With an aim of improving the efficiency and competitiveness of Kenya's productive resources, the Privatisation Bill, 2023 aims to replace the current Privatisation Act, 2005. President William Ruto has to privatise six to 10 state corporations to ease the burden on the exchequer and to raise financing for government projects through the Nairobi Securities Exchange (NSE) instead of seeking financing from external markets.
The Bill establishes a 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.
Through the Bill's proposed Privatisation Programme, the Cabinet will identify and approve public entities for privatisation.
The Bill also proposes various methods of privatisation including initial public offering (IPO) of shares, sale of shares by public tendering, sale resulting from the exercise of pre-emptive rights, and any other methods that the Authority shall propose and Cabinet will approve.
If privatisation happens through the sale of shares, the Act prohibits the extension of credit or provision of financing to assist purchasers to acquire the shares. This is because this mechanism would be in direct contradiction with the government's agenda to quickly raise financing through privatisation. Participation in the Programme will be open to both Kenyans and foreigners. However, the Cabinet Secretary of the National Treasury may impose a minimum level of participation by Kenyans or limit certain privatisation programmes to Kenyan citizens only.
Government-owned entities would be prohibited from participating, except for those that conduct investment as part of their mandate, or funds such as social security funds, compensation funds, superannuation funds, insurance funds or endowment funds under government control, that would be acquiring shares for the benefit of their contributors.
The Bill (as currently drafted) allows the Authority to constitute a technical advisory committee to operate on an ad hoc basis depending on the needs and technicalities of each proposed privatisation.
If the Bill comes into effect, the steps to effect the privatisation of a state-owned entity are:
- the Authority will identify and prepare a privatisation proposal on the selected entity which must then be approved by both the Board and the Cabinet Secretary;
- upon approval, the determined method of implementation of the privatisation (eg, an IPO) will be effected;
- upon approval and implementation of a privatisation, an agreement shall be drafted to give effect to a privatisation and shall be signed or countersigned by the Cabinet Secretary; and
- finally, after an agreement to give effect to a privatisation becomes binding on the appropriate public entity, the Authority will promptly publish a notice of the privatisation in the Kenya Gazette.
To address potential monopolies resulting from privatisation, the Bill requires the privatisation agreement to include monopoly regulation provisions in line with the Competition Act, 2010. The Bill also establishes a review board to handle objections or appeals against decisions made by the Authority.
All proceeds from privatisation will be paid into the consolidated fund or a special interest-bearing account depending on the type of equity that was acquired and can be directed towards:
- liquidation of the debts of the state corporation;
- payment of the costs of the state corporation or the cost incurred by the Authority in the privatisation (which cannot exceed 5% of the proceeds of the privatisation or the actual cost incurred, whichever is lower);
- payment for capital investments by the state corporation; or
- they will remain in the consolidated fund.
Finally, the Bill also establishes a review board which is tasked with hearing and determining any objections or appeals against decisions made by the Authority.
The Bill differs from the Act in two major ways. First, as a part of the privatisation process, the Act requires that the Cabinet Secretary submit a report in the form of a sessional paper on a privatisation proposal approved by the Cabinet to the National Assembly for consideration. Upon approval, the Cabinet Secretary is required to compile and submit to the National Assembly, not later than four months after the end of each financial year, a consolidated report summarising the status of implementation of each proposal that was approved in that year. This causes a significant delay in the amount of time required and increases the requirements for privatisation, making the process more cumbersome.
Secondly, the Act includes the sale of assets and liquidation as methods of privatisation and excludes the sale of shares by public tendering as a method of privatisation. On the other hand, the Bill excludes sale of assets and liquidation and includes sale of shares by public tendering as a method of privatisation.
If passed, the Bill is likely to ease the process of privatisation. It will also improve efficiency when it comes to provision of services while enabling the government to obtain funds without collecting external debt. If successful, this will be a huge achievement for the new government, in view of the fact that the last privatisation was in 2014 (Kenya Wine Agencies) and there have been none for nearly a decade.
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