Bill sets State firms sale on right track

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Sugar industry stakeholders walk out of the stalled Miwani Sugar Company compound after meeting a team from the Privatisation Commission. FILE PHOTO | NMG

As the Privatisation Bill, 2023 proceeds to the next reading in the House, it is crucial to appreciate the genesis of the privatisation of parastatals in Kenya and how this has developed over the years.

Parastatals or State corporations were originally set up to spur economic development by promoting indigenous entrepreneurship.

Today, the rapidly changing environment has compelled parastatals to employ competitive strategies to stay afloat.

Post-independence, various reports found evidence of prolonged inefficiencies, financial mismanagement, waste, and malpractices in parastatals.

This was because growth in the sector was not accompanied by the development of efficient systems to ensure that public entities played their role in an efficient manner.

To address this challenge, the government in the early 1990s issued a policy paper outlining guidelines for privatising public enterprises.

The paper identified several commercial public enterprises that were commercially non-strategic to the government.

The privatisation programme’s impact, however, was limited because many of the earmarked state enterprises were relatively small and self-sufficient, and potential large parastatals were too strategic to be privatised.

The programme also faced institutional and process weaknesses arising from a failure to entrench the right procedures and institutional framework in law.

This gap paved the way for the Privatisation Act, 2005 which provides a legal framework for privatisation establishing the Privatisation Commission as the regulatory body responsible for overseeing the process.

Despite the existence of the Act, which co-exists together with the State Corporations Act, Cap 446 of the Laws of Kenya, parastatals have continued to face sectoral challenges.

The financial performance and operational efficiency of many State corporations have been deteriorating over the years, weighing heavily on public finances by increasingly relying on budgetary support from the government.

The Treasury selected 18 major State corporations in 2021 and undertook an in-depth financial evaluation and fiscal risk analysis.

Of the sampled corporations, the estimated liquidity gap over the next five-year period for the 18 entities alone was estimated to be Sh385 billion.

Given these devastating projections, the Treasury has been determined to apply a staged approach to its State corporations’ reform strategy.

The current administration has prioritised the implementation of privatisation projects with the introduction of the Privatisation Bill, 2023.

It is meant to improve transparency around the sale of public entities and hasten privatisation deals at a time when the government is looking to let go of some of its enterprises that are costing taxpayers billions of shillings every year to support.

Under the Bill, the Cabinet Secretary to the Treasury is to play a major role in identifying and determining entities to be included in the programme.

The Privatisation Authority, a body corporate set to replace the present Privatisation Commission, is tasked with preparing privatisation proposals.

The revised Bill provides for Parliament ratification in the sale of public entities through changes aimed at providing a time-bound approval process, a provision that was absent in earlier versions of the Bill.

Kenyans and foreign individuals and entities will be allowed to buy shares in privatisation, provided this does not affect other existing laws.

To address historical fears around the vices of privatisation, implementors of the Bill, if passed into law, must carefully monitor the creation of monopolies, and curb the replacement of public interest with profit motives in critical public service sectors.

If successful, the privatisation of parastatals is expected to reduce the public sector’s participation in the economy, shift this to the private sector and reduce reliance on government financing during budgeting.

It will also generate additional revenue for the government while encouraging private ownership of entities in the economy.

The writer is Senior Manager, Legal Business Solutions at PwC Kenya.

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