Kenya has put in motion the process of selling 11 State-controlled entities in a bid to raise billions of shillings in revenue and free up cash it sinks in supporting operations of some parastatals every year.
The process of implementing the proposed sale has, however, been suspended by the High Court pending the determination of cases against it. The process is being guided by the Privatisation Act 2023, which was enforced on October 27, replacing the previous law enacted in 2005. Joseph Koskey, chief executive at Privatisation Authority, spoke to the Business Daily about the changes brought about by the new law.
The commission [now authority], through its chair, had reservations at the beginning of legal changes that the draft law gave the Treasury Cabinet secretary additional powers and that it will lose independence and become a rubberstamping authority on Treasury’s decisions. How has the new legislation affected the powers you had under the repealed law?
For us, it is not about being powerful or not. It is about whether you can execute your mandate. The old law and the new one do not affect how we execute our mandate. So we are fine.
How has the new law impacted the role of the authority in privatising State entities?
In the old law we were involved in the formulation of what is to be privatised. This formulation, which is basically identification, is really a policy issue. You cannot be a policymaker and implementer at the same time. That separation of responsibility has now happened.
For me, that is a really welcome change in terms of the law. We are now involved in the implementation of what has been approved with the input of the public.
Under the previous law, the privatisation process appeared to be dragging on and on. How has this been taken care of under new framework?
The privatisation is more or less a standard process. You start from due diligence and then there is a process where it reaches and you have to seek approval from the respective parties.
Prior to this new Act 2023, the approval of privatisation proposal [which contains specific information about identified entities to be privatised, including financial position and method of privatisation] used to go to the National Assembly. But with the new law, it is terminating at the Cabinet.
Therefore, in terms of process, it has a little bit been shortened. Another change is that under the old law, the privatisation programme [the list of companies to be privatised] used to terminate at the Cabinet. But this time round, it has gone to Parliament. In our own assessment, that is even better because the Cabinet is not the only authority that is determining what needs to be privatised.
Why was it important to bring in lawmakers in the approval of the privatisation programme?
The National Assembly is the representative of people as it were and while there it also undergoes an element of participation. So in our own assessment, it is now complying with provisions of 2010 Constitution where before you determine what you want to privatise, you have to involve members of public and the National Assembly which was not there before. So this law has given the oversight authorities the powers that they require.
Privatisation Authority CEO on Kenya's fresh bid to privatise parastatals
Under the new framework, how are firms to be privatised arrived at?
The new law says the Cabinet Secretary [for National Treasury] will come up with the list of what is to be privatised. The law has also specified very clearly the criteria of picking firms.
Once they have picked based on such criteria, they will go out there and do public participation. They will tell Kenyans ‘we want to privatise this and that companies and the reasons why we want put them [firms] in the list is because it is covered in this criteria as provided for in this Act’.
They will seek the go-ahead from the public to do that. Kenyans will then give the National Treasury their blessings. They will then take it to the Cabinet and convince them the reasons why they want to privatise. Based on that, Cabinet will look at it and if they are happy, they will take it to the National Assembly with reasons.
What can lawmakers do or not do?
The National Assembly will look at it, and they may say they are not convinced that you [Treasury] did adequate public participation.
They [lawmakers] are free to decide what they want after listening to the public. After that, they may ratify it. The moment that is granted, then it is gazetted and it becomes a privatisation programme. At that point, the Privatisation Authority comes in to implement because that is our mandate.
What will happen to the list of firms that had been approved for privatisation years back?
What has been there until October 27 [this year when the new law took effect] is a list of 26 entities that were gazetted in 2009. But by deed of this Act coming into being, that has lapsed.
The window on the saving clause under transition from the repeal of the 2005 Act is that the ongoing privatisation will be concluded as guided by the new Act. Among the candidates in that list are the hotels.
As the implementer, how do you plan to manage the interests of the locals where some of the firms to be privatised are based?
Because we do due diligence, we listen to what people are saying. When we are coming up with a privatisation proposal, we take into consideration all the concerns and we say based on this and that, this is the feeling on the ground and these are our proposals. It is up to the Cabinet to consider or even recommend otherwise. For us, we give a professional opinion and the approval is granted by the Cabinet and from there, we implement what has been approved.
How will you handle a situation where people lay claim to a firm for various reasons, including donation of land and so forth?
There are people who have come and said ‘This is our region and this is our company’. Some say ‘this was land belonging to our ancestors’.
Others have even taken us to court and said ‘you cannot progress with this’. As we speak now, those ones are still in court. But for us, if we were to do privatisation, we can in the privatisation options propose and recommend something to the Cabinet, through the Cabinet secretary [for Treasury], that because these people have some attachment to this company, they should be given, for example, 30 percent of the stake if we do an IPO [initial public offering].
They can come up with co-operatives [to pool funds]. If they don’t subscribe fully to what they have been allocated, then you sell the remainder to other people.
What will inform the method of privatisation?
This will be determined by the financial health of the institution. If it has been making losses, you cannot take it to the Nairobi Securities Exchange.
You must have had consistency in terms of profitability for a period of time because there are conditions that you must meet for you to float shares of a company there. If it has been making losses, and you think that what this company is lacking is equipment because they may be still using outdated machines and equipment, then this may require that you consider getting a strategic investor. You can also do sequencing where you don’t do a 100 percent privatisation. You can recommend, say, about 51 percent privatisation, and once it stabilises and the business has gotten better, then you go the second phase [of privatisation] where Kenyans can get value.
What will you do in a situation where shareholders in some of the firms, where the State does not control a 100 percent shareholding, want to buyout the government stake directly?
In all these companies, there are shareholders. So if there’s an article of association that has a provision that says that existing shareholders have first right of refusal, we must comply because that is what the constitutive instrument of that particular company says. In that instance, we will give the first opportunity to existing shareholders to exercise their rights. If they feel they don’t want to take it up, then the next stage is to open it up to everybody.
