The Case Study
KOKO Networks built one of Africa’s most ambitious clean cooking infrastructure platforms across Kenya and Rwanda. In Kenya, it operated as an innovative residential energy service by supplying bio-ethanol based cookstoves and cooking fuel to low-income households thus offering an alternative to charcoal and other polluting and harmful fuels.
According to the Multilateral Investment Guarantee Agency (MIGA), KOKO has been supplying over 1.3 million homes with sustainable bioethanol cooking fuel and indirectly employing local shopkeepers and women entrepreneurs to act as agents through its KOKO fuel ATMs that are used to refill fuel in small affordable quantities.
Carbon credits generation
KOKO carbon credits were calculated using the avoided carbon emissions and reduced deforestation that occurs when households switch from using non-renewable biomass such as charcoal and firewood to bioethanol for cooking. It generated an estimated 6 million tonnes of credits annually under the highly reputable Gold Standard using an approved United Nations methodology. This certification enabled KOKO to seek higher-value compliance markets, particularly airline buyers.
Relationship between KOKO Networks and Carbon credits
KOKO Networks operated a circular value chain where the sale of carbon credits acted as the primary financial engine, directly funding the subsidies that make their cooking hardware affordable for low-income households. By lowering the price barrier to entry, KOKO facilitated a massive consumer shift from traditional charcoal and firewood to clean bioethanol fuel sourced from sustainable sugarcane by-products.
This transition creates powerful environmental benefits as more households replace wood-based fuels with bioethanol. Additionally, carbon emissions and deforestation are significantly reduced, which in turn generates the very carbon credits needed to sustain the hardware subsidies and fuel the company’s growth.
How does Political Risk Insurance Enter the Picture?
To protect its investors and lenders through mitigating political risks, KOKO Networks in Kenya secured US $179.6 million (23.16 billion Kenya Shillings) guarantee from World Bank’s Multilateral Investment Guarantee Agency (MIGA). The guarantee is for a period of 15 years and covers risks including:-
1. Expropriation – Covers losses from actions taken by the host government that deprive the investor of ownership, control or significant benefits of their investment for instance, nationalization or confiscation.
2. War and Civil Disturbance – Covers physical damage to assets or the permanent loss of use of assets caused by war, revolution, insurrection or riots.
3. Transfer restriction (Currency Inconvertibility) – Covers the risk that the host government imposes restrictions on converting local currency into foreign exchange or restricts the transfer of funds out of the country.
4. Breach of Contract – Protects against losses if the host government violates an agreement with the investor for instance when the investor has no recourse to a court or arbitration or if an arbitral award cannot be enforced.
The Problem
To access high value, regulated international compliance markets under Article 6.2 of the Paris Agreement, project developers need a Letter of Authorization issued by the host country, where the project is located. In Kenya, the Climate Change (Carbon Markets) Regulations, 2024 provides that for one to transfer carbon credits for use by other countries, a project developer needs a letter authorizing the transfer. This authorization is issued by the Designated National Authority, which in this case is NEMA.
Nonetheless, this requirement currently introduces a major legal compliance hurdle. For example, KOKO Networks is facing a critical operational halt due to regulatory bottlenecks in obtaining the required Letter of Authorization (LoA) for international carbon credit transfers. The failure by NEMA to issue this authorization has severed the company’s vital carbon revenue stream, highlighting how bureaucratic processes can cripple innovative climate projects.
The Lesson
KOKO’s experience acts as a real world case that shows investors where risks lie and why careful structuring, risk mitigation is essential even when backed by a Political Insurance Risk. Specifically, it demonstrates the following:-
- Sovereign Risk – Government actions or inactions, policy changes or regulatory shifts can directly affect project viability, funding flows or investor returns.
- Carbon Finance – Reliance on carbon credits as a revenue or subsidy source introduces financial and legal complexity including exposure to volatile carbon markets and verification delays.
- Infrastructure Stress – Capital intensive and scalable infrastructure models like KOKO’s fuel ATMs can create liquidity pressure, operational risk and financial fragility if any layer of the business model underperforms or fails.
What does this mean for households that depended on KOKO?
1. Loss of income – Local retail agents, delivery staff and technicians who sold the cooking fuel to the various households may lose income if operations shrink.
2. Inaccessibility of the clean cooking oil – Households may spend more time and money sourcing alternative fuels. Additionally, higher costs of alternative fuel may affect food security and overall household stability.
3. Environment and Climate impact – If communities return to charcoal/firewood, deforestation and air pollution increase thus derailing the climate and environmental progress.
4. Loss in public trust – households may hesitate to adopt other climate-friendly technologies in the future as household resilience depends on reliability and affordability.
Way Forward
1. Map risks early – Distinguish commercial vis-a-vis policy risks through identifying which cash flows depend on government incentives, carbon markets or local regulation.
2. Understand Political Risk Insurance Limits – This insurance protects against political events not operational or market failure.
3. Integrate carbon finance prudently – Treat carbon credits as a revenue layer, not a guaranteed subsidy.
4. Strengthen operational resilience – This can be done by building liquidity buffers and planning for supply chain or fuel price shocks. It also includes anticipating potential pain points to reduce disputes and protect communities.
5. Monitor Policy and ESG developments – This ensures you adopt structures based on evolving legal and policy landscapes.
