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Inside State's elusive dream to privatise struggling enterprises

The East African Portland Cement Company factory in Athi River. [Peterson Githaiga, Standard]

Kenya’s plan to privatise scores of State-owned enterprises (SOEs) has failed to proceed as planned with only two companies divested so far out of a target of 26 in over a decade, amid mounting calls for a rethink.

East Africa’s largest economy has been seeking to speed up privatisation of State-owned firms in recent years to improve their performance and fill its coffers to deal with high levels of public debt.

But the plan, which was part of a wide-reaching overhaul of the economy, has been blighted by delays and false starts as relevant agencies trade blame.

The agency charged with the privatisation faced up to criticism over the weekend that it had achieved little in over a decade, citing challenges beyond its control and repeating promises to fasttrack the process.

The Privatisation Commission was established in 2008 with the brief to sell 26 poorly performing parastatals to strategic investors and reduce their reliance on taxpayers.

But it has only managed to conclude a single deal involving Kenya Wine Agencies Ltd (KWAL) in over a decade.

Encountered delays

In 2014, the commission sold a 26 per cent stake in KWAL to South Africa’s Distell Group Ltd, Africa’s largest producer of spirits, wines, ciders and ready-to-drink beverages.

The last successful privatisation by the government was the Safaricom initial public offering in 2008.

Privatisation Commission Chief Executive Joseph Koskey told the Financial Standard on Saturday that they had encountered delays in the implementation of the privatisation programme due to “challenges beyond the commission.”

He cited among them a bureaucratic process as per existing legal framework, most often not having a fully constituted board and the holding in abeyance of the privatisation process from 2014 to 2019 when the task force on rationalisation of State-owned entities was conducting its work.

The abeyance order was lifted in 2019 but three months later, the term of some of its board members ended and for the next 33 months, the commission did not have a duly constituted board until March 25, 2022.

“There were instances of resistance faced from the multiplicity of stakeholders in the privatisation process,” Mr Joseph Koskey told FS in an interview.

“There were periods where the commission had been taken to court by some stakeholders and in those instances the privatisation transactions process was stopped by the courts pending determination of the cases.”

In October last year, National Treasury Cabinet Secretary Ukur Yatani appointed the members of the Privatisation Commission, beefing up the agency and raising hopes of unlocking the delayed sale of rundown State companies.

Later this year, business tycoon Faisal Abbas was tapped by former President Uhuru Kenyatta to the helm of the agency to help the revamp.

Mr Abbas, a former chairman of Geothermal Development Company, also served as a director of Kenya Electricity Generating Company (KenGen).

He was part of the team that steered KenGen to list at the Nairobi Securities Exchange (NSE), raising hopes that his experience will come in handy in selling off government stakes in the firms.

The parastatals the government approved for sale include National Bank of Kenya, Consolidated Bank of Kenya, Kenya Meat Commission, Development Bank of Kenya, East African Portland Cement, KenGen, Kenya Pipeline Corporation, Kenya Ports Authority, and five sugar millers: Chemilil, Sony, Nzoia, Miwani and Muhoroni.

Others are Agrochemical and Food Corporation, New Kenya Co-operative Creameries, Numerical Machining Complex and Isolated Power stations, hotels (Kabarnet hotel, Mt Elgon Lodge Ltd, Golf Hotel Ltd, Sunset Hotel Ltd, Kenya Safari Lodges and Hotels Ltd).

Also on the disposal list are Kenya Tourism Development Corporation associated companies, which include International Hotels Kenya Ltd, Kenya Hotels Properties Ltd, Mountain Lodge Ltd and Ark Ltd.

However, no success to sell at least even half of them has been recorded so far.

This has prompted mounting calls for the agency to fasttrack the process.

The NSE, for instance, recently urged the now fully constituted commission to hit the ground running in the disposal of State-owned agencies through the sale of shares at the bourse.

The privatisation programme involves listing of State corporations.

“With the appointment of board members who have been missing for the last two years, the commission is now able to execute on its core mandate of identifying and preparing government assets for privatisations,” said NSE Chairman Kiprono Kittony in NSE’s latest annual report.

“This will help develop a robust pipeline of State enterprises, which could be privatised or improved through private sector participation.

“This will enhance quality listings on the NSE and support us to enhance opportunities for investors.”

Amid the spotlight, the Privatisation Commission recently moved to unlock the stalled sale of two State-owned banks

The commission last week sent out a request for proposals (RFP) seeking to recruit transaction advisors for the proposed sale of Consolidated Bank of Kenya and the Development Bank of Kenya.

Weak financial base

The two lenders have suffered many years of underperformance due to their weak financial base and inefficiency.

“The  Privatisation Commission has received financing from the National Treasury and Planning towards the cost of the subject consulting services,” said the agency in a public notice.

“(It) now invites proposals to provide consulting Services on the Privatisation of DBK.”

A similar notice inviting consultants to guide on the sale process was issued for Consolidated bank by the agency.

Their combined total assets stood at Sh31.7 billion in June this year.

Treasury has in the past injected capital into the two lenders but they say they are still cash-strapped and highly constrained in terms of issuing new loans, despite this being their main source of income.

Amid the ongoing scrutiny over the enduring delays, the commission maintains that despite the challenges, its privatisation programme implementation is on course as outlined in its strategic plan covering the period 2022-23 to 2027.

But it adds stakeholders in the privatisation process will be key in ensuring its success.

“The entities in the privatisation programme are at different stages of approval and implementation,” Mr Koskey told FS.

“As indicated earlier, the process is largely stakeholder driven, so aside from enhanced stakeholder engagement activities, we have commenced the process of a comprehensive review of the Privatisation Act, 2005 which will soon be subjected to public participation.”

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