Uganda gets veto powers to hire and fire KPC boss

Kenya gave the concessions, including two board seats in the firm, after the neighbouring country threatened to walk away from the KPC IPO because of a lack of authority in the running of the firm.

The Kenyan government is selling a 65 percent stake in KPC via the Nairobi bourse.

The Ugandan threat would have denied the IPO over Sh20 billion from Kampala and sparked the collapse of the KPC sale that has struggled with targets.

This sounded the alarm bell in Nairobi, which yielded to Uganda’s demands and forced the revision of KPC’s articles of association to guarantee the 20 percent ownership and the veto power over the hiring and firing of the CEO.

“So as long as the Cabinet Secretary Treasury (Uganda) holds any shares in the company, the following matters shall require the approval of not less than two Treasury directors,” says the amended articles of association seen by the Business Daily.

“The appointment or removal of the managing director and the issuance of new share capital.”

The amended articles association were agreed last week hours before Kenya announced it was extending the IPO by three working days amid indications that deal makers had received commitments for less than half of the Sh106 billion the State sought from the sale.

The offer had been due to close on Thursday last week but remained open until today. The IPO must raise at least Sh53.1 billion from more than 250 investors for it to proceed.

Top brokers who sought anonymity for fear of State reprisals said about 20 percent or nearly Sh23 billion of the offer had been sold at the close of business on Wednesday amid divided opinion on the valuation of KPC.

This made the commitment from Kampala to buy shares worth over Sh20 billion critical for the success of the IPO.

Sources close to the talks said a meeting between Kenyan and Ugandan top officials broke the ice, setting off a series of actions, including the release of the amended articles of association and extension of the IPO sale period.

Ugandan Minister of Energy and Mineral Development Ruth Nankabirwa and Attorney-General Kiryowa Kiwanuka represented the delegation from Kampala and finalised discussions with Kenya on Friday last week on the country’s strategic entry into KPC’s shareholding structure.

Uganda will invest and hold a strategic stake in KPC through the Uganda National Oil Company (UNOC), the state-owned oil company that imports fuel to the landlocked country.

The country says its participation in the IPO is a deliberate strategic decision aimed at strengthening regional energy cooperation and safeguarding national interests.

Read: How Uganda board seat fight put KPC sale at risk

“The investment will enhance security of access to petroleum products, improve affordability and reinforce long-term supply stability for Uganda and the wider region,” Irene Bateebe, the permanent secretary of the Ministry of Energy, was quoted saying by Daily Monitor—a sister publication of the Business Daily.

Over half of fuel cargo that goes through KPC’s network is for exports, with Uganda taking up an estimated two thirds of it.

Eastern Democratic Republic of Congo (DRC) takes up 19 percent, South Sudan 15 percent and Rwanda 15 percent.

On service fees, UNOC is the sixth largest customer of KPC, paying for charges of Sh1.2 billion in the year to June, with Vivo Energy the leader at Sh4.94 billion.

Of the total KPC stake on offer, 15 percent is reserved for oil marketing companies, five percent for employees and the remainder will be allocated to local retail, local institutional, East African and foreign investors, with each category receiving 20 percent.

The government will retain a 35 percent stake.

“In cases of undersubscription, valid applications in the affected category be allocated in full, with remaining shares reallocated in the order of local retail, local institutional, East African investors, international investors and oil marketing companies (OMCs),” the KPC investor memorandum says.

“In cases of oversubscription, Kenyan investors will be given priority.”

Treasury Cabinet Secretary John Mbadi earlier indicated that Uganda has sought more shares, an indication of its appetite to snap up shares left on that table by other investors.

The push for Kampala’s wider say in KPC affairs comes less than two years after Kenya allowed Uganda’s state oil firm to import petroleum products through its port of Mombasa, ending a row between the two neighbours.

The deal saw Kenya give UNOC licence to use KPC to move the products from the Mombasa port.

Using Kenyan firms to import oil had “exposed Uganda to occasional supply vulnerabilities”, with the neighbouring country’s retail companies considered secondary whenever there were supply disruptions affecting retail prices.

Uganda had been seeking alternative ways of importing petroleum products, including through a Tanzanian port, after its oil retailers for decades received their cargo through affiliated firms in Kenya.

The government priced the Kenya pipeline IPO at Sh9 per share for the offer that opened on January 19 amid a split on views over its valuation.

The sale of the 65 percent stake in KPC is part of the Treasury’s drive to divest from State companies.

The government is also reducing its stake in telecoms operator Safaricom, with the sale of a 15 percent stake to South Africa’s Vodacom for Sh204 billion.

Burdened by high national debt, limited room to raise taxes and annual loan repayments that consume 40 percent of government revenues, the State has sought new funding models.

The KPC IPO will be the region’s biggest, surpassing the 2008 Safaricom offering, which raised just over Sh50 billion.

In dollar terms, the Safaricom IPO may still rank as the largest, given the weakening of the Kenyan shilling over the past 17 years.

The KPC IPO comes amid a sharp rally at the NSE.

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