The office that advises MPs on budget planning estimates that Kenya could earn between Sh60 billion and Sh110 billion by selling stakes in public firms to help in debt retirement or development funding.
The Parliamentary Budget Office (PBO) says the amount could be realised in the medium term if the State sells about 19 percent or 48 of the 248 corporates, which are involved in commercial activities.
The State is pushing for a change in laws governing the sale of public firms, through the Draft Privatisation Bill 2023 that seeks to, among other things, allow for the direct sale of assets of such firms through competitive bidding a part from sale through the securities market.
“Depending on the privatisation methodology, targeted State-owned enterprises and response from private purchasers, the privatisation resources are estimated to range between Sh60 billion and Sh110 billion spread out over the medium term,” says the PBO.
The PBO did not give names of the firms that could realise the amount if privatised. The government had previously earmarked 26 companies for privatisation, including the Kenya Ports Authority and Kenya Pipeline Company alongside loss-making lenders, collapsed sugar millers and hotels that have been run down over the years.
The Privatisation Commission has been unable to successfully privatise any State firms since 2008, partly owing to operational challenges such as a lack of a board and external challenges, including legal and stakeholder resistance. PBO is advising the State to direct the realised resources to funding capital projects that have the potential to generate future revenues or be used to retire expensive public debt.
The State sees privatisation as a route to cut budgetary support pressure amid the debate on whether transfers to these entities match the socioeconomic benefits that flow to the taxpayers. “Proceeds of privatisation should not be used for financing recurrent expenditure, priority could be given to critical capital projects and retiring expensive public debt for fiscal consolidation to stay its course,” says the PBO.
Privatisation could also rescue the government from more than Sh1.3 trillion in fiscal risks it faces in such entities since it is the natural underwriter of risks faced by State-owned enterprises (SOEs). The Treasury had in 2021 estimated that 18 of SOEs would require Sh382 billion in the next five years to cover their liquidity shortfalls, putting a strain on the taxpayers. Many of the State firms have soaked in debts and their investments lagged those of their peers in the private sector and may therefore require higher capital investment to improve profitability and quality of service.
The PBO warns that the high short-term and long-term debts sitting in the books of many of the State firms have a bearing on their assets and profitability prospects and this may hurt their valuation.
“This might force the government to sell an institution below potential/economic value (when an SOE is run efficiently) or may work in favour of large private sector purchasers with the capacity to meet huge liabilities or have a high-risk appetite,” says the PBO.
The Privatisation Act came into force in 2005 and provides the process of selling public assets and operations, including State corporations, but not much has been realised. The commission faces a mountain to climb, having managed to conclude a single deal involving Kenya Wine Agencies Limited in more than a decade since it was established in 2008.
The last high-profile privatisation by the government was Safaricom’s initial public offering in 2008. The commission last year opened the search for consultants to guide the planned privatisation of the Consolidated Bank of Kenya and Development Bank of Kenya.
Both lenders have been struggling to maintain adequate capital and return profits.