Last week, Treasury Cabinet Secretary John Mbadi remarked that the Exchequer was contemplating an initial public offering (IPO) for Kenya Pipeline Company on the Nairobi Securities Exchange (NSE).
What impressed me about an IPO is that the government may no longer be mulling KPC privatisation through “strategic investors”, for indeed Kenyans in general distrust the process of turning over public assets to opaquely “‘selected” investors.
Like the 2006 KenGen IPO by then President Mwai Kibaki's government, offering a fraction of KPC to the Kenyans is an exciting proposition.
In addition to instantly releasing much-needed cash to the Exchequer, listing on the NSE will definitely enhance KPC's financial management and accountability through the Capital Markets Authority's oversight.
KPC has struggled with corporate governance for decades. It is proper that the government goes straight for a 49 percent listing with at least 30 percent of it specifically ring-fenced for smaller retail investors.
As happened with KenGen, this will allow the IPO to benefit as many Kenyans as possible , including “hustlers.”
A 51 percent government control will permit the government to retain sufficient policy oversight on a critical and strategic energy logistics infrastructure. Much later when the company has stabilised on the NSE, the government can further reduce its participation.
KPC is essentially a petroleum transhipment logistics monopoly, pumping oil from Mombasa import locations to upcountry distribution depots.
KPC, which was implemented and commissioned by the Jomo Kenyatta government in the 1970s, remains the most advanced technical project ever implemented by Kenya. What is impressive is that KPC was from the beginning always managed by Kenyans, with no expatriate employee ever in its payroll.
It has robust revenue streams, ring-fenced by well-structured agreements with oil marketing companies, with hardly any payment defaults. Regularly reviewed tariffs by the Energy and Petroleum Authority (Epra) guarantee sustained profitability.
However, robust capital and recurrent expenditures by KPC have routinely resulted in low dividend payouts to the Exchequer.
The only long-term threat to KPC business is the ongoing energy transition from petroleum demands to electric mobility technologies (road, rail, air) that is forecast to achieve global peak around 2050.
Listing of KPC on the NSE is in line with the recently announced rationalisation of commercial State agencies to achieve financial efficiency, and to reduce the drain on Exchequer coffers.
In this group is National Oil, which will be twinned with a strategic investor to revive its operations and generate cash to pay off some of its liabilities, with the Treasury paying off the others. What is not clear is which State entity will manage the Turkana oil resources once commercialised.
