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In 1994, Kenya started to implement a Parastatal
Reform Project. The objective of this project, financed by the World Bank,
was to support parastatal reform as a means to reduce the Government’s role
in the economy. More specifically, there was three main components: (i) enhance the
efficiency of the public enterprises (PE) sector; (ii) reduce the financial
burden of PE on the public sector budget; and (iii) enable PEs to operate
on the basis of market principles, promoting operational autonomy, and
enhancing accountability.
The project included (i) the
privatization of at least 20 public enterprises out of the 207 earmarked
for divestiture, and the liquidation of uneconomic PEs; (ii) improvement of
the efficiency, profitability and accountability of the remaining PEs by
phasing out subsidies, establishing an improved corporate governance
system, and dealing with excess indebtedness; (iii) adoption and
implementation of restructuring plans for five of the largest PEs which
included partial privatization; and (iv) improvement in the efficiency and
effectiveness of the Nairobi Stock Exchange (NSE).
During the first phase of the privatization program, the
government privatized a large number of small and medium enterprises, but
progress in privatizing key utilities and transportation enterprises has
been slow. For this reason, the government planned to accelerate the second
phase of its privatization program on the basis of a new privatization
strategy that emphasizes limiting
the role of government in commercial activities, putting in place an
appropriate regulatory framework, and using competitive bidding and other modalities to ensure
transparency and fairness.
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In 1991, the President of Kenya has
appointed a high level policy-making body, the Parastatal Reform Programme
Committee (PRPC) to supervise and coordinate the parastatal reform program,
including privatization. The Executive Secretariat and Technical Unit acts
as the Secretariat of PRPC. Kenya has also established the Department of
Government Investments and Public Enterprises (DGIPE) within the Ministry
of Finance to represent the Government and to oversee the reform process of
public enterprises.
The World Bank has supported the privatization process
in Kenya through the Parastatal
Reform and Privatisation TA Credit Program which ended in June 2000.
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Among the non-strategic PEs, the Government fully or
partially divested or closed 168 enterprises of the original 207 PEs
slated for divestiture. Of these,
54 were divested through preemptive rights; 22 through receiverships; 16 through
liquidation; 16 through competitive bidding; 10 through public flotation;
one through a management buy-out; and 29 tea factories were sold to tea
farmers. Eleven enterprises were partially divested.
Progress has been slow with respect to the reform of the
core and more strategic PEs, although the completion in 1996 of the Kenya
Airways privatization and progress on the privatization of Kenya Telecoms
were notable successes on the strategic public front. However, few
efficiency improvements have accrued in the railways, ports, power and
telecommunications sectors despite the extensive technical work performed
and sector reforms made. Because these companies play a significant role in
the economy, the lack of progress in privatizing these companies accounts
for the limited overall impact of the program on the economy.
Indeed, the overall impact of the privatizations was
rather modest, at least in relation to the potential. This is because the
more ambitious privatization program adopted in 1997/98 is still largely at
the level of intentions. Significant but very delayed progress occurred as
follows:
Kenya
Post and Telecommunications Corporation (KPTC).
Specific outcomes for the KPTC agenda have been its separation into a
telecommunications company (TELKOM), a Postal Corporation (POSTA), and a
regulatory body (CCK) is a newly established authority aimed at
strengthening the regulatory framework. Because of the importance of the
privatization of TELKOM, IDA granted
the Government’s request to extend the project based on a timetable
for privatization activities which was to be completed with the sale of
Kenya Telecoms, initially by June 2000 and later delayed to December 2000.
Preparatory, legal, and investment banking support has been provide by the
project. In March 2001, Kenya Telecoms had been well prepared for final
sale, and the Government was considering attractive bids for the sale of
the company. The project also provided support to the government allowing
the development and sale to Vodafone of a second cellular telephone
license.
Kenya
Railways Corporation (KRC). About 10 contracts were let
to pursue the privatization of KRC including those focused on preparing for
a major downsizing of the company to 14,500 workers. These contracts
included a detailed study and cabinet paper on the financial and social
costs and possibilities for splitting the railway into freight and
passenger services. This included a divestiture study on Gulf Marine
Services carried out by Vipul Shipyard Pvt., the company that owned the
boats that linked with the railway system and worked on Lake Victoria. In
addition, there were several local contracts for the internal
reorganization, briefing of staff, development of staff reduction plans and
counseling for those who would lose their job. These studies were carried
out by the Federation of Kenya Employers; pre-retirement counseling was
carried out by a consortium including Kenya Institute of Management, and a
management of change workshop was carried out by Manpower Services Ltd. of
London. In addition, a contract to undertake locomotive maintenance was let
to General electric. A contract to study privatization options was
undertaken by CPSC Transcom. This detailed preparatory work, however, did
not progress adequately to allow completion of a concession arrangement
with a private operator.
Kenya
Port Authority (KPA). The Parastatal Reform
TA project supported development of a performance contract to bring in new
private management at the port resulting in a notable increase in the ports
throughput. Eventually the managers withdrew at the end of their contract
because of difficulties in achieving the level of day-to-day control from
Government for management and maintenance which they felt was necessary to
implement agreed improvements. The Government did, however, respond by
changing the entire Board at the port. Despite tremendous vested interests
opposed to privatization of the port/container terminal’s management,
financial and operational improvements continued to be achieved as a result
of Government’s replacing management on an ad hoc basis. However, there is
still need for major investments in the container terminal.
National
Cereals and Produce Board (NCPB). A
contract with Agriconsult of Australia was reached. The contract allowed
the advisors to sell off the silos and to undertake a retrenchment program
which has improved the environment for grain production in the country.
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The GoK adopted a strategy and policy framework which
outlines a clearly defined and time-bound program of privatization focused
on the country’s largest and most significant enterprises. The framework
includes additional institutional and process features, overcoming
weaknesses identified in the first-phase program. Specifically, a
centralized institutional framework, led by the minister of finance is
empowered to undertake all privatization transactions and to ensure that
the privatization policy is enforcer consistently and transparently. A
transparent, competitive divestiture process, including an active
communications, information, and public relations effort, will be
undertaken with respect to principal stakeholders. A privatization fund
held by the minister of finance and Planning will be subject to regular
audit and reports provided to the cabinet, parliament and any donor
depositing monies into the fund. The attorney general has issued a legal
opinion confirming the adequacy of the legal and legislative framework to
permit implementation of the
privatization program and has indicated that a Privatization Bill is not
necessary.
The proposed privatization transactions as presented in
the Interim Poverty Reduction Strategy Paper are as follows:
Stage 1
(12-24 months to be completed by FY 2001/2001): (i) completion of the
privatization of Telkom Kenya through the sale of 49 percent shareholding
to a strategic partner and commercialization of postal services. (ii) Award
of a concession for the operation of Kenya Railways through competitive
bids to a company jointly owned by
domestic investors and strategic partners. Rolling stock for
freight and passenger services will
be transferred to the concessionaire, while all infrastructures will remain
under public ownership. (iii) Concessioning of the Container Terminal. The
noncore services of the port will be contracted to the private sector for
better management and efficiency. Kenya Ports Authority will be
converted into a landlord port.
(iv) Full privatization of Kenya Commercial Bank (KCB) by a trade sale of
the remaining 35 percent of the government shareholding or part
thereof to a strategic investor.
(v) Full privatization of Kenya Reinsurance Company (KCR) through trade
sale to a strategic investor and flotation of the remaining shares on the
Nairobi Stock Exchange (NSE). (vi) Partial privatization of Mumias Sugar
Company and of Chemelil Sugar Company through flotation of shares on the
NSE and, if necessary, the sale of a portion of shares to a strategic
investor. (vii) Privatization of Agro-Chemical and Food Company Ltd. (ACFC)
by modalities that are under studies.
Stage 2 (18-36 months) to be
completed by FY 2002/03. (i) Privatization of electricity distribution
through Kenya Power and Lighting Company. (ii) Partial privatization of
Kenya Electricity Generating Company (KENGEN) through an initial public
offering. (iii) Partial privatization of Kenya Pipeline Company. (iv)
Privatization of Kenya Oil refinery through modalities to be developed. (v)
Privatization of Kenya Seed Company through sale of shares to a strategic
investor. (vi) Privatization of Kenya National Trading Corporation (KNTC)
through liquidation. (vii) Privatization of East African Portland Cement
Company through the sale of government shares on the NSE.
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Implementation Completion
Report on a Credit of SDR 16.1 million (US$23.32 million equivalent) to the Republic of Kenya for
a Parastatal Reform Technical Assistance Project, The World Bank, March
2001.
Interim Poverty Reduction Strategy Paper
-- Kenya, July 13, 2000
Kenya Parastatal Reform and Privatisation TA
Credit Project, the World Bank, November 1992
The World Bank’s Africa
Privatization Database.
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