A debate last week between Kenya Pipeline Company (KPC) board and the Senate Energy Committee raised a number of issues which included privatising the firm to raise more cash for the Treasury; broadening the company ownership; and above all enhancing corporate governance.
If privatisation means “auctioning” KPC to the highest private bidder irrespective of nationality of the buyer, it is outright wrong. However, if it means listing KPC shareholding through an IPO (Initial Public Offer) at the NSE (Nairobi Stock Exchange) , Kenyans will be fully for it.
KPC is a critical national infrastructure entrusted to establish and maintain sufficient capacity for Kenya’s petroleum imports and distribution. It is a high value asset accumulated by the Kenyan public over the past 40 years.
As a regulated monopoly of strategic national importance, it is prudent for the ownership to remain in the control of Kenyans. The company is also a very technical and commercial entity, requiring the highest level of professional management and stewardship.
Listing at least 49 per cent of shareholding at the NSE will broaden the ownership by providing Kenyans with an opportunity to own a piece of KPC, while releasing much needed cash to the Treasury. Partial IPO will also allow the government to maintain a defined level of policy oversight on the company. As a listed public company, KPC will be subject to independent oversight by the CMA, NSE, and public shareholders and this will set the company on a path towards corporate governance polish-up.
KPC happens to be one of the few companies in Kenya with significantly huge cash generations which are ring-fenced from bad debt risks by effective commercial agreements signed with captive corporate customers. This gives the company a high credit rating with banks enabling KPC to fund its capital requirements without requiring any bailout funding from the Treasury.
On the negative side, the cash abundance is the genesis of what has come to be known as the “KPC curse”, a perfect case study of lapsed corporate governance of a cash-rich public company. This has led to financial stewardship concerns which have recurred in predictable patterns and cycles over the past 40 years.
A collusive chain linking politicians, directors, senior management, and vested interests influences decisions which ensure that the surplus cash at KPC is assigned to targeted projects, leaving hardly any cash for dividend payments to the Treasury.
It is public perception that the perpetual projects at KPC are often not a priority, not always necessary, are mostly over-designed, and often deliberately over-priced. It is this “creativity” in project origination, funding, bidding, and awarding that has over years created perpetual conflicts between KPC and oversight/audit agencies.
To break the poor governance chain in KPC, and indeed in all public corporations, appointment of board directors should not be done by cabinet secretaries, but by an independent body like Public Service Commission (PSC). This provision was a major omission during the drafting of the 2010 constitution. However, if political will exists, the weakness can be corrected by the Parliament by amending various state corporations statutes to permit PSC to recruit directors who are sufficiently vetted for qualifications, relevance, and ethics.
We need to prepare KPC for bigger future roles. There is the potential KPC participation in the coming crude oil pipeline on behalf the government. There is also opportunity for KPC to extend pumping of products to regional demand centres by branching off from the main pipeline. LPG imports and distribution infrastructure is also awaiting KPC investments.
The extended roles will definitely require that we reform KPC, initially through the NSE platform, to enhance the company’s image and confidence among the public, investors and stakeholders.
KPC is definitely not in the category of failed public companies crying for immediate privatization. Treasury should not rush decisions on a company we have built over forty years, but systematically organize an IPO to kick-start governance reforms at KPC, which should also include appointment of truly independent and competent directors.