President Ruto seeks to sell parastatals without Parliament’s approval

By Elijah Odhiambo

The Cabinet has approved the Privatization Bill, 2023, a bill that allows the Treasury to exclude Parliament from approving the sale of State-owned firms in changes aimed at shortening the approval process for the sale of government assets.

The decision is set to put the Executive on a collision course with Members of Parliament, some of whom had rejected the proposals in the Bill.

It also denies Kenyans a direct role in contributing to the sale of public assets.

The Bill repeals Privatization Act of 2005.

Why privatisation!

The privatisation agenda was first introduced during the President Mwai Kibaki era which saw the gazettement of the Privatisation Act 2005.

It was brought in light of declining external financing of loans and grants in the country to lessen the demand of the State enterprises on the Exchequer.

Donors were no longer eager to give money for State corporation projects that were ineffectively run while the private sector in other nations operated them well.

Additionally, it was anticipated that privatization would reduce Treasury debt repayments that were accruing from unprofitable development projects.

Key issues in the privatisation bill 2023

With the passage of the proposed Bill, the Treasury will have the authority to privatize public-owned companies without needing the consent of Parliament.

The sale of non-strategic, underperforming public businesses will, according to the Cabinet, contribute to an improvement in the delivery of services to Kenyans as well as the upgrading of infrastructure.

The privatization, the cabinet noted during its meeting on Tuesday at State House, will also reduce the demand on public resources and raise more money to support the government’s development plan.

The bill will see the removal of the current Privatisation Commission and to be replaced with a Privatisation Authority.

The privatisation authority which will advise the government on the privatisation of public entities, including facilitating government privatisation policies and implementing the privatisation programme. The Authority is proposed to be managed by a board and its daily affairs overseen by a managing director. The board can receive any grants, gifts, donations or endowments on behalf of the Authority.

“There is established an Authority to be know as the Privatisation Authority,” the draft Bill reads in part.

It will advice the Government on all privatisation plans, implement specific privatisation proposals, collaborate with other organisations in Kenya and abroad as well as perform any other functions under the Act.

Under the Act, the Authority will be managed by a Board led by a Chairperson appointed by the President.

Who are eligible for buying the parastatals’ shares?

Kenyans, foreigners and corporations are both permitted to purchase the shares as long as it doesn’t interfere with other current regulations that restrict foreign participation.

However, in whichever form of privatization used, the Treasury will set a minimum level of Kenyan participation. The ownership cannot be purchased by other government-owned organizations unless investing is their primary activity.

Social security funds, the compensation fund, the superannuation fund, the insurance fund or the endowment fund under government control are allowed to purchase shares for the benefit of their contributors.

What happens to the gains made from privatisation ?

Any gains made  from the sale of a direct government equity holding are paid into the Consolidated Fund.

Proceeds from the sale of a State corporation’s equity holding are deposited in a special interest-bearing account established for that state corporation in order to protect the erosion of the balance sheet of the state corporation.

The earnings will then be used to liquidate the debts of the state corporation, pay the costs of financial and organizational restructuring of the State corporation, and capital investments by the state corporation.

The money will also be used to cover the costs incurred by the authority in the privatisation, however, should not exceed five percent of the earnings from the transaction.

The difference

The new Bill has removed methods like liquidation and leasing that had been suggested in the 2005 law.

Privatisation Act, 2005 requires the Treasury Cabinet Secretary to present a report on the privatisation proposals approved by the Cabinet to the relevant committee of Parliament.

The 2010 Constitution gives Kenya’s Parliament — both the National Assembly and Senate — substantial powers to check the decisions of the Executive.

Additionally, Under the proposed changes, the Treasury Cabinet Secretary will appoint members of the Privatisation Authority without oversight from Parliament, handing the exchequer a greater role in the running of the entity.

The Privatisation Act of 2005, however, requires the Treasury Cabinet Secretary to appoint members to the commission through a competitive process and approval by the National Assembly.

President Mwai Kibaki

The government successfully privatized the Safaricom IPO in 2008.

Former President Mwai Kibaki privatized six companies, including KenGen, Kenya Reinsurance, Safaricom and Mumias Sugar, through the NSE between 2003 and 2008.

He sold Telkom Kenya shares through a strategic sale and leased out Kenya Railways Corporation through a concessionaire.

Kenya privatised eight companies through public offers between 1990 and 2002 during the Daniel arap Moi era, including CMC Holdings, National Bank and Kenya Airways.

The government is also keen on selling hotels, including Kabarnet, Mt Elgon Lodge, Golf Hotel, Sunset, Kenya Safaris Lodges and stakes in Hilton Group of Hotels, InterContinental Hotels Corporation and Mountain Lodge Limited.

Consolidated Bank, Development Bank, Kenya Meat Commission and Kenya Cooperative Creameries were also targeted for sale.


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