THE DRAFT PRIVATISATION BILL, 2023: WHAT’S NEW?
1.????Background
The National Treasury & Economic Planning and the Privatization Commission on 31st January, 2023 invited members of the general public to submit their views on the draft Privatisation Bill, 2023[1] (the “Bill”). The Bill seeks to repeal the existing Privatization Act[2] which was assented to in 2005 and came into force in 2008 (the “Act”).
This legislative reform comes at a time when the Government of Kenya is committed to achieving its goal of having between five and ten state-owned enterprises privatised by the end of the year 2023. The current Act has been viewed as creating an inhibiting legislative and policy framework that has seen a slow implementation of the privatisation transactions in the past years.
It is worth noting that in 2009 the Government under Gazette Notice No. 8739[3] approved the privatisation of 26 public entities under the privatisation programme stipulated under the Act. Some of the institutions included in the list were: Kenya Meat Commission, Kenya Ports Authority, Consolidated Bank of Kenya, Development of Kenya, Nzoia Sugar Company Limited, Miwani Sugar Company Ltd and Kenya Pipeline Company Limited among others.?However, to date, the Government only boasts of one successful IPO, the Safaricom IPO, which was listed in 2008.
According to the Report on Budget Options for FY/2023/2024 and the Medium Term[4] issued by the Parliament Budget Office, privatization of state-owned enterprises is identified as one of short-term fiscal consolidation strategies which if well executed, could become a source of revenue while at the same time reducing costs and risks to the Government. Further, it is projected that Government could raise approximately 30 billion Kenya Shillings annually from privatization of selected public entities.
In light of the foregoing, there is need for the Bill to provide an efficient legal and institutional framework that will facilitate effective privatisation procedures.
2.????Salient features of the Privatisation Bill, 2023
The key changes proposed under the Bill include:
2.1.?Institutional Changes
2.1.1.??The Privatisation Authority
The Bill proposes to have the Privatisation Commission (the “Commission”) replaced by the Privatisation Authority (the “Authority”). This is a positive change because a commission is regarded as a group of individuals constituted to perform a specific task while an authority is defined as an autonomous body established to perform, regulate and enforce specific functions. Consequently, commissions are only regarded as fully operational upon the appointment of the commissioners. In this respect, one of the shortcomings of the Commission in the past has been its failure to perform its functions by reason of not being fully constituted[5].
We note that the Authority retains the Commission’s function of being in charge of implementing the privatisation programme. In addition, the Bill seeks to expand the role of the Authority to include, advising the government on all aspects of privatisation of public entities, facilitating government policies on privatisation and collaborating with other organisations, within or outside Kenya on aspects of privatisation as well as taking such measures as necessary to ensure the privatisation law is complied with.
In a bid to enhance the efficiency of the Authority, the Bill has reduced the composition of the Board of the Authority from eleven (11) to nine (9) members. In the Bill, the Principal Secretary in the Ministry responsible for investment promotion or a designated representative shall form part of the Board. Further, the board members who are non-public officers will only be subject to the appointment of the CS and not require to go through the lengthy process of approval by the National Assembly.
2.1.2.??Role of the Cabinet Secretary for National Treasury
The Bill seeks to clearly demarcate the role of the Cabinet Secretary (CS) of the National Treasury and that of the Authority in a bid to avoid instances of overlap of functions.
Under the Bill, the CS of the National Treasury shall have the responsibility of providing policy direction on matters related to privatisation, co-ordinating adherence to privatisation obligations (both nationally and internationally), developing the privatisation programme and overseeing the administration of the Bill upon enactment into law. It is important to note that the responsibility of developing the privatization programme is proposed to be transferred from the Commission to the CS.
2.2.????The Privatisation Programme
As noted above, the CS of the National Treasury will be charged with the responsibility of formulating the privatisation programme and specifying the public entities approved for privatisation and submitting to the Cabinet for approval.
In the identification of the public entities, the CS must take into consideration the relevant government policies in respect of privatisation, the need to avoid a privatisation that may result in an unregulated monopoly, the expected benefits to be gained from a proposed privatisation and the sustainable development and protection of economy. In addition, the privatisation programme must comply with the guiding principles of public finance provided for under Article 201 of the Constitution, the maximization of value for money and promotion of local participation.
The above considerations are a welcome change that shifts the privatisation goal from simply a sale of a public entity, to a more diversified goal of ensuring sustainable development and protection of the economy.
2.3.????Methods of Privatisation
The Bill presents sale of shares through public tendering as a novel method of privatisation in Kenya. Sale of shares through public tendering will involve inviting prospective bidders to provide sales prospects, the tender evaluation committee established by the Authority shall then consider the prospects and identify the most competitive bid. This is a welcome method which seeks to enhance transparency, competitiveness and openness in the disposal of shares in state owned entities and possibly annihilate the past concerns of secret sale prices of public entities.
The Bill retains the other methods of privatisation, which include:
??????i.?????????initial public offering of shares,
?????ii.?????????sales resulting from the use of pre-emptive rights; and
???iii.?????????any other method that the Authority, with the approval of the CS may determine.
领英推荐
The Bill proposes to dispense with the sale of assets, including liquidation as a method of privatisation.
Over and above the privatisation methods specifically identified in the Bill, the Authority may follow other privatisation methods approval of the CS. Under the current Act, the Commission can only determine another method of privatisation, not provided for in the Act, only with the approval from the Cabinet. As compared to the Act, the determination of another method of privatisation beyond that which is provided for in the Bill, will be more efficient as only the approval of the CS will be required.
2.4.??Privatisation Proposal
Similar to the provisions of the Act, the Bill provides that upon identification of an entity to be privatised, the Authority shall prepare a privatisation proposal. Thereafter, the Board of the Authority shall approve the privatisation proposal and submit it to the CS for approval as demonstrated below.
Privatisation proposal approval process under the Bill:
The proposed approval process of a privatisation is much shortened compared to the current provisions of the Act which provide for the following steps:
Privatisation proposal approval process under the Act:
Questions have been raised on whether the privatisation proposal approval process can be carried out in the best interests of the people since the National Assembly has been ousted from the privatisation proposal approval process. Despite the fact that the removal of National Assembly will hasten the approval process, concerns arise as to how accountability of the Executive shall be ensured. The National Assembly plays a pivotal constitutional role of representing the interests of the people, it is thus critical for the Bill to consider the inclusion of the National Assembly or the relevant House Committee in the approval process.
2.5.?????Privatisation Implementation
As a new measure of ensuring that public entities maintain proper records and accountability during the privatisation implementation phase, the Bill provides that a public entity must keep up-to-date business records and books of accounts, maintain an up-to-date register of all fixed assets, and document all its legal and other obligations.
3.????The Take Home
From the above highlighted changes, it is evident that the Bill seeks to improve efficiency and competitiveness of government resources through shorter approval times, share sales, and citizen participation.
Noting that the sale of shares through public tendering envisages a competitive bidding process, it is important for the Government to ensure that the process is conducted in a fair, transparent and accountable manner.
We shall remain keen in tracking the progress of the Bill and provide any further insights in the future.
?
[1] https://www.treasury.go.ke/wp-content/uploads/2023/01/23.1.23-Draft-Privatisation-Bill-2023-Public-Participation.pdf
[4] https://www.parliament.go.ke/sites/default/files/2023-02/Budget%20Options%20for%202023-24%20and%20the%20Medium%20Term.pdf
[5] Report of the Auditor General on the Privatisation Commission for the year ended 30th June 2020
Authors: Esther Omulele , Sylvia Kimani & George Wahome