Sale of 26 state companies stagnates Ask any question In Summary More than five years since the first commission begun operations in January 2008, none of the firms earmarked for sale has completed the process Activities of the commission were paralysed for almost 20 months due to the absence of the board as Parliament could not agree on the final list of appointees ADVERTISEMENT Efforts to privatise 26 key parastatals have stagnated amid claims of sabotage and negligence by key government authorities. In a report tabled before the Parliamentary Investment Committee last week, the Privatisation Commission revealed that the process to dilute the government’s stake in the institutions hit a rocky patch soon after it begun in 2008. Successful sale of the parastatals was expected to increase efficiency and reduce reliance on state funding for their operations. The process was expected to earn the government about Sh50 billion while improved operations would increase their contribution to national economic growth. The Privatisation Commission’s report said most of its proposals are gathering dust in government offices jeopardising a process that was expected to help cut the ever-increasing national recurrent expenditure. More than five years since the first commission begun operations in January 2008, none of the firms earmarked for sale has completed the process. The team said the process has been delayed by red tape and failure by responsible government bodies to give the required approvals in a quick turnaround time. A privatisation proposal can only be implemented after approvals from the Treasury, Cabinet and Parliament. According to Mr John Kirimi, a director at Sterling Capital, the sale has been subjected to the same bureaucracy that the Privatisation Commission was intended to eliminate in the first place. “The privatisation commission is made up of professionals so there is no point subjecting its report to more scrutiny from both the Cabinet and Parliament,” said Mr Kirimi. The process, he said, is facing hurdles because it has to be approved by politicians who may not always consider public interest. “The commission is not acting independently and may never realise its mandate as a consequence,” he said. At the meeting with the Parliamentary Investment Committee, Privatisation Commission boss, Mr Solomon Kitungu, said his team was overlooked by the government in the sale of Telkom Kenya shares to Orange, exposing the its weak mandate. Politicisation of the process has also been a big hindrance to its successful implementation. In 2010, an attempt by the then Finance minister Uhuru Kenyatta to renew the term of the commission’s board was rejected by Parliament after questions emerged on the legality of the procedure followed in the process. Activities of the commission were paralysed for almost 20 months due to the absence of the board as Parliament could not agree on the final list of appointees. New commissioners took office late last year headed by Mr Kitungu with a mandate to fast-track the process. The following are some of the state-owned firms that were earmarked for privatisation but have been affected by the flaws in the process. KENYA WINE AGENCIES The privatisation Commission’ report shows that negotiations for the government to sell its 73 per cent stake in the wines and beer distributor are still ongoing seven months since Parliament approved its sale. The transaction was to take place in two phases; the first being the sale of 26 per cent to Distell through a negotiated and market-driven process, where it is to sign a long-term supply agreement with KWAL for the company to have exclusive rights for the sale of Distell products in Kenya and in the region. In the second phase of the divestiture, the remaining 42.7 per cent stake was to be sold in two to four years. Negotiation to sell a 26 per cent stake in KWAL Holdings EA Ltd, the holding company for Kenya Wine Agencies Ltd to South Africa-owned Distell have, however, been completed said the report. The government owns KWAL through ICDC. The other owners are Centum at 26.43 per cent and 0.92 per cent by other distributors. KENYA PORTS AUTHORITY The commission said the authority should be excluded from the list of government-owned institutions set for privatisation following claims that the process could result to loss of jobs for dock workers. The team said it is reviewing an earlier decision to remove the authority from the government’s management. “The commission is reviewing the same with the view of recommending its removal...nevertheless, to improve efficiency it is necessary to reorganise KPA as a landlord port,” said the report. The government has a 100 per cent stake in the Eldoret container terminal established in 1994, which has never begun operation, and berths 11-14 at the Mombasa port whose sale was expected to raise an estimated Sh11 billion. Due diligence, restructuring and privatisation options studies were completed in November 2010 but dock workers boycotted a February 2011 stakeholders workshop intended to share the findings and recommendations. They held that privatisation of the berths would lead to a loss of 4,000 jobs. Through their secretary general Simon Sang, the 6,000-member union said selling the port would concentrate wealth in the hands of a few foreign investors and cut jobs. KTDC FIRMS The government was to relinquish its stake in hotels run by KTDC but none of the transactions has been finalised despite Parliament’s adoption of an approval by committee on Finance Planning and Trade. The team had recommended that the government offloads its stake from the Hilton hotel, Intercontinental hotel, Nyeri-based Mountain Lodge and listed company TPS Serena. The deal was to be completed by the end of June 2013. According to the Privatisation Commission, negotiations are still ongoing. Existing shareholders were to be given first priority in the sale. A number of other hotels that are majority-owned by KTDC have also been proposed for privatisation since they do not raise enough revenue to meet their operational costs. They include Golf hotel in Kakamega, Susnset hotel of Kisumu, Mt Elgon Lodge Limited, Kabarnet hotel, Kenya Hotels Properties Limited, Ark limited as well as Kenya Safari lodges and hotels limited. SUGAR MILLERS Saleof five state-owned mills is one of the conditions upon which Kenya has been seeking extension of Comesa safeguards which expire in the next seven months. Their privatisation was part of a plan to increase sugar production. A blueprint released by the Ministry of Agriculture in 2010 showed that the government was to sell a 51 per cent stake in each of the five sugar companies. Thirty per cent ownership would be left to governemnt while the remaining 19 per cent would be disposed of through an initial public share offer once the factories become profitable. The mills are Chemelil, Muhoroni, South Nyanza, Nzoia and Miwani. Mr Kitungu’s report showed the sale of the millers has stalled due to lack of approval from the parliamentary committee on Finance Planning and Trade as required by the privatisation Act. CONSOLIDATED BANK Treasury, through the Deposit Protection Fund, holds a 51 per cent stake in the bank while the rest is held by over 25 parastatals and other government-controlled organisations. Stakeholders’ consultations, according to the Privatisaton Commission’s report, are expected to be finalised this month, where clear guidelines on how the financial institution shall be sold will be presented to the Treasury. The commission said it has embarked on updating privatisation plans on both the Development Bank and National Bank which had been submitted to Treasury four years ago. The government holds a 89 per cent stake in Development Bank through the Industrial Commercial Development Corporation and a 23 per cent shareholding in National Bank alongside National Social Security Fund which has 48 per cent. EAST AFRICAN PORTLAND CEMENT The government sort to relinquish its 27 per cent stake in the listed cement maker together with an additional 27 per cent held by NSSF but there has been no progress since a privatisation plan was submitted to the Treasury more than two months ago. Boardroom wrangles, stiff competition and low production saw the firm register a 13 per cent net loss last year even as cement consumption in the country doubled. The entry of new companies had stiffened competition in the sector that has grown due to booming real estate industry. PARASTATALS LINED UP FOR DISPOSAL Chemelil, Sony, Nzoia, Muhoroni and Miwani sugar companies. Kabarnet Hotel, Mt Elgon Lodge Limited, Golf Hotel, Sunset Hotel Limited, Kenya Safari Lodges and Hotel Limited and Kenya Wine Agencies among others. The rest are New KCC, Kenya Pipeline, Consolidated Bank of Kenya, KenGen, East African Portland Cement, KMC, KPA and Isolated Power Stations.
Posted on: Tue, 03 Sep 2013 10:31:42 +0000
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