Privatised parastatals set to have special interest-earning accounts

National Treasury is seeking to create a special interest-earning account where proceeds of the sale of State-owned enterprises (SOEs) will be deposited as it seeks to replace the 2005 privatisation law.

The Draft Privatisation Bill 2023 says the move aims at preserving the liquidity levels of SEOs to enable them meet the cost of restructuring, capital investments, settle debts, and pay costs incurred by the Authority during privatisation.

Proceeds will be paid into the Treasury’s Consolidated Fund, the fiscal bank account for all the revenues received or raised by the government. The Bill, which is set for public participation from next Tuesday, will allow the new administration to fully offload or cut stakes in various firms.

“Any proceeds from the sale of a State corporation’s equity holding shall be 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 draft Bill reads in part.

Should the Bill which intends to replace the current 2005 law, be approved, it will relieve the National Treasury of the burden of bailing out loss-making firms that have been haemorrhaging taxpayers’ money.

Under the proposed new structure, the Treasury has been empowered to identify sellable parastatals together with the board, eliminating parliament from approving the deals as is the case with the current privatisation policy.

“Upon preparation of a privatisation proposal under section 25, the proposal shall be approved by the Board with the concurrence of the Cabinet Secretary,” the Bill states.

Investment matters

A revamped Privatisation Authority comprising a slashed nine-member board will replace the present Privatisation Commission, which has 11 members presently.

Chairperson of the Authority shall be appointed for a period of three years by the Head of State, Principal Secretary at the Treasury and Principal Secretary in the ministry handling investment matters or their respective designated representative.

Others include Attorney General and four other members not holding public office. The changes in the law come at a time when President William Ruto’s administration is keen on surpassing the number of State-owned firms privatised under ex-President Mwai Kibaki. The administration wants to sell about 10 SEOs in the next one year, most of which will be through public offers at the Nairobi Securities Exchange (NSE) to improve their performance while earning additional revenues amid huge public debt.

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

The Minister of Trade, Investment and Industrialisation, Moses Kuria says his docket will oversee the privatisation of at least three firms by end of the current fiscal year in June. 

There has been little progress on privatisation since the establishment of the Commission in 2008, and in the over 10 years of its existence, it has only managed to privatise Kenya Wine Agencies Ltd (KWAL), a relatively minor transaction.

In the privatisation process that concluded in 2014, the government through the commission sold 26 per cent stake in KWAL for Sh860 million to South African firm Distell Limited.

The poor legal framework, full of lengthy bureaucratic processes, has been blamed for the dismal performance of the privatisation plans.