Inside Ruto's new plan to sell KICC, Nock, KPC, other state agencies

Water fountain around Mzee Jomo Kenyatta monument outside KICC and Parliament Buildings during the African Climate Summit on September 06, 2023. [Stafford Ondego, Standard]

The Ruto government on Monday said it plans to sell 11 more state agencies, including the Kenyatta International Convention Centre and the cash-rich National Oil and Kenya Pipeline Company.

The National Treasury has also listed the Kenya Literature Bureau (KLB), Mwea Rice Mills Ltd (MRM), Western Kenya Rice Mills Ltd (WKRM), New Kenya Cooperative Creameries Limited (NKCC) and Numerical Machining Complex Limited (NMC) as potential investment opportunities for interested parties.

The Kenya Vehicle Manufacturers Limited, Kenya Seed Company Limited and Rivatex East Africa Limited are also among the agencies lined up for sale by the government.

The National Treasury said the entities to be put up for sale will help it raise additional revenue.

It said the disposal would also help reduce the demand for government resources amid numerous demanding and competing needs.

It mentioned that yesterday's sale of the agencies would aid in improving the regulatory framework in the economy by unbundling regulatory and commercial functions among some entities.

Improving efficiency

"(It will help in) improving efficiency in the economy by encouraging more private sector participation, hence making the economy more responsive to market forces and competitions," said Treasury yesterday.

According to the Treasury, while the financial and operational performance of the iconic KICC has been good over the years, KICC continues to receive State exchequer support for recurrent operations, hence the need for its urgent disposal.

"Privatisation of KICC will generate additional revenue for the government and reduce the demand for exchequer support," said the Treasury.

The Treasury said the privatisation of KPC and Nock will generate additional revenue for the government.

"This will encourage more private sector participation, hence improving efficiency and competition," said the Treasury.

Earlier estimates showed the government could earn a windfall of as much as Sh30 billion a year from selling troubled state-owned enterprises (SOEs).

According to a report by budget experts in Parliament, these earnings could surpass Sh110 billion in the near term.

The budget experts believe the planned privatisation programme will be useful for the cash-strapped government, especially at a time when the new William Ruto administration faces a narrowing fiscal space to roll out its policies, amid high debt repayment obligations.

"The privatisation programme can lead to proceeds worth Sh30 billion annually," said the report.

There are 248 State Corporations in Kenya, and it is estimated that the privatisation programme will primarily target commercial enterprises that account for 19 per cent of total state corporations.

Private purchasers

"Depending on economic conditions, privatisation can raise between 0.5 per cent and 1 per cent of GDP. For Kenya, depending on the privatisation methodology, targeted SOEs, and response from private purchasers, the privatisation resources are estimated to range between Sh60 billion and Sh110 billion spread out over the medium term," said the report.

The sale of the troubled agencies aims to improve their performance and fill the state’s coffers amid high levels of public debt.

Governance experts earlier said the large fiscal windfall associated should be ring-fenced to avoid misuse and to help Kenya boost development and improve the standards of living for citizens through access to key services and amenities such as roads, health, food security, and education.

Proceeds could also help offset Kenya's mountain of public debt, which has been approaching the Sh10 trillion ceiling.

"For long-term impact, privatisation proceeds should be earmarked for capital projects that have the potential to generate future revenues or be used to retire expensive public debt," said the report by PBO.

A view of the KICC. [Samson Wire, Standard]

"Given that privatisation results will depend on its impact on the government's net worth (due to the loss of dividend income), the proceeds should be reinvested in other priority areas (such as building reserves), priority sectors with higher revenue generation and investment potential, or public debt repayment."

Legal bottlenecks

However, it warned that the state must address legal bottlenecks for the process to be successful.

The sale of the troubled agencies aims to improve their performance and fill the state’s coffers amid high levels of public debt.

The government, supported by the International Monetary Fund (IMF), is making renewed efforts to offload some of the loss-making firms after more than a decade of failed attempts. President Ruto earlier said the government would privatise 35 corporations over the next year.

He expects most of the privatisation to be undertaken through public offers at the Nairobi Securities Exchange (NSE), which he said would also give citizens an avenue to buy into the companies.

“I have made a commitment that between five and 10 public enterprises that are mature should be listed in the next 12 months.

"I expect that the private sector will work with the capital markets so that we can have private sector companies also listed at the (securities) exchange.”

The government, in 2008, came up with a plan to privatise 26 parastatals through the Privatisation Commission, but it has only managed to conclude a single deal involving Kenya Wine Agencies Ltd (KWAL) in over a decade. The government had been looking at selling stakes in the SOEs to strategic investors as well as to the public through listing on the NSE.

The dismal performance has been attributed to, among other factors, a bureaucratic process in the existing legal framework.