover provider where the member has been unable to build a post-retirement medical fund from additional contributions. This is aimed at allowing members to save for their medical expenses during their working life.

e) In a bid to provide pension funds with more investment options, the investment guidelines were amended to include Real Estate Investment Trust (REITS), exchange traded derivatives and the separation of listed and un-listed corporate bonds and commercial paper. Retirement Schemes can now invest in all exchange traded derivatives contracts and all listed REITS incorporated in Kenya as long as they are registered with Capital Markets Authority (CMA).

f) On winding up of schemes, Regulation 8A provides that the liquidator shall be required, in the preparation of the preliminary accounts, to provide for the distribution of surpluses identified which shall be on a 50-50 basis between the members and the sponsor. The surpluses will not have to be distributed based on the invested income, unvested benefits and the proportion of the contribution made by the employer and employee as was previously required.

The Fund continue to enhance its compliance and monitoring mechanisms to ensure that all the changes are adhered and also take advantage of the improvement in the operating environment created by such development. The Fund has put in place an elaborate compliance tool that track the compliance levels against the legislative and regulatory requirements.

FUND’S FINANCIAL PERFORMANCEThe Fund achieved an annual gross return of 7% in 2016 (7.5% in 2015). This performance was registered against a backdrop of challenging investment environment during the year which weighed down the performance of the various assets classes. The total asset market value of the Fund as at the end of the year stood at KShs. 11.33 billion up from KShs. 9.83 billion at the end of 2015. The increase is attributed to both the pension contributions as well as investment income earned during the period.

The Board of Trustees endeavor to prudently invest available funds in an optimized portfolio that yields favorable returns. The overall investment policy is geared towards the achievement of superior investment returns while mitigating against volatility of the returns. The long-term investment objective is to achieve a long term return on investments in excess of inflation through diversified asset allocation as well as continuous performance monitoring.

CORPORATE GOVERNANCE AND AWARDSThe Board of Trustees is committed to ensuring that systems, procedures and practices within the Fund reflect a high standard of corporate governance. An effective corporate governance system is critical in fostering a culture that values ethical behavior, integrity and respect to protect members and other stakeholders’ interests at all times

The Fund participated for the fifth time in the Financial Reporting (FiRe) awards in year 2016, in which, the Fund emerged the 1st runners up in the Not for Profit category and 2nd runners up in the IFRS category. The FiRe Award is an initiative of the Institute of Certified Public Accountants of Kenya (ICPAK) the Capital Markets Authority (CMA) and the Nairobi Securities Exchange (NSE) and aims at enhancing accountability, transparency and integrity in compliance with the international Financial Reporting Standards (IFRS). The awards are in recognition of excellence in financial reporting, fostering sound corporate governance practices and enhancing corporate social responsibility and environmental reporting in East Africa.

BOARD COMPOSITION I would like to report to you that during the period under review, the composition of the Board changed. Three members of the board retired during the period and similar number were

12

Annual Report 2016


appointed or elected to the board in accordance with the Fund’s policy. The changes is as shown on page 4 of this report. The composition remains compliant with the requirement of the Retirement Benefits Act.

DECLARED INTEREST The Trustees declared an annual interest rate of 6.3% in 2016 (6.8% in 2015). The Fund maintained the quarterly interest declaration policy during the year 2016 which ensures that the Fund maintains a zero reserve and therefore members exiting the Fund during the year obtain a prorated rate of return at the point of exit. OUTLOOKThe global as well the domestic economies are projected to improve in 2017 with stability in the commodity prices expected. However, the local economy would likely be affected by the political development as this will be an election year. The Trustee will continue monitoring the development in the macro environment and align its investment strategies to take advantage of investment opportunities as well mitigating against the investments risks.

The Trustees will continue with its implementation of the 2016-2020 strategic plan that aims at making the Fund the

best-in-class occupational scheme in the whole of Africa. This is an ambitious plan aimed at ensuring the Fund maximizes investment performance as well as enhancing member offerings. The future of the Fund will ever be exciting.

APPRECIATIONI would like to express my gratitude on behalf of the Board to the Sponsor and all our stakeholders who have continued to work tirelessly to support the Fund as it navigates through the challenging economic and investment environment. I also wish to thank my fellow Board members for their selfless contribution to the Fund over the past year and for supporting me as the Chairman. The Secretary to the Board and his team have also worked tirelessly to ensure prudent management of the day to day operations of the Fund. I would not forget the members for your continued support, encouragement and feedback.

Ernest Nadome ChairmanKPLC Staff Retirement Benefits Scheme 2006

13

Annual Report 2016


Wanachama wapendwa, ni furaha yangu kuwakaribisheni nyote kwa Mkutano Mkuu wa kila Mwaka wa Hazina yetu,yaani Hazina ya Malipo

ya Uzeeni ya Wafanyikazi wa Shirika la Kawi la Kenya (Kenya Power Pension Fund). Hiki ni kikao cha mara ya kumi na moja ambapo nawawasilishieni ripoti ya mwaka na taarifa ya kifedha ya hazina yetu kwa kipindi cha mwaka uliokamilika tarehe 31, mwezi wa Disemba, mwaka wa 2016. Hakika, ni kwa heshima kubwa ikiwa huu ndio mwaka wangu wa kwanza nikitumika kama mwenyekiti wa hazina hii.

VIDOKEZO MUHIMU VYA KIUCHUMIUchumi wa KimataifaUchumi wa kimataifa ulikua kwa kiwango cha asilimia mbili nukta tisa (2.9%) katika mwaka wa 2016, hii ikisawiri kupungua kutoka kwa viwango vya ukuaji vya asilimia tatu nukta moja (3.1%) vilivyofikiwa katika mwaka wa 2015. Kuzorota huku kunaelezewa kuwa kulitokana na hali tete katika biashara za kimataifa pamoja na athari za kutokuwepo kwa udhabiti kutokana na matukio ya kiulimwengu, la msingi likiwa ni pamoja

RIPOTI YA MWENYEKITI

Ningependa kuwarudishia shukrani jazila kwa niaba ya Bodi na Mdhamini na washikadau wote ambao

wanaendelea kufanya kazi bila kuchoka ili kuboresha hazina hii wakati inapojaribu kupinda na kupenyeza kwenye hali ngumu

ya kiuchumi na kiuwekezaji.

14

Annual Report 2016


na kujiondoa kwa Umoja wa Milki za Uingereza (United Kingdom) kwenye Muungano wa Mataifa ya Uropa (European Union) na kura za urais nchini Marekani.

Uchumi wa KitaifaUchumi wa Kenya ulikua kwa kiwango cha asilimia tano nukta nane (5.8%) katika mwaka wa 2016 ikilinganishwa na asilimia tano nukta saba (5.7%) mwaka wa 2015. Ukuaji huu ulitokana zaidi na kuimarika kwa sekta za utalii, habari na mawasiliano, mali isiyohamishika pamoja na ile sekta ya usafiri na uhifadhi. Kuzorota kwa sekta za kilimo, uzalishaji wa kiviwanda na ile ya huduma za kifedha kulitatiza ukuaji zaidi wa kiuchumi katika kipindi kinachorejelewa.

Mazingira ya KiuwekezajiMfumuko wa bei ulidhibitiwa ndani ya kiwango kilicholengwa na Benki Kuu ya Kenya cha kati ya asilimia mbili nukta tano (2.5%) na asilimia saba (7%) kwa kiwango wastani cha asilimia sita nukta tatu (6.3%) ikilinganishwa na kile cha asilimia sita nukta moja (6.1%) kwa kipindi sawa na hicho mwaka wa 2015. Kuongezeka kidogo kwa kiwango cha mfumuko huo wa bei kimsingi ulitokana na kuongezeka kwa bei ya vyakula na vinywaji katika kipindi kinachotathminiwa. Hata hivyo, kuongezeka huku kulidhibitiwa na kuanguka kwa kiwango kikubwa katika bei za huduma tumizi na usafiri.

Kwenye ubadilishanaji wa fedha za kigeni, Shilingi ya kitaifa ilionyesha kuimarika kwa kiwango kidogo dhidi ya fedha za kigeni katika mwaka uliopita ikiongozwa na sera mwafaka za kifedha zilizowekwa na Benki Kuu ya Kenya, pamoja na hali dhabiti ya fedha zinazotumwa na wakenya waliopo kwenye nchi za nje na hali bora ya hifadhi ya fedha za kigeni. Shilingi ya Kenya ilidhoofika kwa asilimia sufuri nukta mbili (0.2%) na asilimia kumi na mbili nukta nane (12.8%) dhidi ya Dola ya Marekani na Randi ya Afrika Kusini mtawalio, huku ikiimarika kwa asilimia tatu nukta sufuri (3.0%) na asilimia kumi na sita nukta moja (16.1%) dhidi ya Yuro na Pauni ya Uingereza mtawalio. Aidha, iliimarika kwa asilimia sita nukta tisa (6.9%), asilimia sufuri nukta nane (0.8%) na asilimia tisa nukta tatu (9.3%) dhidi ya Shilingi ya Uganda, ile ya Tanzania na Franki ya Rwanda mtawalio.

Kiwango cha Hisa Mahsusi katika Soko la Nairobi (NSE 20 share index) na kile cha Hisa Jumla cha Soko la Hisa la Nairobi (NSE All Share Index- NASI) kilizoroteka ama kuanguka kwa asilimia ishirini na moja nukta moja (21.1) na asilimia nane nukta tano (8.5%) mtawalio katika mwaka wa 2016. Hali hii ya kuanguka

ilitokana na mseto wa sababu za kimataifa na zile za humu nchini. Sababu mojawapo ya humu nchini ni marekebisho kwa sheria za benki katika mwezi wa Septemba mwaka wa 2016 ambayo yalileta udhibiti wa viwango vya mikopo vinavyotozwa na benki za kibiashara sawa na riba inayolipwa kutokana na amana ya wateja wa benki (customer bank deposits). Hisia na mitazamo ya wawekezaji na fikra za athari hasi (negative impact) inayotokana na kurekebeshwa huko kwa sheria ya udhibiti wa viwango vya malipo yanayotozwa kwa mikopo na riba zinazolipwa kwa amana ya wateja ilionekana kuathiri utendaji wa sekta ya benki na kusababisha kuanguka kwa bei za hisa za benki zilizoratibiwa kwenye Soko Kuu la Hisa la Nairobi (NSE).

Kipindi cha mwaka wa 2016 kilionyesha kuanguka kwa viwango vya riba ikilinganishwa na mwaka wa 2015 huku viwango-viashiria vya muhula mfupi vya hisa vikizoroteka. Kiwango cha siku ya tisini na moja (91 day rate) kilikuwa katika kiwango wastani cha asilimia nane nukta sita (8.6%) ikilinganishwa na asilimia kumi na moja (11.0%) katika mwaka wa 2015. Bili za Hazina (Treasury Bills) za siku ya 182 na 364 zilikuwa kwa kiwango wastani cha asilimia kumi nukta tisa (10.9%) na asilimia kumi na moja nukta saba (11.7%) mtawalio ikilinganishwa na asilimia kumi na mbili nukta mbili (12.2%) na asilimia kumi na mbili nukta tisa (12.9%) mtawalio kwenye kipindi cha mwaka wa 2015. Lengo la kudhibiti viwango vya riba ili kufanikisha ukuaji wa kiuchumi, kwa Benki Kuu ya Kenya, lilisalia kuwa la kimsingi.

Kuendelea kuongezeka kwa thamani ya ardhi sawa na mienendo ya mfumo mzima wa mali kiuwekezaji iliendelea kutoa changamoto kubwa kwa ufanisi wa soko la mali kwa watengenezaji/wajenzi, waingiaji au wamiliki pamoja na wawekezaji. Mwanya wa kiuwekezaji kwa mali uliendelea kuashiria hali tete katika masuala yote yaliyoathiri mfumo mzima wa uzalishaji na ununuzi wa bidhaa tofauti tofauti za mali. Inatarajiwa kuwa hali tete kama hiyo itaendelea kwa kipindi kijacho huku uzalishaji na ununuzi ukitarajiwa kuyumbayumba.

SEKTA YA PENSHENI/MALIPO UZEENI NA MAZINGIRA YA UDHIBITIMdhibiti wa sekta ya malipo ya uzeeni, Mamlaka Simamizi ya Faida za Malipo ya Uzeeni {Retirement Benefits Authority, (RBA)} ambayo wajibu wake mkubwa ni kukuza sekta ya malipo ya uzeeni na kupeana ushauri wa kisera kwa serikali kuhusiana na maswala ya sekta ya malipo ya uzeeni, imechukuwa nafasi

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kubwa mno katika kuhamasisha taifa juu ya sekta hii. RBA inafanya utafiti wa kina unaotoa mwelekeo kuhusu maeneo mwafaka ya kimaendeleo na mwelekeo wa kisera. Kupitia kwa mdhibiti, bidhaa mbalimbali bunifu zimetengenezwa ili kuwezesha kuwasaidia wanachama uzeeni wakati wa kustaafu kwao ukiwemo ule wa kitaaluma/kikazi, kibinafsi na ule wa miradi jumla (umbrella schemes). Sekta ya malipo ya uzeeni ama pensheni imeendelea kuimarika na kukua kwa miaka iliyopita huku jumla ya kiwango chake kufikia mwisho wa mwaka 2016 kikiwa Shilingi za Kenya trilioni moja ( Kshs. 1 trillion).

Mafunzo ya Mpango wa Kukuza Wadhamini, Kenya (Trustee Development Program Kenya-TDPK) yametekeleza wajibu muhimu sana kwa kuhakikisha kuwa kunakuwepo usimamizi mwafaka wa Hazina na hivyo kuendelea kukuza hali ya uaminifu katika usimamizi wa mfuko wa malipo ya uzeeni. Wadhamini wote wa miradi yote ya pensheni nchini Kenya walitakiwa kuwa wameshiriki mafundisho kufikia tarehe 31, mwezi Disemba 2016. Hazina hii ilitimiza takwa hili la mamalaka-dhibiti kikamilifu.

Katika mwaka, mabadiliko ya kisheria na kiusimamizi yalidhibitiwa kwenye bajeti ya 2016/2017. Miongoni mwa mabadiliko yaliyoletwa ambayo yalianza kutekelezwa tarehe 9/6/2016 ni;

(a) Ili kulinda wadhamini dhidi ya uonevu na ubaguzi katika kutekeleza majukumu yao, badiliko la kisheria kuwa mdhamini hataonewa, mdhamini hatangólewa au kutolewa ofisini ama kutendewa ubaguzi dhidi yake kutokana na kutekeleza majukumu yake kama ilivyo dhima ya ofisi yake kwa minajili ya Hati ya Dhamana na Kanuni (Trust Deed and Rules) ya mpango wowote au sheria yoyote bila ya kufuata utaratibu wa sheria.

(b) Matoleo na ama kwa niaba ya mwanachama pamoja na riba yake na faida nyingine yoyote inayotokana nayo itakuwa mikononi mwa mwanachama mara moja. Hapo awali, mwanachama alikuwa tu na haki ya kupokea matoleo ya mwajiri baada ya mwaka mmoja wa kuhudumu.

(c) Sheria ya udhibiti ya 14 ya Sheria za Mamalaka Simamizi ya Malipo ya Uzeeni (RBA Regulations) ilibadilishwa ili kutoa nafasi kwa mpango wa viwango vya matoleo ili kuwezesha kuzidisha matoleo na mwanachama kwa kujitolea, zaidi na kiwango rasmi kwa minajili ya kutolea mfuko wa matibabu/afya utakaopokelewa wakati wa

kustaafu. (d) Sheria ya udhibiti ya 19 pia ilirekebishwa ili kuhakikisha

kuwa sheria za Hazina zinatoa nafasi kwa mwanachama ambaye angependelea kuhamisha sehemu ya akiba zake kuelekezwa kwenye shirika linalompa bima ya matibabu/afya ambako ameshindwa kuweka mpango wa bima ya afya baada ya kustaafu kwa matoleo zaidi. Hili linalenga kuwawezesha wanachama kuweka fedha kwa gharama za kiafya/kimatibabu kwa wakati wanaofanya kazi.

(e) Kwa minajili ya kutoa hazina ya uzeeni ambayo ina nafasi nyingi za uwekezaji, muongozo wa uwekezaji ulibadilishwa ili kujumlisha REITS, vitokanavyo na kufanyiwa ubadilishanaji wa kimauzo (exchange related derivatives) na kutofautisha kwa dhamana za kiushirika zilizoratibiwa na zile zisizoratibiwa (listed and unlisted bonds) na waraka wa kibiashara (commercial paper). Hazina za uzeeni sasa zinaweza kuwekeza katika kandarasi za mauzo ya kiubadilishanaji na REITS zote zilizoratibiwa na kufungamanishwa nchini Kenya mradi tu ziwe zimesajiliwa na Mamlaka ya Soko la Mtaji Kenya (Capital Markets Authority, CMA).

(f) Kwa kuvunjwa kwa hazina, sheria ya udhibiti 8A, inaeleza kuwa mwenye kubadilisha mtaji (liquidator) atahitajika, kwa kuandaa akaunti za awali, ili kuwezesha ugawanaji wa faida ya ziada iliyopatikana ambayo itatekelezwa kwa misingi ya asilimia hamsini kwa hamsini yaani nusu bin nusu kati ya wanachama na mdhamini. Faida hiyo ya ziada haitakuwa lazima igawanywe kulingana na kiwango cha fedha kilichowekezwa, faida zisizowekezwa na kiwango cha matoleo kilichofanywa na mwajiri na mwajiriwa kama ilivyotakiwa kisheria hapo awali.

Hazina inaendelea kuboresha hali yake ya kuafikiana na kufwatilia kwa karibu utendaji ili kuhakikisha kuwa mabadiliko yote yanalingana na kuendana pamoja na kunufaika na kuimarika kwa mazingira ya utendaji kazi unaoletwa na maendeleo hayo. Hazina imeweka kifaa madhubuti cha kuafikia matakwa kinachofwatilia unyo unyo kutathmini viwango vya uafikiaji dhidi ya matakwa ya kisheria na kiudhibiti. MATOKEO/UTENDAJI WA KIFEDHA WA HAZINAHazina ilipata faida jumla kimwaka ya asilimia saba (7%) mwaka wa 2016 (7.5% katika mwaka 2015). Kiwango hiki cha faida kilisajiliwa dhidi ya changamoto kuu katika mazingira ya kiuwekezaji katika mwaka uliopita ambazo zilizorotesha matokeo katika vitengo tofauti vya mali. Thamani jumla ya

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hazina kufikia mwisho wa kipindi cha mwaka 2016 ilisimamia kwenye shilingi za Kenya bilioni kumi na moja nukta tatu tatu (Kshs 11.33 bilion) hii ikiwa imeimarika kutoka kwa shilingi za Kenya bilioni tisa nukta nane tatu (Kshs 9.83 bilion) mwaka wa 2015. Ongezeko hili linakisiwa kuwa lilitokana na matoleo pamoja na faida ya kiuwekezaji iliyopatikana katika kipindi hicho husika.

Bodi ya Wadhamini inajizatiti kuwekeza fedha zilizopo kimakinifu kwa mpango mwafaka wenye upeo wa juu zaidi wa mazao au faida yenye kuridhisha. Sera nzima ya uwekezaji kijumla inalenga kufanikisha upatikanaji wa faida kubwa zaidi iwezekanavyo huku ikijilinda dhidi ya hali-tete ya faida hizo. Lengo kuu la kipindi kirefu la kiuwekezaji ni kufikia faida za mda mrefu kwenye maekezo kwa kuzidi mfumuko kupitia upanuzi wa maeneo mbalimbali ya kuwekeza mali pamoja na kufuatilia kwa karibu utendaji wa maekezo hayo. USIMAMIZI WA KIUSHIRIKA NA TUZOBodi ya Wadhamini inashikilia nia yake ya kuhakikisha kuwa mifumo, taratibu na matendo mazoea kwenye Hazina yanasawiri kiwango cha juu zaidi cha usimamizi wa kimashirika. Mfumo mzuri wa usimamizi kiushirika ni muhimu sana katika kukuza utamaduni unaothamini tabia ama hulka njema, uadilifu na heshima ili kutunza na kulinda maslahi wanachama na washikadau wengineo wakati wowote.

Hazina ilishiriki kwa mara ya tano katika Tuzo za Utoaji Ripoti za Kifedha (Financial Reporting- FiRe) mwaka 2016 na kuibuka wa pili katika kitengo cha Isiyo kwa Faida (Not for Profit Category) na wa tatu katika kitengo cha IFRS. Tuzo za FiRe ni juhudi ya Taasisi ya Wahasibu wa Umma Walioidhinishwa wa Kenya (Institute of Certified Public Accountants of Kenya-ICPAK), Mamlaka ya Masoko ya Mtaji (Capital Markets Authority-CMA) na Soko la Nairobi la Ubadilishanaji Hisa (Nairobi Securities Exchange-NSE) na hulenga katika kukuza uwajibikaji, uwazi na uadilifu kuoana na viwango vya kimataifa vya kutoa ripoti za kifedha (International Financial Reporting Standards-IFRS). Tuzo hizi zinatokana na kutambua ubora wa kutoa ripoti za kifedha, kukuza hulka njema za usimamizi wa mashirika na kuinua uwajibikaji wa ushirika kijamii wa mashirika na utoaji ripoti kimazingira Afrika Mashariki.

MUUNDO WA BODINingependa kuwataarifu kuwa kwa kipindi kinachorejelewa, uwanachama wa Bodi ya Hazina ulibadilika kwenye mwaka 2016. Wanakamati watatu wa bodi walistaafu wakati wa muhula huo na jumla ya nambari hiyo hiyoya wengine

wakateuliwa kwa kulingana na kanuni za sera ya Hazina. Mabadiliko haya ni kama mnavyoona kwenye ukurasa wa 4 wa ripoti hii. Muundo wa bodi kama ilivyo ni kwa kulingana na kanuni na sheria za malipo ya uzeeni (Retirement Benefits Act).

MATANGAZO YA RIBAWadhamini walitangaza kiwango cha riba cha mwaka cha asilimia sita nukta tatu (6.3%) kwenye kipindi cha mwaka wa 2016 (6.8% mwaka wa 2015). Hazina ilidumisha sera ya kutangaza riba ya robo mwaka kwenye kipindi cha mwaka wa 2016 ambayo inahakikisha kuwa hazina inadumisha kiwango sufuri cha salio ya wanachama wanaondoka kwenye Hazina katika mwaka na hivyo kufikia kiwango kilichoidhinishwa cha faida wakati wa kuondoka.

MTAZAMOUchumi wa kimataifa na ule wa kitaifa unatazamiwa kuimarika kwenye mwaka wa 2017 kutokana na udhabiti unaotarajiwa kwenye bei za bidhaa. Hata hivyo, uchumi wa humu nchini bila shaka una uwezekano wa kuathiriwa na matukio ya kisiasa kwani ni mwaka wa uchaguzi. Wadhamini wataendelea kufwatilia na kuchunguza maendeleo kwenye mazingira mapana kiuchumi na kuambatanisha uwekezaji wake ili kunufaika na nafasi ibuka za kiuwekezaji pamoja na kujilinda dhidi ya hatari za kiuwekezaji zitakazoibuka.

SHUKRANINingependa kuwarudishia shukrani jazila kwa niaba ya Bodi na Mdhamini na washikadau wote ambao wanaendelea kufanya kazi bila kuchoka ili kuboresha hazina hii wakati inapojaribu kupinda na kupenyeza kwenye hali ngumu ya kiuchumi na kiuwekezaji. Ningependa pia kuwashukuru wanabodi wenzangu kwa kujitolea kwao kwa hazina hii kwa kipindi cha mwaka mzima uliopita na kuendelea kuniunga mkono mimi kama mwenyekiti. Katibu wa bodi na kikundi chake pia wamefanya kazi bila kuchoka kuhakikisha kuwa kuna usimamizi bora na makinifu wa shughuli za kila siku za Hazina hii. Siwezi kuwasahau wanachama kwa kuendelea kutuunga mkono, kutuhimiza na kutupa maoni.

Ernest NadomeMwenyekitiMradi wa Hazina ya Malipo ya Uzeeni wa Wafanyikazi wa Kampuni ya Kawi, Kenya 2006.

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I would like to thank the Board of Trustees for their unwavering

support and guidance as well as the stakeholders for their

contributions in service delivery to the Fund.

DEAR MEMBER,

The Kenya Power Pension Fund registered positive growth in the past year despite the challenging investment environment, as evidenced by a depressed stock market,

volatility in the Kenya Shilling and the interest rates. The positive performance was achieved through implementation of the investment strategies as per the Fund’s strategic plan. Attention was placed on the monitoring and evaluation of this implementation strategy where necessary alignments were made to respond to the prevailing environment at any given time with keen focus on achieving long term investment objectives.

FUND INVESTMENTSThe Board of Trustees of the Fund have the responsibility of establishing and maintaining policies and objectives for all

SECRETARY’S REPORT

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aspects of the Fund’s operations. Central to this is the Board’s responsibility for the prudent investment of the Fund’s assets.

The Fund continues to diversify its investment into alternative assets classes which included the property and private equity investments. These assets classes expanded the investment horizon as well as created opportunity for diversifications owing to their un-correlation with the capital markets investments. All these investments are undertaken while ensuring compliance with the RBA regulations on investments and the Fund’s Investments Policy Statement.

In 2016, the Fund initiated the due diligence process for the second Private Equity Fund as it seeks to maximize the opportunities created by this asset class. This process was projected to be completed and final documents executed in the first quarter of 2017 with investments activities expected to commence immediately thereafter. The shift towards the private equity space will continue in the coming periods as the Fund seeks to align its portfolio to be in line with the strategic plan.

The Fund continued with the execution of its elaborate plan on properties development which has over the years not only provided superior returns but also contributed immensely to the national development of the housing sub sector. The Fund made substantial progress in the construction of the Bogani Park units located in the leafy suburb of Karen, approximately 20 Kilometers from Nairobi Central Business District. The development comprises forty-five (45) four and five-bedroom town houses each on a half an acre plot. The disposal drive commenced in earnest during the period and it is envisaged that the units will be fully sold within the set timelines.

Besides the above activities in the alternative asset space, the Fund continued to refine the monitoring and evaluation of the performance in other assets classes. The underlying objective being to maximize the returns while mitigating against the risks associated with such investments. In addition constant engagement with all the stakeholders within the investment space was maintained throughout the period. This engagement provided the necessary alignment of the strategies and objectives.

Define Benefit Secretariat is responsible for close monitoring and reporting on implementation of the investment strategy. This continued analysis is to ensure that the Fund remains focused on the short term and long-term performance and sustainability.

STRATEGIC PLANNINGThe Kenya Power Pension Fund (KPPF) adopted a new strategic plan for the period 2016 to 2020. KPPF’s purpose which informs everything it does is to deliver value and quality of life in retirement to its members. KPPF’s vision is to be the best-in-class occupational scheme in the whole of Africa. Best-in-class means to be both (i) an outperformer – achieving superior returns relative to peers within acceptable risk parameters and (ii) a pioneer – using innovative and trend-setting strategies in order to benefit its members. KPPF will benchmark itself against not only the best pension funds in Kenya, but also the leading pension funds in Africa.

FUND ADMINISTRATIONThe Defined Contribution Fund has outsourced administrative functions to the Secretariat of the Defined Benefits Fund. The following functions have been outsourced:

• Scheme Administration• Finance & Investments• Property Management & Development• Risk Management• Customer Service• Procurement

There is in place an elaborate contractual agreement governing the engagement with the DB secretariat that ensure among other things the services being provided are to the satisfactory levels.

MEMBER ENGAGEMENTThe Fund is committed to providing high quality service to its members. The Fund endeavors to continuously engage its membership through effective communication and information sharing initiatives. To this end, it has created various communication channels and continuously updates members on the development within the Fund.

Each year, the Fund organizes and conducts education programs targeting both the in service and retired members. The objective for these education programs is to inform and update members on the status and performance of the Fund as well as prepare them for retirement. In addition, on a quarterly basis a newsletter updating members on the fund activities is prepared and circulated.

During the year, the Fund conducted a member satisfaction survey which is part of the bi-annual exercise aimed at determining the satisfaction levels. The overall members’

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satisfaction index stood at 84.2% which was an improvement from 2014’s satisfaction index that was 83.7%. This improvement is an affirmation of the effectiveness of the customer service strategy being implemented by the Fund. The Fund has incorporated the implementation of the recommendations and feedback from the survey in the annual activity plan for the coming periods.

Innovation and ICT remains the pillars for successes of the current generation entities. The Fund has taken a lead from this front by integrating the duo in its processes and activities. The interactive system created a platform for real time engagement with members. In addition the internal processes are supported by an elaborate ICT systems to ensure effectiveness and efficiency within the Fund. Finally the continuous improvement principle dictates that the Fund refine its processes and take opportunity of new development.

PROCUREMENT The new public procurement law (Public Procurement and Asset Disposal Act 2015) took effect from 7th January 2016. Among the changes introduced was inclusion of the pension funds for public entities in the list of entities required to comply with the new law. To facilitate compliance, the DB secretariat which provides the administration services to the Fund, established a procurement department to handle all matters relating to procurement.

RISK MANAGEMENTThe Fund recognizes that risk management is fundamental to achieving corporate goals. Therefore it has put in place processes for identifying, assessing, monitoring and managing risks to ensure that the Fund’s objectives are achieved and risk mitigated. The framework is reviewed continuously to align it

to the realities of the operating environment. The risk register is reviewed every quarter where the effectiveness of the risk mitigating measures is reviewed.

OUTLOOK In 2017, the Fund will seek to achieve optimal returns, adjusted for risk through the implementation of the new asset allocation targets that better reflect the Fund’s moderately aggressive strategy. The Fund would also enhance its performance management framework through a more regular engagement with its fund managers which has been identified as an area of improvement.

Given the overarching purpose to deliver value to members in retirement, the Fund will continue to enhance and innovate around its offering to members. Members are becoming increasingly sophisticated and have higher expectations, the Fund therefore needs to adapt its products and services to be in pace with this development. It will also leverage mobile and digital technology to create deeper relationships with its membership.

APPRECIATION

I would like to thank the Board of Trustees for their unwavering support and guidance as well as the stakeholders for their contribution in service delivery to the Fund.

H.K. KyandaSecretary

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Kwa Mwanachama

Hazina ya Malipo ya Uzeeni ya Wafanyikazi wa Shirika la Kawi, Kenya ilifikia ukuaji yakinifu kwa kipindi cha mwaka uliopita licha ya hali ngumu ya mazingira

ya kiuwekezaji, kama inavyoshudiwa kwa soko la hisa linalopungua, hali tete ya thamani ya shilingi ya Kenya na viwango vya riba. Matokeo hayo yakinifu yalipatikana kupitia utekelezwaji wa mbinu mahsusi ya kiuwekezaji kama ilivyo kwenye kielelezo cha mikakati ya uwekezaji cha Hazina. Mkazo ulitiliwa zaidi kwenye kufuatilia kwa karibu na kutathminiwa kwa utekelezwaji huo ambapo kulifanywa uambatanishaji muhimu ili kuafikiana na mazingira ya wakati husika kwa kipindi chochote kile huku makini ikitiliwa zaidi kwenye malengo ya kipindi kirefu ya faida za kiuwekezaji.

UWEKEZAJI WA HAZINABodi ya Wadhamini ya Hazina ina jukumu la kuweka na kudumisha sera na malengo kwa maswala yote yanayohusu

RIPOTI YA KATIBU

Ningependa kuishukuru Bodi ya Wadhamini kwa

kuendelea kupeana msaada wao usiotikisika na mwelekeo,

pamoja na washikadau wengine wote kwa mchango wao katika

kutoa huduma kwa Hazina.

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shughuli za Hazina. Kitovu chake ni jukumu la Bodi la kufanya uwekezaji wa busara wa mali ya Hazina.

Hazina inaendelea kupanua uwanda wake wa kiuwekezaji kwa kuzingatia vitengo mbadala vya uwekezaji-mali ambao ulihusisha mali na uwekezaji binafsi wa kifedha. Hivi vitengo mbalimbali vya mali vilipanua upeo wa uwekezaji huku vikitoa nafasi mseto za kiuwekezaji kwa kutohusiana na uwekezaji kwenye soko la mtaji. Juhudi hizi zote za kiuwekezaji huchukuliwa kuambatana na kuafikiana na kanuni za Mamlaka Simamizi ya Hazina ya Malipo ya Uzeeni kudhibiti uwekezaji na pia kwa taratibu zilizoko kwenye uratibu wa sera za uwekezaji za Hazina (Fund’s Investment Policy Statement).

Kwenye mwaka wa 2016, Hazina ilianzisha mchakato mzima kwa bidii tekelezi wa Mfuko Binafsi wa Kifedha (Private Equity Fund) katika kutafuta kunufaika kikamilifu na nafasi zinazotokea kwenye kitengo cha mali. Mchakato huu ulikisiwa kukamilika na nyaraka za mwisho kutekelezwa kwa muhula robo wa mwisho wa mwaka wa 2017 huku juhudi za kiuwekezaji zikitarajiwa kungóa nanga moja kwa moja baada ya utekelezwaji huo. Mabadiliko ya kuegemea kitengo cha mauzo binafsi ya kifedha utaendelea kwa vipindi vijavyo kwani Hazina inatazamia kuendelea kuambatanisha sehemu yake sawa na mpango wake mahsusi kimikakati.

Hazina iliendelea kutekeleza mpango wake pana kwa kukuza mali ambao kwa miaka mingi iliyopita umetoa matokeo bora zaidi pamoja na kuchangia pakubwa maendeleo ya kitaifa ya sekta ndogo ya nyumba na makaazi. Hazina ilifikia ukuaji muhimu katika ujenzi wa majumba wa Bogani Park ambayo yapo kwenye sehemu ya kifahari ya kimakaazi ya Karen, takriban kilomita ishirini (20Km) kutoka katikati mwa jiji la Nairobi. Ujenzi huu unajumlisha majumba arubaini na tano (45) yenye vyumba vinne au vitano vya kulala kila mojawapo ya majumba hayo ikikalia eneo la nusu eka (half acre plot). Shughuli ya kuondoa majumba hayo kwa kuuza ilianza kwa kasi mno kwenye kipindi husika na inatazamiwa kuwa vyumba vyote vitakuwa vimeuzwa kufikia mwisho wa kipindi maalum kilichowekwa.

Kando na shughuli zilizorejelewa tayari kwenye nafasi mbadala ya mali, Hazina iliendelea kupiga msasa ufuatilizi na utathmini wa utendaji kwenye vitengo vinginevyo vya kiuwekezaji. Lengo la kimsingi katika juhudi hizi zote likiwa kuendeleza na kukuza faida huku ikijilinda dhidi ya hatari zinazohusiana na uwekezaji wa sampuli hiyo. Kwa kuongezea, ushirikishi endelevu wa

washikadau wote kwenye nafasi ya uwekezaji ulidumishwa mkwa kipindi kizima. Ushirikishi huu ulitoa muambatanisho muhimu wa mikakati na malengo.

Sekretarieti ya Faida Mahsusi (Defined Benefits Secretariat) ina jukumu la ufuatilizi wa karibu na kuripoti kuhusu utekelezwaji wa mikakati ya uwekezaji. Tathmini hii endelevu ni muhimu kuhakikisha kuwa Hazina inasalia makinifu kwenye malengo yake ya muhula mfupi na utendaji wake kwa muhula mrefu na uendelevu wake.

MIKAKATI NA MIPANGOHazina ya Pensheni ya Kampuni ya Kawi (Kenya Power Pension Fund-KPPF) ilipitisha mpango mpya wa kimikakati kwa kipindi 2016 hadi 2020. Lengo la KPPF linaloarifu shughuli zote za hazina ni kuleta faida na thamani kubwa kwa maisha ya uzeeni ya wanachama wake. Ruwaza ya KPPF ni kuwa bora-kwenye-kitengo (best-in-class) kwenye hazina za kikazi kote barani Afrika. Bora-kwenye-kitengo inamaanisha; Kwanza, kuwa mtendaji wa kuzidi viwango vya kawaida kwa kufikia mazao ama faida ya juu zaidi miongoni mwa mashirika-wenza kwa kuzingatia vigezo vya hatari kubalifu na, Pili, kuwa mwanzilishi au mvumbuzi muasisi kwa kutumia mikakati bunifu na yakupigiwa mfano ili kufaidi wanachama wake. KPPF inaweka mikakati kwa kujilinganisha sio tu na hazina za malipo ya uzeeni nchini Kenya bali pia dhidi ya hazina za pensheni zinazofanya vyema zaidi barani Afrika.

USIMAMIZI WA MFUKO WA HAZINAHazina ya Mfuko wa Michango Mahsusi imeweza kuratibu kwa Sekretariati ya Mfuko wa Faida Mahsusi huduma ya usimamizi ya kutoka nje. Huduma zifwatazo zimeratibiwa kutoka nje; • Usimamizi Mradi• Fedha na Maekezo• Usimamizi Mali na Uendelezaji• Usimamizi wa Hatari ibuka• Huduma kwa Wateja• Manunuzi

Pana mpango maalum wa makubaliano kikandarasi unaosimamia ushirikiano na Sekretariati ya DB kuhakikisjha miongoni mwa mambo mengineyo kuwa huduma zinazotolewa ni za kiwango bora zaidi na zenye kuridhisha.

USIMAMIZI WA WANACHAMAHazina imejitolea kikamilifu katika kupeana huduma ya kiwango bora zaidi kwa wanachama wake. Hazina inajizatiti

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kuendelea kushirikisha wanachama wake kupitia njia pana za kimawasiliano na mbinu za kubadilishana taarifa. Kwa kufikia hili, hazina imetengeneza njia mbalimbali za mawasiliano na kutoa taarifa za moja kwa moja kuwajuza wanachama juu ya maendeleo katika Hazina.

Kila mwaka, Hazina huandaa na kutekeleza mpango wa mafundisho unaolenga wanachama wanaondelea kazini na wale waliostaafu. Lengo la mpango huu wa mafunzo ni kuwataarifu na kuwajuza wanachama juu ya hali kamili na utendaji wa Hazina pamoja na kuwaandaa kwa kustaafu kwao. Kwa kuongezea, kwa muhula wa robo mwaka, jarida la kuwajuza na kuwaarifu wanachama huandaliwa na kuchapishwa na kusambazwa.

Katika mwaka, Hazina ilifanya utafiti kuhusu kuridhika kwa wanachama wake kama sehemu ya shughuli za kila mwaka zinazolenga kutathmini viwango vya kuridhishwa na huduma zinazotolewa. Kiwango cha jumla cha kuridhika kwa wanachama kilikuwa asilimia themanini na nne nukta mbili (84.2%) ambacho kilisawiri kuimarika kutoka kwa kiwango cha uridhisho cha mwaka 2014 cha asilimia themanini na tatu nukta saba (83.7%). Kuimarika huku kulikuwa idhibati tosha ya ubora wa mikakati ya huduma kwa wateja inayotekelezwa na Hazina. Hazina imeshirikisha utekelezwaji wa mapendekezo na maoni kutoka kwa utafiti kwenye mpango wa juhudi za kila mwaka kwa vipindi vijavyo.

TEKNOLOJIA HABARI NA MAWASILIANO (TEKNOHAMA)Ubunifu na teknolojia vinasalia kuwa vyamba-jengo vikuu vya ufanisi wa juhudi-jumla kwa kizazi cha sasa. Hazina imechukuwa uongozi katika ulingo huu kwa kujumlisha viwili hivi (ubunifu na teknolojia) katika michakato na juhudi zake zote. Mfumo kimtagusano ulitengeneza ukumbi wa kuingiliana moja kwa moja na wanachama. Kwa kuongezea, michakato ya ndani ya hazina inasaidiwa na mfumo dhabiti wa TEKNOHAMA kuhakikisha kuwepo ufanisi na utenda-kazi bora kwenye Hazina. Mwisho, msingi endelevu wa uimarishaji unahitaji Hazina kuboresha michakato yake na kuchukuwa nafasi ya maendeleo mapya inayopatikana.

MANUNUZI (PROCUREMENT)Sheria mpya ya umma ya manunuzi (Public Procurement and Asset Disposal Act 2015) ilianza kutekelezwa tarehe 7/1/2016. Miongoni mwa mabadiliko iliyoleta ni pamoja na kushirikisha hazina za malipo ya pensheni kwa asasi za umma

kwa ratiba ya asasi zinazohitajika kuafikiana na sheria hiyo mpya. Ili kufanikisha uwiano na uafikiano huu, Sekretariati ya DB ambayo hupeana huduma za kiusimamizi kwa Hazina, ilianzisha idara ya manunuzi itakayohusika na maswala yote ya manunuzi.

USIMAMIZI WA HATARI (RISK MANAGEMENT)Hazina inatambua kuwa usimamizi wa hatari ni jambo la kimsingi katika kufikia malengo ya kiushirika. Kwa hivyo, Hazina imeweka tayari michakato ya kutambua, kutathmini, kufuatilia na kusimamia hatari ili kuhakikisha kuwa Hazina inafikia malengo yake na kuwa hatari zinazuiwa ama kudhibitiwa. Mfumo tekelezi hutathminiwa upya kila mara ili kuuambatanisha na uhalisia wa mazingira ya kazi. Sajili ya hatari hupitiwa kila muhula wa robo mwaka ambapo uwezo wake kiufanisi katika mikakati ya kudhibiti hatari hutathminiwa upya na pia sajili hiyo kuratibiwa kuafiki hali ilivyo wakati huo huo.

MTAZAMOKwenye mwaka wa 2017, Hazina itatafuta kufikia kiwango cha juu zaidi cha faida iliyokarabatiwa dhidi ya hatari kupitia utekelezwaji wa malengo mapya ya kuekeza mali ambayo yanasawiri mkakati makinifu wa Hazina. Hazina itaboresha pia mfumo wake wa utendaji kiusimamizi kupitia njia ya kila mara ya ushirikiano pamoja na mameneja au wasimamizi wa Hazina ambao umetambuliwa kama sehemu mojawapo inayohitaji kuimarishwa.

Kutokana na jukumu kuu la kuleta thamani kwa wanachama uzeeni mwao baada ya kustaafu, Hazina itaendelea kuboresha na kubuni zaidi kwenye matoleo yake kwa wanachama. Wanachama wanazidi kusasaika na wana matarajio ya juu zaidi. Hazina kwa hivyo inahitaji kukabiliana na bidhaa na huduma zake ili ziendane na mabadiliko haya. Aidha Hazina itatafuta mwafaka na teknolojia za simu pamoja na zile za kidigitali ili kuunda mahusiano bora na wanachama.

SHUKRANINingependa kuishukuru Bodi ya Wadhamini kwa kuendelea kupeana msaada wao usiotikisika na mwelekeo, pamoja na washikadau wengine wote kwa mchango wao katika kutoa huduma kwa Hazina.

H.K. KyandaKatibu

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TRUSTEE PROFILESErnest Nadome------------------------------------

He was appointed to the Board in September, 2003 and became the Chairman of the Fund from July 2016. He holds a Master of Arts (MA) in Labour Management Relations, Bachelor of Arts (B.A) Degree (Hons). He is the General Secretary of the Kenya Electrical

Trades & Allied Workers Union (KETAWU) a position he has held for the past 14 years. He is well versed in energy, human resources and labour matters, having worked for The Kenya Power and Lighting Company Ltd and Kengen for 16 years. He is the Chairman of the Board of Trustees for the Kengen Company Limited Staff Retirement Benefits Scheme (DC Scheme) and a Trustee of Kengen Company Limited Staff Retirement Benefits Scheme (DB Scheme). He is the 1st Assistant Secretary General for Central Organisation of Trade Union (COTU-K) and the Gazetted Vice Chairman of The National Industrial Training Authority (NITA). He is also the Chairman of The National Industrial Training Authority Retirement Pension Scheme. In addition, he is a founder director of a newly established parastatal Kenya National Qualification Frame Work Authority and also a member of National Labour Board. He is also the Chairman of Tom Mboya Labour College based in Kisumu. He is a Certified Pension Fund Trustee.

Abubakar Swaleh------------------------------------

He was appointed to the Board in November 2014. He holds a Master of Business Administration (MBA), a Bachelor of Education Degree, and a Higher Diploma in Human Resource Management. He has over 15 years corporate experience in the Human

Resource Management, having worked in the Fast Moving Consumer Goods, Manufacturing, Banking and Media sectors. Previously, Mr. Swaleh worked for Gulf African Bank as a Director in Human Resource & Shared Services. He has also served as the Group Senior HR Manager at Nation Media Group. Mr. Swaleh is an associate member of Kenya Institute of Personnel Management. Currently, he is the General Manager, Human Resources & Administration in Kenya Power and Lighting Company Ltd. He is also a Certified Pension Fund Trustee.

Dr. Ken Tarus ------------------------------------

He was appointed to the Board on 30th June, 2016. Dr. Tarus holds PhD in Finance, an Master of Business Administration, and a Bachelor of Commerce Degree and is a Certified Public Accountant. He is currently the acting Chief Executive and Managing

Director of Kenya Power & Lighting Company Limited. Previously he has served as General Manager Finance at Kenya Power & Lighting Company Ltd, Chief Manager, Finance at Rural Electrification Authority (REA), Head of Finance at KCA University and Head of Finance at Bank of Africa. He has developed and mentored a team which currently holds senior finance roles in various industries in the market. Dr. Tarus is a member of the Institute of Certified Public Accountants of Kenya (ICPAK) and is an Associate Member of Kenya Institute of Management (KIM). He is a Certified Pension Fund Trustee.

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Beatrice Meso------------------------------------

She was appointed to the Board in November 2014. She holds a Master of Laws (LL.M), a Bachelor of Laws (LL.B Hons) and a Master of Business Administration (MBA). She also holds Post Graduate Diploma in Law and is an advocate of the High Court of Kenya, a

Certified Public Secretary, an Arbitrator, a Commissioner for Oaths and a Notary Public. She has proficiency in Public and Private Sector Administration, governance, policy formulation and implementation, Company Secretarial practice, legal and regulatory matters and in electricity trade. Currently she is the General Manager, Corporate Affairs and Company Secretary in Kenya Power and Lighting Company Ltd. She is also a Certified Pension Fund Trustee.

Kosgey Kolil------------------------------------

He was appointed to the Board on 30th September, 2008. He holds Master of Science in Commerce -Finance and Investment, a Bachelor of Commerce (Finance option) degree, is a Certified Public Accountant of Kenya (CPA K) and is member of the Institute of Certified

Public Accountants of Kenya ICPAK. He also holds a Post Graduate Diploma in Labour Policy Studies. He is the Deputy General Secretary of the Kenya Electrical Trades & Allied Workers Union (KETAWU). He sits in the Board of the Productivity Centre of Kenya (PCK) as a nominee of the Central Organization of Trade Union (COTU-K). Prior to joining KETAWU he worked with Kenya Power and Lighting Company Limited for 16 years in Finance where he gained a wide experience in finance and accounting. He is a Certified Pension Fund Trustee.

David Songok------------------------------------

He was appointed to the Board on 26th February, 2011. He holds a Bachelor of Arts Political Science and Public Administration (Conflict and Peace Studies) degree, National Diploma in Human Resource and Personnel Management, Ordinary Diploma in Electrical

Installation and a Craft Certificate in Electrical Installation. He is the Chairman of the Kenya Electrical Trades & Allied Workers Union (KETAWU) from 2011. He is also a member of the technical committee on labour markets information system of Kenya representing Central Organization of Trade Unions (COTU). Currently he works in Commercial Services department of The Kenya Power and Lighting Company Ltd. He has experience in energy and labour matters. He is a Certified Pension Fund Trustee.

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Annual Report 2016


Johnstone Sakwa ------------------------------------

He was appointed to the Board in July 2016. He holds a Business Administration Degree, (Marketing), a Higher Diploma in Electrical Engineering and is also a Registered Graduate Technician Engineer. Currently, he works as a Prepaid Metering Section in charge within

the Revenue Protection Unit of Customer Service in Kenya Power. He is also a member of the National Cohesion and Values Committee within Kenya Power and Lighting. He is a Certified Pension Fund Trustee.

Zilpa Ayara ------------------------------------

She was appointed to the Board in July 2016. She has 30 years’ work experience in various departments in Kenya Power & Company Limited. Currently working at the Kenya Power National Contact Center as a Quality control officer, a founder Committee member of

Kenya Power Fariji Fund and Committee member Safety Health and Environment (SHE) Central Office. A holder of Bachelor of Commerce Degree – Marketing Option, Diploma in Business Management, Call Center Quality Assurance Certificate and Credit/Debt Control Management Certificate. A member of Kenya Institute of Management (KIM). Currently, the chairman of PTA(Parents Teachers Association, member Board Of Management ) Huruma Girls High School, Board Member Of Upper Hill School and Chairperson of AIC- Jericho Church Members Welfare. She is a Certified Pension Fund Trustee.

Henry Kyanda – Secretary------------------------------------

He was appointed Secretary to the Board in 2006. He holds a Master of Business Administration (MBA) Degree (Strategic Management) and Bachelor’s degree in International Business Administration (Finance). He has wide experience in the Pensions

industry having previously worked as the Principal Pensions Officer at The Kenya Power and Lighting Company Ltd. Prior to joining Kenya Power he worked in the investment management industry. He has wide experience in pensions, banking and investments spanning over 15 years. He is also a Certified Pension Fund Trustee.

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STATEMENT ON CORPORATE GOVERNANCE Board of Trustees

The Board of Trustees is committed to upholding the highest governance, legal, and ethical standards in all activities and has therefore adopted best practice

guidelines aimed at strengthening the operating climate and providing necessary guidelines whenever situations warrants. The board sets the strategic direction of the Fund, puts in place policies as well as providing the necessary oversight in the management of the Fund in pursuance of the achieving the Fund’s key objectives.

Board ManualThe Board maintains a Board Manual which is a reference guide on all governance matters and conduct of the Fund’s affairs. It establishes the corporate governance framework, policies and practices to ensure that at all time the Fund’s operations meets the expectation of the stakeholders. It expounds and explains the collective and individual powers, duties, obligations, and responsibilities of the Trustees. The manual is reviewed annually to incorporate any necessary changes that ensures consistency with the Board’s objectives, current law and best practice. Board ResponsibilitiesThe Board Manual sets out the Trustee’s roles and responsibilities which are summarized below:

• Formulation and approval of the Fund’s vision, mission and core values and formulation & approval of the Fund’s strategy, business plan and principles of investments.

• Approval of annual budget and the final financial statements and interest on members’ balances.

• Review and evaluation of Investment Managers Performance and approval of risk management strategy.

• Settlement of major litigation/claims• Appointment of all service providers • Approval of banking/authority levels, policies, procedures

and manuals

• Periodic formulation and review of ICT policies, procedures, strategies and work plans.

Board Chairman The Chairman of the Board is elected by the Board of Trustees in accordance with provisions of the Fund’s Trust Deed and Rules. The roles and responsibilities of the Chairman are distinct and separate from those of the Administrator of the Fund which creates the necessary independence in the discharge of respective responsibilities.

The Chairman is responsible for the overall Board leadership and its effectiveness. He sets the agenda for Board meetings, chairs all meetings and the Fund’s Annual General Meeting (AGM). He also ensures adequate induction of new Trustees to orient them with Board’s role, key tasks, processes, policies, and awareness of conflict of interest, as well as trainings for all Trustees to keep them abreast with good corporate governance practices and developments in the industry. He ensures key tasks of the Board are achieved satisfactorily and maintains an independent working relationship with the Administrator of the Fund. Board Structure and CompositionThe Board’s size and composition is guided by the Retirement Benefits (Occupation Retirement Benefits Schemes) Regulations 2000 issued by RBA, which states that a defined contributions scheme shall not have less than four (4) and not more than nine (9) Trustees and that the number of Trustees elected by the members shall be at least 50% of the Board composition. In compliance with this requirement, and in accordance with the Trust Deed and Rules, the Board is composed of eight Trustees, three of whom are Sponsor-appointed and five (5) are member-elected as detailed below;

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Member elected Trustees serves a 3-year renewable term, while sponsor-appointed Trustees can be re-appointed or maybe removed at any time by the Sponsor. However, this practice will be reviewed to align it with the recent changes in the regulatory framework which has limited the term of a Trustee to maximum of two terms of three years each.

The Board strive to ensure that all time the skills mix of the board is appropriate and updated to steer the Fund within the environment that is ever changing. Key among the existing skill pool include expertise in governance, human resources, legal, and finance and risk management.

The entire board is independent of the Administrator. This arrangement ensures that that Board’s activities, discussions and decisions benefit from predominantly outside views and experiences.

Board Induction programs & TrainingEach Trustee on appointment is provided with sufficient information to enable him/her perform his/her roles. Induction of newly-appointed Trustees is organized by the Secretary to the Board. The Board ensures that all Trustees keep abreast of both practical and theoretical developments, and that their expertise is constantly relevant. Trustee development comprises of induction and enhancement of skills derived from regular evaluations.

Every year the Secretary in liaison with the Board carries out a Trustees training needs analysis and prepares a training calendar which is implemented during the year.

In addition, according to the Capacity Building of Trustees of Retirement Benefits Schemes Prudential Guideline Number RBA 001,2013 all Trustees of Retirement Benefits Schemes and Directors of Corporate Trustees of any retirement benefits scheme in Kenya are required to undergo training in order to be certified and approved by the Retirement Benefits Authority. All the Trustees have undertaken this training and are certified as Trustees. Board Remuneration and compensation The Board’s compensation is determined and approved by the Sponsor. The levels are reviewed periodically to ensure that they are reasonable taking into consideration the affordability of the Fund. The details of the compensation for 2016 is as shown on note 25 of the notes to the financial statements.

Board evaluation The Board undertakes self-evaluation on its performance internally every year while the external facilitated reviews is done every two years. The aim of this exercise is to gauge the performance levels of the Board as well provisions of feedback on areas of improvement which goes a long way in ensuring a sustainable governance structure is always maintained. Board MeetingsThe Board and its Committees meet regularly in accordance with the annual board work plan and at least quarterly in a year. The work plan also sets out the key agenda to be discussed in every meeting.

The Fund uses one of the latest technology solutions in the

Dr. Ken Tarus Sponsor appointed

Beatrice Meso Sponsor appointed

Abubakar Swaleh Sponsor appointed

Ernest Nadome Member elected – representing Workers Union members

Koskey Kolil Member elected – representing Workers Union members

David Songok Member elected – representing Workers Union members

Johnstone Sakwa Member elected

Zilpa Ayara Member elected

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Annual Report 2016


market, a system known as e-Board, to assist in management of Board functions using ICT. All Board and Committee meetings are now managed seamlessly via the e-Board system. Via this system, Trustees can access and review necessary information on the items to be discussed prior to any meeting of the Board. This has been valuable in enabling Trustees prepare adequately and hold meetings easily and efficiently, saving on time and eliminating the manual paper-based way of reviewing and approving documents. Board CommitteesThe Board has established committees to assist it in discharging its responsibilities and obligations. It delegates specific functions to selected Committees with defined formal terms of reference, without abdicating its ultimate responsibility. Currently the Board has four standing committees as indicated below;

a) Risk and Auditb) Strategy, Finance & Investment c) Project Implementation d) Governance, Human Resources & Compensation

The membership and chairmanship of these committees is regularly reviewed by the Board to ensure their effective operations. In constituting the committees individual area of expertise and qualifications form the basis for appointment to the specific committee.

The Chairmen of the committees appraises the full Board of their activities on a quarterly basis through oral and/or written reports.

The details of the committees are as follows;

a) Risk & Audit Committee

The Risk & Audit Committee is chaired by Beatrice Meso with Kosgey Kolil & Zilpa Ayara as members. The responsibilities of the Committee includes but is not limited to:

• To review and recommend to the Board appropriate risk management policies and procedures

• To monitor the implementation of risk management strategies

• To reviewing the effectiveness and reliability of management information systems, risk and internal controls systems and the efficiency and effectiveness of both external and internal audit

• Liaison with internal and external auditors in their undertakings of respective assignments

• Advise the Board on any issues pertaining to the appointment, remuneration and dismissal of auditors

• Consider and make recommendation to the Board on IT governance including ICT policies planning.

b) Strategy, Finance & Investment Committee

The Strategy Finance & Investment Committee is chaired by Dr. Ken Tarus with Beatrice Meso and Johnstone Sakwa as members. The responsibilities of the Committee includes but is not limited to:

• To advise on the development and implementation of the strategic plan

• Consider and make recommendations to the board concerning new strategic initiatives, alliances and potential partnerships

• To monitor portfolio performance and implementation of investment strategies

• Advise the Board on appointment of investment managers, custodians and bankers to monitor and evaluate performance of these service providers

• To review and make recommendations to the Board on proposed new investments, capital developments

• To review and make recommendations on the annual budgets for the Fund including monitoring the performance

c) Governance, HR & Compensation Committee

The Governance, HR & Compensation Committee is chaired by Abubakar Swaleh with Zilpa Ayara, David Songok and Johnstone Sakwa as members. The responsibilities of this Committee includes but is not limited to:

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• Oversee the governance, compliance and communication function of the Fund.

• Responsible for staff and operational policies in order to align the Fund’s operations with best practice.

• Orientation and induction of new Trustees including training and development of Board of Trustees

• Review and advise the Board on the annual procurement plans and also advise management on the procurement matters

d) Project Implementation Committee (PIC)

The Project Implementation committee is chaired by David Songok with Kosgey Kolil, Abubakar Swaleh as members. The responsibilities of this Committee includes but is not limited to:

• To oversee the implementation of the Project in accordance with the directives and approvals from the Board.

• To monitor the progress of implementation for the project.

• To ensure that appropriate mechanisms are put in place to ensure close cooperation amongst the consultants involved in the implementation of the Project.

• To give necessary advice, guidance and support to the Project Manager and the other consultants on all project related matters to ensure that the project is well implemented.

Meetings Attendance

The Board of Trustees meets regularly as per the Board calendar. Below is a summary of meeting attendance by Trustees for the year ended 31 December 2016;

Trustee Name FullBoard

Risk & Audit Committee

Strategy, Finance &

Investments Committee

Governance, HR & Compensation

Committee

PICCommittee

Total Meetings 10 3 5 5 14

Ernest Nadome 8/10 1/2 2/2 - 7/14

Dr.Ben Chumo 2/10 - - - -

Dr. Ken Tarus 4/4 - 3/3 - 3/4

Lawrence Yego 5/5 - - - -

Kosgey Kolil 8/10 3/3 - - 4/4

Salim Athman 6/6 - 1/2 - 4/6

Mediatrice Wangira 6/6 - - 3/5 -

David Songok 8/10 - - 4/5 14/14

Beatrice Meso 8/10 2/3 5/5 - -

Abubakar Swaleh 9/10 - - 2/5 4/14

Zilpa Ayara 4/4 1/1 - 2/2 -

Johnstone Sakwa 3/4 - 3/3 1/2 -

The Board Commitees were reconstituted during the year in line with the new strategic plan.

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Board ElectionsThe Retirement Benefits (Occupational Retirement Benefits Schemes) Regulations, 2000 requires that election of Trustees is conducted every three years. Board election were conducted during the year where two new members were elected to the Board.

Statement of Compliance and Conflict of InterestConscious of its responsibilities to members, service providers, suppliers, creditors, employees and society, the Board of Trustees issue a compliance statement at the end of every year confirming that they have complied with the law, conducted their affairs in accordance with the best principles and practices of corporate governance and that to the best of the knowledge of the Board and management, no person, employee or agent acting on behalf of the Fund with the knowledge or authority of the Board or management, committed any offence under the Prevention of Corruption Act or indulged in any unethical

behavior in the conduct of the Fund’s business, or had been involved in money laundering, or any practice or activity contrary to national laws or international conventions. The Trustees also submit annual declaration of conflict of interest to the Chairman of Board of Trustees.

Code of conductEach Trustee derives his or her authority and position from a legitimate nomination procedure. However, on becoming a Trustee, each Trustee becomes bound by the overriding fiduciary duty to act in good faith in the pursuit of the best interests of members of the Fund as a whole. In the discharge of their duties, Trustees operate within the framework of a collective Board. In order to enable the Board to operate effectively and in the best interests of the Fund, all Trustees observe rules and regulations governing the Conduct of Trustees as contained in the Board manual, under trustee code of ethics.

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Annual Report 2016



STATUTORY INFORMATION

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Annual Report 2016


Background

The Kenya Power & Lighting Company Limited Staff Retirement Benefits Scheme 2006 – Defined Contributions Trustees are pleased to submit their annual report together with the audited financial statement for the year ended 31 December, 2016 in accordance with section 34 of the Kenyan Retirement Benefits Act.

Principal ActivitiesThe principal activities of the Scheme are provision of cash benefits and pensions to the members upon attainment of the retirement age of sixty years, and where applicable, benefits for dependants of deceased members. This is achieved through prudent funds investment.

Financial ReviewThe statements of changes in net assets available for benefits shows an increase in the net assets of the scheme for the year of KShs 1,503,635,611 (2015: increase of KShs 1,225,495,201) and the statement of net assets available for benefits shows the scheme’s total net assets of KShs 11,336,733,501 (2015: KShs 9,833,097,890).

Board of TrusteesThe Trustees of the Scheme who held office during the year are listed on page 4.

AuditorErnst and Young LLP having expressed their willingness, will continue to be in office in accordance with Section 34(3) of the Retirements Benefits Act and subject to Rule No. 19 (a) (iv) of the Scheme’s Trust Deed and Rules.

Financial StatementsThe audited financial statements were approved and authorized by the Board of Trustees on 20 March 2017.

REPORT OF THE BOARD OF TRUSTEES

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Annual Report 2016


The Kenyan Retirement Benefits Act requires the Trustees to prepare financial statements for each financial year which show a true and fair view of the financial transactions of the Scheme for the year and of disposition at year end of its assets and liabilities. It also requires the Trustees to ensure that the Scheme keeps proper accounting records which disclose with reasonable accuracy

at any time the financial position of the Scheme. They are also responsible for safeguarding the assets of the Scheme.

The Trustees are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Retirement Benefits Act, and for such internal control as Trustees determine is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. They are also obligated to send to the members a summary of its audited financial accounts together with the members’ benefit statements.

The Trustees accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Financial Reporting Standards and the Scheme’s rules. The Trustees are of the opinion that the financial statements give a true and fair view of the financial affairs of the Scheme and of its operating results. The Trustees further accept responsibility for the maintenance of accounting records which may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.

The Trustees certify that, to their best knowledge and belief, the information furnished to the auditor for the purpose of the audit was correct and complete in every respect.

Nothing has come to the attention of the Trustees to indicate that the Scheme will not be able to meet its obligations for at least the next twelve months from the date of this statement and the requirements of Kenyan Retirement Benefits Act.

…………………………… ……..……………………….. ………………………………….E. Nadome B. Meso H. Kyanda

………………………….………….………2017

STATEMENT OF THE TRUSTEES’ RESPONSIBILITIES

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Annual Report 2016


INDEPENDENT AUDITOR’S REPORTTO THE MEMBERS OF THE KENYA POWER & LIGHTING COMPANY LIMITEDSTAFF RETIREMENT BENEFITS SCHEME 2006 (DEFINED CONTRIBUTIONS)

Report on the Audit of the Financial Statements Opinion

We have audited the financial statements of Kenya Power and Lighting Company Limited Staff Retirement Benefits Scheme - Defined

Contributions (“the Scheme”), which comprise the statement of changes in net assets available for benefits and the statement of net assets available for benefits as at 31 December 2016, statement of changes in members’ funds and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies as set out on pages 41 to 80.

In our opinion, the financial statements present fairly, in all material respects, the financial position of Kenya Power and Lighting Company Limited Staff Retirement Benefits Scheme - Defined Benefits as at 31 December 2016, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of Kenyan Retirement Benefits Act.

Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Scheme in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code, and in accordance with other ethical requirements applicable to performing the audit of financial statements in Kenya. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other InformationThe trustees are responsible for the other information. The other information comprises the Report of the Board of Trustees, which we obtained prior to the date of this report, as

required by the Kenyan Retirement Benefits Act and the Annual Report, which is expected to be made available to us after that date. The other information does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of Trustees for the Financial StatementsThe trustees are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the requirements of the Kenyan Retirement Benefits Act and for such internal controls as trustees determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.In preparing the financial statements, the trustees are responsible for assessing the Scheme’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless trustees either intends to liquidate the Scheme or to cease operations, or has no realistic alternative but to do so.

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Annual Report 2016


The trustees are responsible for overseeing the Scheme’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISAs) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identifyandassesstherisksofmaterialmisstatementofthe financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Scheme’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of the trustee’s use of

the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Scheme’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Scheme to cease to continue as a going concern.

• Evaluatetheoverallpresentation,structureandcontentof the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

The engagement partner responsible for the audit resulting in this independent auditors report is CPA Joseph K Cheboror-Practicing Certificate No. 1145

Nairobi

…………………………………..2017

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Annual Report 2016


Statement of changes in net assets available for benefitsFor the year ended 31st December 2016

2016 2015

CONTRIBUTIONS AND BENEFITS Note KShs ‘000 KShs ‘000

CONTRIBUTIONS RECEIVED

Normal contribution 4 1,080,098 969,091

Excess contribution/taxable contribution 4 182,486 120,310

Total contributions 1,262,584 1,089,401

Benefits payable 5 (391,275) (471,383)

Net surplus from dealing with members 871,309 618,018

RETURNS ON INVESTMENTS

Term deposits with financial institutions 6 31,772 21,274

Commercial papers 6 - 677

Government securities at fair value through profit and loss 6 544,123 149,358

Government securities held to maturity 6 5,938 6,254

Quoted equity investments at fair value through profit and loss 6 (111,422) (191,383)

Corporate bonds at fair value through profit or loss 6 82,133 122,004

Gain on valuation of investment property 6 80,958 576,245

Gain on sale of inventory property 6 71,048 -

Unquoted investment 6 18,389 1,661

Investment income 722,939 686,090

Investment management expenses 7 (20,364) (21,015)

Net returns on investments 702,575 665,075

Other income 8 4,624 -

ADMINISTRATION EXPENSES 9 (63,766) (50,434)

INCREASE IN NET ASSETS FOR THE YEAR BEFORE TAXATION 1,514,742 1,232,659

TAXATION CHARGE 13 (11,106) (7,164)

INCREASE IN NET ASSETS FOR THE YEAR 1,503,636 1,225,495

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Annual Report 2016


Statement of net assets available for benefitsAs at 31st December 2016

2016 2015

Note KShs ‘000 KShs ‘000

ASSETS

Investment property 14 700,000 2,034,372

Investment work in progress 14 - 1,807,395

Inventory property 14 3,179,836 -

Government securities at fair value through profit and loss 14 3,951,932 2,972,145

Government securities held to maturity 14 86,567 19,788

Unquoted equity investment 14 287,938 281,332

Quoted equity investments at fair value through profit and loss 14 1,348,923 1,469,825

Corporate bonds 14 773,662 849,441

Term deposits with financial institutions 14 502,142 346,540

10,831,000 9,780,838

OTHER ASSETS

Bank and cash balances 23 175,796 140,137

Other receivables 24 375,466 3,624

Tax recoverable 27 - 1,381

Due from related parties 25 - 3,200

551,262 148,342

TOTAL ASSETS 11,382,262 9,929,180

LIABILITIES

Due to related parties 25 7,527 1,926

Benefits payable 26 15,311 1,158

Tax payable 27 1,845 -

Other payables and accruals 28 20,845 92,998

TOTAL LIABILITIES 45,528 96,082

NET ASSETS AVAILABLE FOR BENEFITS 29 11,336,734 9,833,098

REPRESENTED BY MEMBERS FUNDS:

SCHEME BALANCE 11,336,734 9,833,098

The financial statements were approved by the Board of Trustees on …………………………………….2017 and were signed on its behalf by:

………………………………… ………………………..… ……………………………E. Nadome B. Meso H. Kyanda

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Annual Report 2016


Statement of changes in members’ fundsFor the year ended 31st December 2016

2016 2015

KShs ‘000 KShs ‘000

At 1 January 9,833,098 8,607,603

Increase net assets for the year 1,503,636 1,225,495

At 31 December 11,336,734 9,833,098

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Annual Report 2016


Statement of cash flowsFor the year ended 31st December 2016

2016 2015

CASH FLOWS FROM OPERATING ACTIVITIES Note KShs '000 KShs '000

Increase in net assets for the year 1,503,636 1,225,495

Adjustment for:

Fair value gain on investment properties 6 (80,958) (577,603)

Gain on disposal of inventory property 6 (71,048) -

(Gain)/loss on disposal of government securities at fair value through profit or loss 6 (13,197) 25,045

Gain on disposal of government securities held to maturity 6 (2,939) (4,490)

(Gain)/loss on disposal of quoted equity investments at fair value through profit or loss 6 (2,044) 26,977

Loss on disposal of corporate bonds 6 1,410 2,164

Gain on disposal of commercial paper 6 - (677)

Fair value (gain)/loss on government securities at fair value through profit or loss 6 (99,617) 214,814

Discount on government securities held to maturity 6 (2,999) (1,764)

Fair value loss on corporate bonds at fair value through profit or loss 6 (719) 644

Fair value loss on equity investment at fair value through profit or loss 6 197,433 228,233

Operating surplus before working capital changes 1,428,958 1,138,838

Decrease in other receivables 24 (13,332) (8,179)

Increase inventory property sales receivable 24 (355,285) -

Decrease in amounts due from related parties 25 3,200 -

Increase/(decrease) in amounts due to related parties 25 5,601 (2,963)

Increase in benefits payable 26 14,153 35,999

(Decrease)/increase in client deposits 28 (18,100) 20,100

Decrease in payables and accruals 28 (54,053) (3,594)

Net cash outflows from operating activities 1,011,142 1,180,201

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of Investment properties 14 - (619,042)

Purchase of Inventory properties - work in progress 14 (292,063) (445,122)

Purchase of inventory properties 14 - -

Proceeds from sale of Inventory property 14 406,000 -

Purchase of government bonds at fair value through profit or loss 14 (1,534,861) (969,254)

Proceeds from sales of government bonds at fair value through profit or loss 14 667,888 615,171

Purchase of government securities held to maturity 14 (150,841) (46,546)

Proceed from sale of government securities held to maturity 14 90,000 120,000

Purchase of quoted equity investments at fair value through profit or loss 14 (94,106) (192,158)

Proceeds from sale of quoted equity investment at fair value through profit or loss 14 19,620 166,171

Purchase of unquoted equity investments 14 (6,606) -274,856

Proceeds from sale of unquoted equity investment 14 - 5,474

Purchase of corporate bonds at fair value through profit or loss 14 - (156,952)

Proceeds from corporate bonds at fair value through profit or loss 14 75,088 324,827

Purchase of commercial paper 14 - -

Proceeds from sale of commercial paper 14 - 85,505

Net cash used in investing activities (819,881) (1,386,782)

DECREASE IN CASH AND CASH EQUIVALENTS 191,262 (206,581)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 23 486,677 693,258

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 23 677,938 486,677

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Annual Report 2016


NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31st DECEMBER 2016REPORTING ENTITYThe Kenya Power and Lighting Company Limited Staff Retirement Benefits Scheme 2006 (Defined Contributions) was established by The Kenya Power and Lighting Company Limited (the sponsor) under irrevocable trust as a scheme for the purpose of providing pension and other benefits to the members upon attainment of the retirement age of sixty years, and where applicable, benefits for the defendants of deceased members. The scheme is registered by the Kenya Retirement Benefits Authority, and is domiciled in Kenya. The address of its registered office is as follows:

Retirement Benefits Scheme TrusteesStima PlazaKolobot Road, ParklandsP.O. Box 1548-00600Nairobi

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation of financial statements

(i) Basis of preparation

The financial statements are presented in Kenya Shillings, and are prepared under the historical cost convention except for measurement at fair value of certain investments.

(ii) Statement of compliance

The financial statements are prepared in compliance with International Financial Reporting Standards (IFRS) and interpretations of those Standards.

The principal accounting policies applied in the preparation of the financial statements are set out below. These policies have been applied consistently unless otherwise stated

(b) New and amended standards and interpretations

The accounting policies adopted are consistent with those of the previous financial year, except for the following amendments to IFRS effective as of 1 January 2016. The new standards and amendments effective as of 1 January 2016 are listed below:

• IFRS 14 “Regulatory Deferral Accounts”• Amendments to IFRS 11 “Joint Arrangements”: Accounting for Acquisitions of Interests• Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment Entities”: Applying the Consolidation Exception• Amendments to various standards “Improvements to IFRSs (cycle 2012-2014)” • Amendments to IAS 1: Disclosure Initiative• Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation• Amendments to IAS 16 and IAS 41 “Agriculture”: Bearer Plants• Amendments to IAS 27: Equity Method in Separate Financial Statements

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Annual Report 2016


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31st DECEMBER 2016 (CONTINUED) The nature and the impact of each relevant new standard or amendment is described below:Amendments to various standards “Improvements to IFRS (cycle 2012-2014)” Amendments to various standards and interpretations resulting from the annual improvement project of IFRS (IFRS 5, IFRS 7, IAS 19 and IAS 34) primarily with a view to removing inconsistencies and clarifying wording. The revisions clarify the required accounting recognition in cases where free interpretation used to be permitted. Changes include new or revised requirements regarding: (i) changes in methods of disposal; (ii) servicing contracts; (iii) applicability of the amendments to IFRS 7 to condensed interim financial statements; (iv) discount rate: regional market issue; (v) disclosure of information ‘elsewhere in the interim financial report’. The amendments are to be applied for annual periods beginning on or after 1 January 2016 and have no impact on the financial statements of the Scheme.

IFRS 9 Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Scheme plans to adopt the new standard on the required effective date. During 2016, the Scheme has performed a high-level impact assessment of all three aspects of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional reasonable and supportable information being made available to the Scheme in the future. Overall, the Scheme expects no significant impact on its statement of financial position and Scheme balance except for the effect of applying the impairment requirements of IFRS 9.

(i) Classification and measurement

The Scheme does not expect a significant impact on its statement of financial position or equity on applying the classification and measurement requirements of IFRS 9. It expects to continue measuring at fair value all financial assets currently held at fair value.

Debt securities are expected to be measured at fair value through OCI under IFRS 9 as the Scheme expects not only to hold the assets to collect contractual cash flows but also to sell a significant amount on a relatively frequent basis.

(ii) Impairment

IFRS 9 requires the Scheme to record expected credit losses on all of its debt securities and receivables, either on a 12-month or lifetime basis. The Scheme expects to apply the simplified approach and record lifetime expected losses on all receivables. The Scheme expects a significant impact on its Scheme balance due to unsecured nature of its receivables, but it will need to perform a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements to determine the extent of the impact.

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Annual Report 2016


Amendments to IAS 1: Disclosure Initiative

The amendments to IAS 1 Presentation of Financial Statements clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify: • The materiality requirements in IAS 1• That specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be

disaggregated• Thatentitieshaveflexibilityastotheorderinwhichtheypresentthenotestofinancialstatements• That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate

as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments have no impact on the Scheme’s financial statements.

(c) Standards issued but not yet effective

The list of the Standards, improvements and amendments that are effective for periods beginning after 1 January 2017 are listed below:

Effective for annual periods beginning on or after 1 January 2017• IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12 • AIP IFRS 12 Disclosure of Interests in Other Entities - Clarification of the scope of the disclosure requirements in IFRS 12

Effective for annual periods beginning on or after 1 January 2018• IFRS 15 Revenue from Contracts with Customers• IFRS 9 Financial Instruments • IFRS 2 Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2 • Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4 Transfers of Investment

Property (Amendments to IAS 40) • IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration AIPIFRS1First-timeAdoptionofInternationalFinancialReportingStandards-Deletionofshort-termexemptionsforfirst-

time adopters • AIP IAS 28 Investments in Associates and Joint Ventures - Clarification that measuring investees at fair value through profit

or loss is an investment - by - investment choice

Effective for annual periods beginning on or after 1 January 2019• IFRS 16 Leases

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Scheme’s financial statements are disclosed below. The Scheme intends to adopt these standards, if applicable, when they become effective.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31st DECEMBER 2016 (CONTINUED)

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Annual Report 2016


IFRS 9 “Financial Instruments”

In July 2015, the IASB issued the final version of IFRS 9 “Financial Instruments” which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. Early application of previous versions of IFRS 9 (2009, 2010 and 2014) is permitted if the date of initial application is before 1 February 2015. The Scheme will quantify the effect when the standard becomes effective. Currently, the Scheme plans to adopt the new standard on the required date using the full retrospective method.

(d) Revenue recognition

The Scheme’s revenue is generated from monthly contributions from members, rental income from investment properties, interest income from government securities and dividends from quoted and unquoted equities.

Revenue represents the fair value of consideration received or receivable in the course of the Scheme’s activities. It is recognised when it is probable that future economic benefits will flow to the Scheme and the amount of revenue can be measured reliably. It is stated net of value added tax, rebates and trade discounts.

Investment income Interest income is recognised in the changes in net assets available for benefit as it accrues and is calculated by using the

effective interest rate method. Investment income also includes dividend income which is recognised when the right to receive the payment is established.

Rental income is on a straight-line basis over the lease term. The excess of rental income on a straight-line over cash received is recognised as an operating lease liability/asset.

Dividends are recognised when the Scheme’s right to receive the payment is established.

Contributions are accounted for in the period in which they fall due.

Sale of completed properties A property is regarded as sold when the significant risks and returns have been transferred to the buyer, which is normally on

unconditional exchange of contracts. For conditional exchanges, sales are recognised only when all the significant conditions are satisfied.

Realised / unrealized gains and losses

Realized / unrealized gains and losses recorded in the changes in net assets available for benefits on investments include gains and losses on financial assets and investment properties. Gains and losses on the sale of investments are calculated as the difference between net sales proceeds and the original or amortized cost and are recorded on occurrence of the sale transaction.


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Annual Report 2016


(e) Benefits payable

Benefits payable are accounted for in the period in which they fall due.

(f) Investment properties Investment property is property held to earn rentals or for capital appreciation or both. Investment property, including interest in

leasehold land, is initially recognised at cost including the transaction costs. Subsequently, investment property is carried at fair value representing the open market value at the reporting date determined by annual valuations carried out by external registered Valuers/ directors. Gains or losses arising from changes in the fair value are included in determining the profit or loss for the year to which they relate.

The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property.

Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. The Investment properties are stated at fair value, which has been determined based on valuations performed by Vineyard Valuers Limited as at 31 December 2016.

When the Scheme can reliably determine the fair value of a self-constructed investment property under construction or development, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the increase in net assets.

The difference between the carrying value and the fair value of the properties at the date of reclassification to investment properties is recognised in the increase in net assets.

Investment properties are derecognised when either they have been disposed off or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. On disposal of an investment property, the difference between the disposal proceeds and the carrying amount is charged or credited to the changes in net assets available for benefit.

Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, the Scheme’s accounts for such property in accordance with the policy stated under property and equipment up to the date of the change in use.

(g) Inventory properties

Property acquired or being constructed for sale in the ordinary course of business, rather than to be held for rental or capital appreciation, is held as inventory property and is measured at the lower of cost and net realisable value (NRV).


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Annual Report 2016


Cost includes:• Freehold and leasehold rights for land• Amounts paid to contractors for construction

Non-refundable commissions paid to sales or marketing agents on the sale of real estate units are expensed when paid.

NRV is the estimated selling price in the ordinary course of the business, based on market prices at the reporting date and discounted for the time value of money if material, less estimated costs of completion and the estimated costs necessary to make the sale.

The cost of inventory property recognised in statement of changes in net assets available for benefits on disposal is determined with reference to the specific costs incurred on the property sold and an allocation of any non-specific costs based on the relative size of the property sold.

(h) Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Purchases and sales of financial instruments are recognised on trade date – the date on which the Scheme commits to purchase or sell the asset.

The Scheme classifies its financial assets into the following IAS 39 categories: Financial assets at fair value through profit or loss; loans and receivables; held to maturity financial assets; and available for sale financial assets. The Trustees determines the appropriate classification of its financial instruments at initial recognition.

Financial assets

Financial assets are initially recognised at fair value plus, in the case of all financial assets or financial liabilities not carried at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or where they have been transferred and the Scheme has also transferred substantially all risks and rewards of ownership.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, the Scheme establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions and reference to other instruments that are substantially the same.

Financialassetsatfairvaluethroughprofitorloss

This category has two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified into this category at inception if acquired principally for the purpose of selling it in the short term, if it forms part of a portfolio of financial assets in which there is evidence of short term profit-taking, or if so designated by the Trustees. Subsequent to initial recognition, these investments are re-measured at fair value. Fair value adjustments are recognised in the statement of changes in net assets available for benefits in the year that they arise.


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Annual Report 2016


Financial assets at fair value through profit or loss comprise quoted equity investments, government securities at fair value through profit or loss and corporate bonds.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They include receivables arising from transactions with third parties

After initial measurement, loans and receivables are measured at amortized cost, using the effective interest rate method (EIR) less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.

The EIR amortization is included in changes in statement of changes net assets available for benefit. Gains and losses are recognised in the changes in net assets available for benefit when the investments are derecognised or impaired, as well as through the amortization process.

Financial assets classified under loans and receivables comprise commercial papers, property sales receivables, prepayments and amounts due from related parties.

Held-to-maturityfinancialassets

Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities other than those that meet the definition of loans and receivables that the Scheme’s management has the positive intention and ability to hold to maturity.

After initial measurement, held-to-maturity financial assets are measured at amortized cost, using the effective interest rate method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR gains and losses are recognised in changes in net assets available for benefit when the investments are derecognised or impaired, as well as through the amortization process.

The scheme has term deposits with financial institutions and government securities that are held to maturity financial assets.

Available-for-salefinancialassets

Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories.

Subsequent to initial recognition, these investments are re-measured at fair value unless their value cannot be reliably measured in which case they are carried at cost less provision for impairment.


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Annual Report 2016


Unrealized gains and losses arising from changes in the fair value of available-for-sale are recognised in other comprehensive income and accumulated under the heading of fair value reserve in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in statement of changes in net assets available for benefit for the year as net realized gains/losses on financial assets.

Unquoted investments are classified as available-for-sale investments.

Impairment of financial assets

The Scheme assesses at each reporting date whether a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtor or a group of debtor(s) is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortized cost- loans and receivables

For financial assets carried at amortized cost, the Scheme first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Scheme determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment.

Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. The impairment assessment is performed at each reporting date.

If there is objective evidence that an impairment loss on assets carried at amortized cost has been incurred, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. If a loan has variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in changes in net assets available for benefits.

If, in a subsequent period, the amount of the impairment loss decreases and that decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal


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Annual Report 2016


of an impairment loss is recognised in changes in net assets, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

Available-for-sale financial investments For available-for-sale financial investments, the Scheme assesses at each reporting date whether there is objective evidence that

an investment or a group of investments is impaired.

In the case of equity investments classified as available-for-sale, objective evidence would include a ‘significant or prolonged’ decline in the fair value of the investment below its cost. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost.

Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in changes in net assets available for benefit is removed from other comprehensive income and recognised in changes in net assets available for benefit. Impairment losses on equity investments are not reversed through changes in net assets available for benefit; increases in their fair value after impairment are recognised directly in other comprehensive income.

Unquoted investments are classified as available-for-sale investments.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, payables a net of directly attributable transaction costs. The Scheme’s financial liabilities include other payables and accruals due to related parties benefits payable and clients deposits.

Subsequent measurement

The measurement of financial liabilities depends on their classification, as described below:

Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated

upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term.

Gains or losses on liabilities held for trading are recognised in the statement of changes in net assets. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IAS 39 satisfied. The Scheme has not designated any financial liability as at fair value through profit or loss.


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Annual Report 2016


Loans and borrowings This is the category most relevant to the Scheme. After initial recognition, interest-bearing loans and borrowings and payable

are subsequently measured at amortized cost using the EIR method. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the carrying amount on initial recognition.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.

Gains and losses are recognised in the statement of changes in net assets available for benefit when the liabilities are derecognised as well as through the EIR amortization process.

The Scheme had client deposits, benefits payable, amounts due to related parties and other payables classified as loans and borrowings.

Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing

financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.

Offsettingoffinancialassetsandfinancialliabilities Financial assets and financial liabilities are offset and the net amount reported in the statement of net assets available for

benefits only when there is a current and legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liability simultaneously. Income and expenses will not be offset in the changes in net assets available for benefits unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the scheme.

(i) Foreign currencies translation

Assets and liabilities expressed in foreign currencies are translated to Kenya shillings at the rates of exchange ruling at the end of each reporting period while transactions during the year in foreign currencies are converted at the rates of exchange ruling on the dates of the transactions. Exchange gains or losses arising from foreign currency transactions are dealt with in the statement of changes in net assets.


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Annual Report 2016


(j) Capital management

The Scheme does not hold any capital. Each member has an account where contributions and investment returns are credited. When members withdraw benefits are paid out from this account.

(k) The Scheme’s funding policy

When deciding on the Scheme’s funding policy, The Scheme performed illustrative projections for new entrants assumed to join at different ages. A real return of 3% per annum (above inflation), salary increases in line with inflation of 7% per annum and a contribution rate of 15% of Salary is assumed. There is also an assumption that the new entrants will remain in the Scheme to retirement age.

The results of the analysis revealed that: Members joining the Scheme at the age of 25 years are expected to achieve a net realisable ration (NRR) above 60% if they

contribute above 15.0% of Salary. This is explained by the fact that more contributions are expected from these group of members and the period of investment is also longer.

Members joining at ages older than 25 years have expected NRR of below 60%. This observation is as a result of the fewer expected contributions as well as the shorter period of investment of the contributions.

The Scheme also note that members approaching near retirement age are expected to have very low NRR. This will be due to a variety of factors:

• Members opting to preserve their withdrawal benefits outside the Scheme when they change employment. Most of the members who were members of the DB Fund will have most of their service and benefits under the DB Fund rather than the Scheme. The benefits accrued in the DB Fund have not been considered in this analysis.

• TheSchemewasestablishedin2006andthereforethemaximumperiodofserviceamembercouldhaveaccruedundertheScheme is approximately 10 years as at the date of this report. For those members who are retiring in the next 10 years, the total service under the Scheme would be 20 years or less.

• Therefore,memberswhoareretiringinthenext10orsoyearsonlyhaveaportionoftheemploymentcareercateredforunder the Scheme. Assuming a full working life of 40 years, the Scheme only represents 50% or less of the member’s retirement saving period.

The projected NRR could be increased by one of the following;

• Achieving greater investment returns in relation to inflation and salary growth.

• Increasingthecontributionlevel.Thiscouldeitherbedonebyincreasingthecontributionrates(membersandifviabletheFounder contribution rate). The Founder could consider introducing a matching structure, where above a certain amount the


51

Annual Report 2016


Founder matches additional Member contributions with some limits applying. Alternatively a rigorous Member education could be undertaken to encourage members to subscribe to AVCs.

• Increasingworking lifetimes. This could be done by increasing theNRAof theScheme to say 65 years. The Founderwould need to be consulted on this to ensure this does not contradict any human resource planning and policies in place. Educating members on ensuring they preserve their benefits to retirement rather than accessing them on terminating employment. This could be done as part of the rigorous member education. Further educating members on the choices available at retirement including cash lump sum, type of annuity etc.

The Scheme’s Strategic and Occupational Strengthening Plan for 2016 – 2020 notes that Kenya Power & Lighting Company is considering increasing contributions to the Scheme by doubling or increasing matching contributions made by the Members. Further, we also note the Scheme’s target of achieving annual portfolio returns of at least 15.0% or the weighted composite index. If achieved, the two would have a positive effect on the Members’ NRRs.

(l) Taxation

Current income tax

Current income tax is the amount of income tax payable on the taxable profit for the year determined in accordance with the Kenyan Income Tax Act. Income tax expense is the aggregate amount charged/ (credited) in respect of current tax and deferred tax in determining the profit or loss for the year. Current income tax assets or liabilities are based on the amount of tax expected to be paid or recovered in respect of the taxation authorities in the future. Tax is recognised in the statement of changes in net assets available for benefit except when it relates to items recognised in other comprehensive income, in which case it is also recognised in other comprehensive income, or to items recognised directly in equity, in which case it is also recognised directly in equity.

Contributions received by the scheme up to a limit of KShs 20,000 per employee per month are invested in a registered Scheme, which is exempt from taxation. Any amount above this limit is invested in an unregistered Scheme whose investment income is taxed at the corporate tax rate of 30%.

(m) Employee entitlements

The estimated monetary liability for employees’ accrued annual leave entitlement at the end of the reporting period is recognised as an expense accrual.

Retirement benefit obligations

The Scheme operates a defined contribution scheme for its employees. The assets of the scheme are held in separate trustee administered funds, which are funded from contributions from both the Scheme and employees.

The Scheme also contributes to a statutory defined contribution pension scheme, the National Social Security Fund (NSSF).


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Annual Report 2016


Contributions to this scheme are determined by local statute and are currently at KShs 200 per employee per month.

The Scheme’s contributions to the defined contribution scheme and NSSF are charged to changes in net assets available for benefits as they fall due.

Bonus An accrual is recognised for the amount expected to be paid under short-term cash bonus if the Scheme has a present legal and

constructive obligation to pay this amount as a result of past service provided by the employee, the obligation can be estimated reliably and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

(n) Impairment of non-financial assets

The Scheme assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Scheme estimates the asset’s recoverable amount. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used.

Impairment losses of continuing operations are recognised in the changes in net assets available for benefits in those expense categories consistent with the function of the impaired asset, except for property previously revalued where the revaluation was taken to other comprehensive income. In this case the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Scheme makes an estimate of recoverable amount. A previous impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years.

Such reversal is recognised in changes in net assets available for benefit to the amount of an impairment already taken to profit

or loss while the remainder will be a revaluation amount through other comprehensive income.

(o) Fair value measurement

The Scheme measures financial instruments such as quoted equity investments at fair value at each reporting date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:


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Annual Report 2016


• In the principal market for the asset or liability, or• In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Scheme. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the

asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Scheme uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair

value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level1-Quoted(unadjusted)marketpricesinactivemarketsforidenticalassetsorliabilities Level 2-Valuation techniques forwhich the lowest level input that is significant to the fair valuemeasurement is directly or

indirectly observable Level3-Valuationtechniquesforwhichthelowestlevelinputthatissignificanttothefairvaluemeasurementisunobservable.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Scheme determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

External Valuers are involved for valuation of significant assets, such as property and investment properties. Involvement of external Valuers is decided upon annually by the finance and investment manager after discussion with and approval by the Scheme’s trustee committee. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained.

For the purpose of fair value disclosures, the Scheme has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

(p) Cash and cash equivalents

For the purposes of the statement of cash flows, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts.


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Annual Report 2016


(q) Expenses

Expenses are recognised in the statement of changes in net assets available for benefits when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably and is independent from transactions with equity participants.

This means, in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a decrease in assets (for example, the accrual of employee entitlements or the depreciation of equipment).

(i) When economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined expenses are recognised in the statement of changes in net assets available for benefit on the basis of systematic and rational allocation procedures. This is often necessary in recognising the equipment associated with the using up of assets such as property and equipment in such cases the expense is referred to as a depreciation or amortisation. These allocation procedures are intended to recognise expenses in the accounting periods in which the economic benefits associated with these items are consumed or expire.

(ii) An expense is recognised immediately in the statement of changes in net assets available for benefit when expenditure produces no future economic benefits or when, and to the extent that, future economic benefits do not qualify, or cease to qualify, for recognition in the statement of net assets available for benefit as an asset.

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

In the process of applying the accounting policies adopted by the Scheme, the Trustees make certain judgements and estimates that may affect the carrying values of assets and liabilities in the next financial period. Such judgements and estimates are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the current circumstances. The Trustees evaluate these at each financial reporting date to ensure that they are still reasonable under the prevailing circumstances based on the information available.

The preparation of the Scheme’s financial statements requires Management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

Key sources of estimation uncertainty

Operating lease commitments – Scheme as lessor

The Scheme has entered into commercial property leases on its investment property portfolio. The Scheme has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a substantial portion of the economic life of the commercial property, that it retains all the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases.


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Annual Report 2016


Impairment losses

At each reporting date, the Scheme reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Impairment exists when the carrying amount of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for coming years and do not include restructuring activities that the Scheme is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested.

In assessing whether there is any indication that the tangible and intangible assets may be impaired, the Scheme considers the following indications:(a) there are observable indications that the asset’s value has declined during the period significantly more than would be

expected as a result of the passage of time or normal use.(b) significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near

future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated.

(c) market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset’s value in use and decrease the asset’s recoverable amount materially.

(d) the carrying amount of the net assets of the entity is more than its market capitalisation.(e) evidence is available of obsolescence or physical damage of an asset.(f) significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place

in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite.

Estimation of net realisable value for inventory property

Inventory property is stated at the lower of cost and net realisable value (NRV). NRV for completed inventory property is assessed by reference to market conditions and prices existing at the reporting date and is determined by the Scheme, based on comparable transactions identified by the Scheme for properties in the same geographical market serving the same real estate segment.

NRV in respect of inventory property under construction is assessed with reference to market prices at the reporting date for similar completed property, estimated costs to complete construction and an estimate of the time value of money to the date of completion.


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Annual Report 2016


Valuation of property

The fair value of investment property is determined by real estate valuation experts using recognised valuation techniques and the principles of IFRS 13.

Investment property under construction is measured based on estimates prepared by independent real estate valuation experts, except where such values cannot be reliably determined. In one case, the fair value of the investment property under construction could not be reliably determined because it was in an area in which the surrounding properties were under development and reliable estimates could not be made. This property is recorded at cost.

The Investment properties are stated at fair value, which has been determined based on valuations performed by Sundown Valuers & Realtors Limited as at 31 December 2016 having regard to the foregoing particulars and the present day economic circumstances. The valuer relied on three methods of valuation. These being; investment approach (capitalization approach), direct market comparison approach (comparable sale approach) and contractor’s approach (depreciated coast approach).

Receivables

Critical estimates are made by the trustees in determining the recoverable amount of receivables.

Income taxes

Judgement is required in determining the Scheme’s provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Scheme recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provision in the period in which such determination is made.

Fairvalueoffinancialinstruments

When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. The judgements include considerations of inputs such as liquidity risk, credit risk and volatility.

3. FINANCIAL RISK MANAGEMENT

The scheme generates revenues for the members by investing in various income generating activities which involve trading in the securities and investing in other financial assets including government and other securities and offshore investments.

These activities expose the Scheme to a variety of financial risks, including credit risk and the effects of changes in debt and equity market prices, foreign currency exchange rates and interest rates. The Scheme’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on its financial performance.


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Annual Report 2016


Risk management is carried out by the Trustees together with the investment managers under policies approved by the Trustees. The investment managers review the market trends and information available to evaluate the potential exposures. They then arrive at strategies to mitigate against market risks. The Trustees provide guidelines for overall risk management, as well as policies covering specific areas such as foreign exchange risk, interest rate risk, credit risk, use of derivative and non-derivative financial instruments and investing excess liquidity. The scheme also follows guidelines issued by the Kenyan Retirements Benefits Authority (RBA) in respect of maximum investment in different types of investments.

(a) Market risk

(i) Foreign exchange risk

The scheme is exposed to the risk that the fair value or the future cash flows of financial instruments will fluctuate due to changes in foreign exchange rates. The scheme invests internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and the Uganda shilling. Foreign exchange risk arises from investment in offshore investments and quoted shares on the Uganda Stock Exchange (USE).

The scheme currency risk is evaluated as low because the foreign investments are long-term and any currency losses are expected to be recouped through interest income earned and which comprises the value of the Scheme. The scheme manages foreign exchange risk by limiting offshore investments to strategic range of 5% of total portfolio as required by the RBA regulations. The quoted investments in the USE are low risk and form an insignificant part of the total portfolio.

(ii) Price risk

The scheme is exposed to equity securities price risk because of investments in quoted shares classified at fair value through profit or loss. The scheme is also exposed to the risk that the value of debt securities will fluctuate due to changes in market value. To manage its price risk arising from investments in equity and debt securities, the scheme diversifies its portfolio invested in bonds of varying maturities. Diversification of the portfolio is done in accordance with trust deed.

For equities, the scheme has invested in companies in different sectors of the economy, while for debt securities; the scheme has policy which is reviewed after every three years. All quoted shares held by the scheme are traded on the Nairobi Securities Exchange (NSE) and Uganda Securities Exchange (USE).

If the price of securities were to appreciate/depreciate by 5% it would have the following effect (approximately):


2016 2015


Effect on returns from Investment 5% Appreciation 67,446 34,304

5% Depreciation (67,446) (34,304)

Effect on Scheme balance 5% Appreciation 67,446 34,304

5% Depreciation (67,446) (34,304)

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Annual Report 2016


(iii) Interest rate risk

The scheme’s interest bearing assets are investments in treasury bonds, corporate bonds, commercial paper and fixed deposits. All of these instruments are at fixed interest rates.

The nature of financial instruments held, that is, fixed interest instruments mitigates risk exposure of the scheme. Fluctuations in interest rates will not have a significant effect on the scheme balance.

(b) Credit risk

Credit risk arises from receivables, term deposits with financial institutions, and interest bearing investments, deposits with banks, amounts due from related party and cash and cash equivalents. As part of the credit risk management system, the investment managers and the Trustees monitor and review information on significant investments. The Trustees have approved a larger portfolio investment with the Government of Kenya debt securities which have a low credit risk and no default record.

The Scheme has an elaborate vetting process before term deposits are placed with a financial institution. The deposits are also spread to mitigate against concentration risks. The vetting process is continuously reviewed to take into consideration of new developments.

The amount that best represents the scheme’s maximum exposure to credit risk as at reporting period is made up as follows:

*In the previous year the Scheme placed a deposit of KShs 35 million with Imperial Bank of Kenya which was placed under receivership. The stakeholder’s discussions are on-going on the future of the bank. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss was recognised in profit or loss as ’credit loss expense’.

(c) Liquidity risk

The scheme is required to make periodic payment in respect of pension payments when members retire from the scheme, and is therefore exposed to the risk of difficulty in raising funds to make such payments. It therefore invests a portion of


2016 2015


Government securities held to maturity 86,567 19,788

Term deposits with financial institutions 502,142 346,540

Corporate bonds 773,662 849,441

Unquoted equity investments 287,938 281,332

Due from related party 7,527 1,926

Interest receivables 16,471 3,532

Contributions receivables 3,787 92

Bank and cash balances 175,796 140,137

Total 1,853,890 1,642,788

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Annual Report 2016


its assets in investments that are readily convertible to cash. The investment managers monitor the scheme’s liquidity on a regular basis and the Trustees review it on a quarterly basis.

The Scheme’s primary long – term risk is that its financial assets will fall short of its financial liabilities (promised benefit payable to members). Therefore, the aim of investments risk management is to minimize the risk of overall reduction in the value of the Scheme and to maximize the opportunity for gains across the whole Scheme portfolio. The scheme achieves this through asset diversification to reduce exposure to market risk (price risk, currency risk and interest risk) and credit risk to an acceptable level. In addition, the scheme manages liquidity risk to ensure there is sufficient liquidity to meet its forecast cash flows. The scheme manages this investment risk as per part of its overall pension Scheme risk management program.

The table below analyses the scheme’s financial assets and financial liabilities as at the end of the reporting period that will be settled on a net basis. The amounts disclosed in the table below are the undiscounted cash flows. Balances due equal their carrying balances, as the impact of discounting is not significant.

The table below summarizes the maturity profile of the Scheme’s assets and liabilities as at 31 December 2016


> 3

months

3 to12

months

1 to 5

years

> 5

Years Total

Financial assets KShs

‘000

KShs

‘000

KShs

‘000

KShs

‘000

KShs

‘000

Governtment securities at fair value through profit

or loss104,577 120,973 1,692,163 2,034,219 3,951,932

Government securities held to maturity - 86,567 - - 86,567

Term deposits with financial institutions - 502,142 - - 502,142

Quoted equity investments - - - 1,348,923 1,348,923

Unquoted - - 7,470 280,468 287,938

Corporate bonds - 125,026 648,636 - 773,662

Receivables 20,181 355,285 - - 375,466

Bank and cash balances 175,796 - - - 175,796

Total 300,554 1,189,993 2,348,269 3,663,610 7,502,426


Due to related parties 7,527 - - - 7,527

Benefits payable 15,311 - - - 15,311

Tax payable - 1,844 - - 1,845

Other payables and accruals 18,845 2,000 - - 20,845

Total financial liabilities 41,683 3,844 - - 45,528

Liquidity gap as at 31 December 2016 258,871 1,186,149 2,348,269 3,663,610 7,456,898

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Annual Report 2016


The table below summarizes the maturity profile of the Scheme’s assets and liabilities as at 31 December 2015

4. CONTRIBUTIONS RECEIVED

> 3

months3 to12 months

1 to 5

years> 5 Years Total

KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000

Financial assets

Government securities held at fair value through

profit or loss146,465 78,444 833,294 2,052,891 3,111,094

Government securities held to maturity 19,788 - - - 19,788

Term deposits with financial institutions 346,540 - - - 346,540

Corporate bonds - - 849,441 - 849,441

Unquoted equity investment - - - 281,332 281,332

Quoted equity investments - - - 1,469,825 1,469,825

Bank and cash balances 140,137 - - - 140,137

Total financial assets 652,930 78,444 1,682,735 3,804,048 6,218,157


Due to related parties 1,926 - - - 1,926

Benefits payable 1,158 - - - 1,158

Tax payable - 53 - - 53

Other payables and accruals 87,942 5,000 - - 92,942

Total financial liabilities 91,026 5,053 - - 96,079

Liquidity gap as at 31 December 2015 561,904 73,391 1,682,735 3,804,048 6,122,078

2016 2015

KShs’000 KShs’000

Normal contributions:

Employer 833,627 603,377

Employees 246,471 365,714

1,080,098 969,091

Excess /taxable contributions:

Employees 182,486 120,310

Total 1,262,584 1,089,401


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Annual Report 2016


Each member of the Scheme has an account into which contributions are received and investment interest credited when declared. Benefits payable purely depends on contributions and return on investments.

5. BENEFITS PAYABLE

6. RETURN ON INVESTMENT

Registered 347,770 350,147

Unregistered 43,505 121,236

Total benefits paid 391,275 471,383

2016 2015


Interest on term deposits: 31,772 23,391

Credit loss expense (note 21) - (2,117)

31,772 21,274

Discount on commercial paper - 677

Government securities at fair value through profit or loss

Interest on treasury bonds 430,456 388,435

Gain/ (loss) on disposal of treasury bonds 13,197 (25,045)

Gain/ (loss)/ at fair value through profit or loss 99,617 (214,814)

Commission on treasury bonds 853 782

544,123 149,358

Government securities held to maturity

Gain on disposal of treasury bills 2,939 4,490

Discount on treasury bills 2,999 1,764

5,938 6,254

Quoted equity investments at fair value through profit or loss

Fair value loss through profit or loss (197,433) (228,233)

Gain/(loss)on sale of quoted equities 2,044 (26,977)

Dividends received 83,967 63,827

(111,422) (191,383)

Corporate bonds at fair value through profit or loss

Interest on corporate bonds 82,824 124,812

Loss on disposal (1,410) (2,164)

Fair value gain /(loss) through profit or loss 719 (644)

Total 82,133 122,004


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Annual Report 2016


6. RETURN ON INVESTMENT (continued

7. INVESTMENT MANAGEMENT EXPENSES

8. OTHER INCOME

2016 2015


Investment property

Gain on valuation of investment property 80,958 576,245

Sale of inventory property 406,000 -

Less: Inventory property costs (334,952) -

Gain on sale 71,048 -

Un-quoted equity investments 18,389 1,661

Total 722,939 686,090

Investment managers’ fees 14,338 15,730

Custodial fees 6,026 5,285

Total 20,364 21,015

2016 2015


Write back provisions (non- cash) 4,624 -

Investment management expenses include investment managers’ fees, custodial fees and brokerage fees paid by the scheme. Investment managers are paid a fee of 0.20% of the net asset value held by the investment managers and a performance fee of 1% of returns higher than the performance hurdle rate of average 91-day Treasury bill rate plus 4% charged once at the end of the year. Custodian banks on the other hand are paid a maximum fee of 0.07% of the net asset value. Applicable transaction costs and bank charges are also payable to the custodian.

This relates to excess provisioning made in prior period.


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Annual Report 2016


9. ADMINISTRATION EXPENSES

10. SECRETARIAT EXPENSES

11. GOVERNANCE EXPENSES

Auditor’s remuneration 1,062 974

Professional fees 12,688 2,170

Actuarial fees 1,199 918

Stationery 1,153 1,510

Bank charges 266 277

Land rates 587 427

RBA Levy 5,000 5,000

Secretariat expenses 10 21,208 20,018

Governance expenses 11 16,972 14,684

Members expenses 12 3,631 4,456

Total 63,766 50,434

2016 2015


Scheme administration 21,208 20,018

2016 2015


Trustees’ training 6,630 4,348

Trustees’ allowances 10,342 10,336

Total 16,972 14,684

Administrative expenses are incurred by the Scheme secretariat in the course of carrying out its duties which include; benefits processing and administration, accounting, performance measurement and cash management of the scheme. The net administrative expense to the total Scheme value is 0.56% (2015: 0.51%) which is below 1% of total Fund value.

These are expenses relating to the scheme administration and management. This is carried out by the secretariat of The Kenya Power and Lighting Company Limited Staff Retirement Benefit Scheme (Defined Benefit) on behalf of the Scheme and were reimbursed during the year.

Governance expenses are incurred by the Trustees to fulfill their mandate as is required of them by the Trust Deed & Rules and by the Retirement Benefits Act. Trustee’s remuneration includes their sitting allowances for meetings attended and the monthly honoraria. The Trustee allowances are short term in nature and the Scheme does not have: post tenure benefits, other long term benefits and termination benefits.


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Annual Report 2016


12. MEMBERS EXPENSES

13. TAXATION

2016 2015


Annual general meeting costs 1,069 820

Members education costs 2,562 3,636

Total 3,631 4,456

2016 KShs ‘000 KShs ‘000 KShs ‘000

Percentage of registered portion 93.85% 6.15% 100.00%

Registered Scheme Unregistered Scheme Total

Investment Income

Realised gains on sale of property 66,676 4,372 71,048

Dividends received 78,799 5,168 83,967

Interest on term deposits 29,817 1,955 31,772

Interest on treasury bonds 356,674 23,390 380,064

Corporate bond income 76,404 5,010 81,414

Commission Income 800 52 853

Realized gain on equity investment 1,919 126 2,044

Realized gain on bonds 15,144 993 16,137

Unquoted equity income 17,257 1,132 18,389

643,488 42,199 685,687

Deductions

Investment expense (19,110) (1,253) (20,364)

Administration expenses (59,841) (3,924) (63,766)

(78,952) (5,178) (84,130)

Taxable income 564,536 37,021 601,557

Tax expense on unregistered fund @ 30% 11,106

Members expense comprise of annual general meeting expenses and cost of sensitizing and educating members about the scheme and their benefits.


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Annual Report 2016


2015 KShs ‘000 KShs ‘000 KShs ‘000

94.64% 5.36% 100.00%

Percentage of registered portion Registered Scheme Unregistered Scheme

Total

Investment Income

Dividends received 60,409 3,418 63,827

Interest on term deposits 20,134 1,139 21,273

Interest on treasury bonds 337,289 19,084 356,373

Corporate bond income 118,128 6,684 124,812

Commission Income 740 42 782

Realised loss on equities (25,532) (1,445) (26,977)

Realized loss on bonds (21,502) (1,217) (22,719)

489,666 27,705 517,371

Deductions

Investment expense (19,889) (1,125) (21,014)

Administration expenses (47,733) (2,701) (50,434)

(67,622) (3,826) (71,448)

Taxable income 422,044 23,879 445,923

Tax expense on unregistered fund @ 30% 7,164

Contributions received by the scheme up to a limit of KShs 20,000 per employee per month are invested in a registered Scheme, which is exempt from taxation. Any amount above this limit is invested in an unregistered Scheme whose investment income is taxed at the corporate tax rate of 30%.


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Annual Report 2016


14. INVESTMENTS

2016

Value as at

01.01.2016

Purchases Sales Transfer to/

(from)

Profit/(loss) on

disposal


Investment property (note 15)

Investment property- WIP (note 16) 2,034,372 - - (1,415,330) -

Inventory property (note 17) 1,807,395 292,063 - (2,099,458) -

Government securities at fair value

through profit or loss (note 18)

- - (334,952) 3,514,788

Government securities held to maturity

(note 19)

2,972,145 1,534,861 (667,888) - 13,198

Unquoted equity investment (note 20) 19,788 150,841 (90,000) - 2,939

Quoted equity (note 21) 281,332 6,606 - - -

Corporate bonds (note 22) 1,469,825 94,107 (19,620) - 2,044

Term deposits (note 23) 849,441 - (75,088) - (1,410)

346,540 3,162,890 (3,031,575) - 21,807

Total 9,780,838 5,241,367 (4,219,123) - 37,964

2015

Value as at

01.01.2015

Purchases Sales Profit/(loss)

on disposal

Change in

market


Investment property (note 15) 839,085 619,042 - - 576,245

Inventory property- work in progress (note 16) 60,915 446,480 - -

Government securities at fair value through profit or loss

(note 18)

2,857,921 969,254 (615,171) (25,045) (214,814)

Government securities held to maturity (note 19) 86,989 46,546 (120,000) 4,490 1,763

Unquoted equities investments (note 20) 11,949 273,195 (5,473) - 1,661

Quoted equities (note 21) 1,699,047 192,158 (166,171) (26,977) (228,232)

Corporate bonds (note 22) 1,020,124 156,952 (324,827) (2,164) (644)

Commercial paper 84,829 - (85,506) 677 -

Term deposits (note 23) 515,569 2,939,985 (3,104,200) 18,646 13,657

Total 8,476,428 5,643,612 (4,421,348) (30,373) 149,636

The change in market value of investments comprises change in carrying amount of the investments as a result of fair valuation at the reporting date. The transaction costs are included in the cost of purchases and sales proceeds. Other than treasury bills and unquoted equity investments, all the other asset classes exceed 5% of the net assets available for benefits.

The change in market value of investments comprises change in carrying amount of the investments as a result of fair valuation at the reporting date. The transaction costs are included in the cost of purchases and sales proceeds.


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Annual Report 2016


15. INVESTMENT PROPERTY

16. INVENTORY PROPERTY – WORK IN PROGRESS

2015 Bogani Kirichwa road Total

KShs ‘000 KShs ‘000 KShs ‘000

At 1 January 839,085 - 839,085

Additions - 619,042 619,042

Fair value gain 576,245 - 576,245

At 31 December 1,415,330 619,042 2,034,372

2016

At 1 January 1,415,330 619,042 2,034,372

Transfer to Inventory property- WIP (note 16) (1,415,330) - (1,415,330)

Fair value gain - 80,958 80,958

At 31 December - 700,000 700,000

2016 2015


1 January 1,807,395 1,360,915

Additions during the year 292,063 446,480

Transfer from investment property 1,415,330

Transfer to inventory property (note 17) (3,514,788) -

31 December - 1,807,395

The revalued investment property comprises a leasehold land acquired in 2015 under LR No. LR No. 2/31/3. The land was revalued by Eliud K Murimi (Vineyard Valuers Limited), a registered valuer as at 31 December 2016 using the market comparison approach having regard to the foregoing particulars and the present day economic circumstances. Vineyard Valuers Limited is an industry specialist in valuing these types of investment properties.

There was no rental income earned from the investment property during the year. There were no direct operating expenses arising from investment property.

Work in progress (WIP) relates to contractors’ and subcontractors’ costs incurred in relation to development of Karen Bogani property in 2015, The project has been completed and WIP transferred to inventory property.


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Annual Report 2016


17. INVENTORY PROPERTY

18. GOVERNMENT SECURITIES

19. UNQUOTED EQUITY INVESTMENTS

2016 2015


1 January - -

Transfer from inventory WIP (note 16) 3,514,788 -

Sale of inventory property (334,952) -

31 December 3,179,836 -

2016 2015


Treasury bonds at fair value through profit and loss 3,951,932 2,972,145

Treasury bills held to maturity 86,567 19,788

Total 4,038,499 2,991,933

2016 2015


At cost

1 January 281,332 11,949

Additions 6,606 274,856

Refunds - (5,473)

31 December 287,938 281,332

Inventory property relates to 45 units of residential houses developed in Bogani park in Nairobi Karen area for sale. The houses were completed during 2016.

The weighted average interest rate realized on the investment in treasury bonds during the year was 12.22% (2015:11.83%).

The unquoted equity investment constitutes investment in Ascent Rift Valley, a private equity fund and investment in Gulf Power Limited which have been carried at cost and the Trustees are of the opinion that these approximates their fair value. The Scheme, together with The KPLC Staff Retirement Benefit Scheme (Defined Benefits), jointly has a 10% equity stake in Gulf Power Ltd, an independent power producer.


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Annual Report 2016


20. QUOTED EQUITY INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS

2016 2015

Units '000 Value'000 Units '000 Value'000

Athi River Mining Company Ltd 766 19,520 766 31,960

Bamburi Cement Ltd 724 115,776 724 126,630

Bank of Kigali 500 14,330 500 19,187

Barclays Bank Ltd 3,612 32,867 3,612 49,120

Bralirwa 12 218 12 296

British American Tobacco Kenya Ltd 97 87,900 97 75,910

British-American Investments Company (Kenya) Limited 800 8,000 800 10,400

Centum Investment Company Limited Ltd PLC 329 12,170 329 15,295

CIC Insurance Group Ltd 2,000 7,600 2,000 12,400

Crystal Ventures 1,200 13,576 1,200 16,251

Diamond Trust Bank Kenya Ltd 235 27,759 168 31,491

E.A. Cables Ltd - - 38 398

East African Breweries Ltd 441 107,629 441 120,420

Equity Bank Ltd 3,586 107,580 3,586 143,440

Housing Finance Co Ltd 804 11,257 804 17,890

I&M Holdings Ltd 250 22,468 300 29,964

KenGen Ltd 3,761 21,814 1,254 8,901

KenolKobil Ltd 1,992 29,682 2,771 26,603

Kenya Commercial Bank Ltd 5,508 158,368 3,433 150,201

Kenya Power & Lighting Co Ltd 5,083 41,425 4,383 57,852

Nation Media Group 251 23,344 251 47,943

NIC Bank Ltd 853 22,174 853 36,886

Safaricom Ltd 17,711 339,169 17,711 288,693

Scangroup Ltd 318 5,765 318 9,529

Standard Chartered Bank Ltd 328 61,903 317 61,869

The Co-operative Bank of Kenya Ltd 3,471 45,821 3,471 62,483

Umeme Ltd 801 10,808 801 17,813

Total 55,431 1,348,923 50,938 1,469,825

The Scheme has invested in 5,082,754 (2015: 4,382,754) units of the sponsor (Kenya Power & Lighting Company Limited) quoted shares which were valued at KShs 41,424,445 (2015: 57,852,353) as at reporting date.


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Annual Report 2016


21. CORPORATE BONDS

INSTITUTION 2016 2015

Units ‘000 Units ‘000

ABC Bank Bond 12.60% 20,402 21,374

Britam 13.00% 43,431 43,395

CBA Bank 13.50% 65,273 65,228

Centum EQL Notes 13.00% 36,027 36,002

Centum Ltd Notes Fxd 13.50% 87,887 87,799

Cfc Stanbic Bank Trn I Fxd 12.95% 16,914 16,902

CIC Insurance Group 13.00% 77,949 77,895

CIC Insurance Group 13.00% 8,146 8,139

Consolidated Bank Ltd Fxd 13.25% 52,894 52,850

East African Breweries Ltd 12.00% 36,006 35,983

Housing Finance Co Ltd T1 Fxd 8.50% 32,257 32,242

I&M Fxd T1 12.80% 15,079 16,047

Kengen Limited 12.50% 85,070 110,532

Mabati Rolling Mills Flr 12.24% - 1,157

Mabati Rolling Mills Fxd 13.00% - 1,136

Nic Bank ltd 12.50% 103,394 103,323

Shelter Afrique Tr1 Fxd 12.75% 92,933 139,438

TOTAL 773,662 849,441

The weighted average interest rate realized on the corporate bonds during the year was 12.4% (2015: 12.3%).


71

Annual Report 2016


22. TERM DEPOSITS WITH FINANCIAL INSTITUTIONS

Maturity date Interest Rate 2016 2015

Kshs ’000 Kshs ‘000

Commercial Bank of Africa Ltd On call 19% - 38,000

Cooperative Bank Ltd On call 23.0% - 143,000

Cooperative Bank Ltd On call 24%.0 - 30,498

Family Bank Ltd On call 16.0% - 37,000

NIC Bank Ltd On call 8.0% - 10,000

Commercial Bank of Africa Ltd On call 8.0% - 8,000

Housing Finance Co. Ltd On call 16.0% - 15,000

Bank of Africa Ltd On call 8.0% - 9,000

Bank of Africa Ltd On call 8.0% - 2,500

Diamond Bank Ltd On call 14% - 23,000

Housing Finance Ltd On call 17% - 15,000

Imperial Bank 22-Oct-15 24% - 35,000

Equity Bank On call 19% - 4000

Equity Bank On call 7.0% 4,762

Equity Bank On call 7.4% 27,000 -




Equity Bank 6-Feb-17 9.0% 80,000 -

Co-Operative Bank of Kenya On call 7.3% 15,000 -

Co-Operative Bank of Kenya 9-Jan-17 8.3% 1,000 -

Co-Operative Bank of Kenya 30-Jan-17 9.0% 54,000 -

Co-Operative Bank of Kenya 6-Feb-17 10% 80,000 -

Kenya Commercial Bank Ltd 9-Jan-17 9.0% 20,000 -

Kenya Commercial Bank Ltd 16-Jan-17 9.0% 6,000 -

Kenya Commercial Bank Ltd 6-Feb-17 9.0% 81,500 -

Cfc Stanbic Bank On call 7.0% 16,400 -




Commercial Bank of Africa On call 7.0% 28,000 -


National Industrial Credit Bank On call 7.0% 10,000 -

Accrued Interest 2,480 13,657

Total Demand Deposits 502,142 383,657

Allowance for credit loss - (37,117)

Total 502,142 346,540


72

Annual Report 2016


23. CASH AND CASH EQUIVALENTS

24. OTHER RECEIVABLES

25. RELATED PARTIES

2016 2015

Face value Market Value Face value Market Value

KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000

Bank balances 175,795 175,796 140,137 140,137

Term deposits 498,900 502,142 334,999 346,540

Total 674,695 677,938 475,036 486,677

2016 2015


Inventory property sales receivable* 355,285 -

Interest receivable 16,471 3,532

Contributions receivable** 3,711 92

Total 375,467 3,624

2016 2015


Amount due to related party 7,527 1,926

For the purpose of the statement of cash flows, cash and cash equivalents comprise the following at 31 December:

(i) Amount due to related party

Amount due to related party relates to reimbursements due to the KPLC Staff Retirement Benefits Scheme - Defined Benefits.

* Receivables from Bogani houses sales are amounts due from buyers as of reporting date having secured deposits as per respective sale agreements

** These relate to contributions from the Scheme’s sponsors, Kenya Nuclear Electricity Board (KNEB) and Kenya Electricity Transmission Company Ltd (KETRACO).

Interest receivable relates interest due from Gulf power Ltd, an unquoted equity investment.


73

Annual Report 2016


26. BENEFITS PAYABLE

27. TAX PAYABLE/(RECOVERABLE)

28. OTHER PAYABLES AND ACCRUALS

2016 201


Amount due from related party - 3,200

At 1 January (1,381) 2,202

Charge for the year (note 12) 11,106 7,164

Tax paid (7,880) (10,747)

Total 1,845 (1,381)

Other payables/accruals 18,845 21,176

Death claims payable - 51,722

Bogani property clients’ deposits 2,000 20,100

Total 20,845 92,998

2016 2015


Trustees’ allowances 10,342 10,336

Withdrawals payable 15,311 1,158

(ii) Amount due from related party

Amount due from related party relates to payments made on behalf of the KPLC Staff Retirement Benefits Scheme - Defined Benefits recoverable as of year end. There were no provisions for bad and doubtful debts in relation to related party balances.

(i) Key management compensation

Key management includes the board of Trustees who are entitled to a sitting allowance for Board meetings attendance. The Board of Trustees have no post-employment benefits, share based payments, termination benefits or any other long term benefits the short term compensation to key management personnel is shown below.


74

Annual Report 2016


29. SCHEME BALANCE

30. INCOME AND EXPENDITURE ACCOUNT

Registered Unregistered

Scheme Scheme Total


93.85% 6.15% 100.00%

At 1 January 2016 9,227,944 605,154 9,833,098

Net increase in net assets for the year 1,411,098 92,538 1,503,636

At 31 December 2016 10,639,042 697,691 11,336,734

Registered Unregistered

Scheme scheme Total


94.64% 5.36% 100.00%

At 1 January 2015 1,786,759 101,034 8,607,603

Increase in net assets for the year 1,159,868 65,627 1,225,495

At 31 DECEMBER 2015 2,946,627 166,661 9,833,098

2016 2015


INVESTMENT INCOME 722,939 686,090

EXPENDITURE: -

Investment management fees (20,364) (21,015)

Administration expenses (63,766) (50,434)

Taxation (9,795) (7,164)

Total (93,924) (78,613)

Net income for the year ended 31 December 629,015 607,477

The scheme is a registered pension scheme under the Kenyan Income Tax Act and is therefore tax exempt. However, income generated from contributions in excess of the KShs 20,000 per month per member statutory limit is subject to tax.


75

Annual Report 2016


31. FAIR VALUE MEASUREMENT

31 DECEMBER 2016 Level 1 Level 2 Level 3 Total


Investment in quoted equities at fair value through profit or loss

Investment properties 1,348,924 - - 1,348,924

Corporate bonds at fair value through profit or loss - - 700,000 700,000

Government securities held at fair value through profit or loss 773,662 - - 773,662

3,951,932 - - 3,951,932

Total 6,074,518 - 700,000 6,774,518

31 DECEMBER 2015 Level 1 Level 2 Level 3 Total


Investment in quoted equities at fair value through profit or loss

Investment properties 1,469,825 - - 1,469,825

Corporate bonds at fair value through profit or loss - - 2,034,372 2,034,372

Government securities held at fair value through profit or loss

849,441 - - 849,441

2,972,145 - - 2,972,145

Total 5,291,411 - 2,034,372 7,325,783

The Scheme specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Scheme’s market assumptions. These two types of inputs have created the following fair value hierarchy:

• Level 1 – Quoted market prices in active markets for identical assets or liabilities. This level includes equity securities and debt instruments listed on the Nairobi Securities Exchange Limited.

• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly as prices or indirectly as derived from prices.

• Level 3 – inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components and investment property

This hierarchy requires the use of observable market data when available. The Scheme considers relevant and observable market prices in its valuations where possible.

For assets where the fair value cannot be measured reliably, cost basis has been used.

The table below shows an analysis of assets recorded at fair value by level of the fair value hierarchy.


76

Annual Report 2016


31.

FAIR

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Ann

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6


2016 2015

(a) FINANCIAL ASSETS KShs ‘000 KShs ‘000

Non-current financial assets

Financial assets at fair value through profit or loss:

Government securities at fair value through profit or loss 3,726,382 2,747,236

Quoted equity investments at fair value through profit or loss 1,348,923 1,469,825

5,075,305 4,217,061

Available-for-sale financial assets::

Unquoted equity investments 287,938 281,332

Total non-current financial assets 5,363,243 4,498,393

Current financial assets

Financial assets at fair value through profit or loss:

Government securities at fair value through profit or loss 225,550 224,909

Corporate bonds at fair value through profit or loss 773,662 849,441

999,212 1,074,350

Held-to-maturity investments::

Government securities held to maturity 86,567 19,788

Term deposits with financial institutions 502,142 346,540

588,709 366,328

Loans and receivables:

Other receivables 375,466 3,624

Amount due from related parties - 3,200

375,466 6,824

Total current financial assets 1,963,387 1,447,502

Total financial assets 7,326,630 5,945,895

(b) FINANCIAL LIABILITIES

Financial liabilities at amortised cost:

Due to related parties 7,527 1,926

Benefits payable 15,311 1,158

Other payables and accruals 20,845 92,998

Total financial liabilities 43,683 96,082

32. FINANCIAL ASSETS AND FINANCIAL LIABILITIES


79

Annual Report 2016


33. CONTINGENT LIABILITY

34. REGISTRATION

36. CURRENCY

35. The Trustees are not aware of events after the reporting date that require disclosure in or adjustments to the financial statements as at the date of this report.

There were no contingent liabilities of the Scheme as at close of the period.

The scheme is registered in Kenya under the Retirement Benefits Act.

The financial statements are presented in Kenya Shillings (KShs ‘000)


80

Annual Report 2016


NOTES

81

Annual Report 2016


NOTES

82

Annual Report 2016

Financial Reporting (FiRe) Awards Trophies


www.kplcpensionfund.co.ke

CONTACT US

Stima Plaza-Kolobot RoadP.O. Box 1548 00600Nairobi, Kenya

Tel +254 20 3201020Mobile +254 711 031 020

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annual report & financial statements 2016

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