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Proceeds from sale of State firms to be used for clearing debts

 Proceeds from sale of State firms to be used for clearing debts

A significant number of the 300 state-owned firms in Kenya are in debt distress and perpetually reliant on bailouts from the exchequer to remain afloat.

Cash realised from the sale of State-owned corporations may be used to settle the debts of the target enterprises or meet the costs of restructuring the organisations into profitable businesses.

The proposals are contained in the Privatisation Bill 2023, which has paved the way for the government to bring into reality President William Ruto’s plan to privatise roughly 12 parastatals by October this year.

The Bill notes the proceeds may also be used to pay for capital investments incured by the State corporation or defray the cost incurred in the privatisation albeit capped at 5 percent of the proceeds.

The government plans to use various methods such as an initial public offering of shares, sale of stake by public tendering, sale by exercising pre-emptive rights, or other methods as determined by Privatisation Authority with the approval of the Cabinet Secretary where the entity falls.

Once a State firm has been identified for privatisation, the authority shall prepare a privatisation proposal that shall among others guide on how to carry out the sale.

The proposal shall clearly set out the method of privatisation, estimate costs of the exercise, projected benefits of the privatisation as well as give the way forward for the affected employees.

The proposal shall also clearly determine how Kenyans will participate in the sale, as well as qualify the financial health of the entity on sale.

The Privatisation Bill comes days after Prime Cabinet Secretary Musalia Mudavadi put State enterprises on notice saying the government will be culling the units that are hardly delivering value.

A significant number of the 300 state-owned firms in Kenya depend on bailouts from the exchequer and are in debt distress.

Prime Cabinet Secretary Musalia Mudavadi has revealed plans to do away with inefficient state corporations.

“Going forward, some painful decisions will have to be made. Some parastatals will have to be shut down. They will individually have to justify their existence and benefit to Kenyans,” said Mr Mudavadi.

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Treasury Principal Secretary Dr Chris Kiptoo has echoed Mr Mudavadi’s sentiments underscoring the need for reforms and a review of the parastatals that have proved perennial loss-makers escalating the public debt.

“Most of the public debt is actually held among the saggers. Majority of the pending bills and stalled projects are in the saggers. I saw the stalled projects are estimated at Kes1.1 trillion. How can you preside over stalled assets of that magnitude?

“We want to see a decision taken on idle projects. Some of the projects are stalled because of contractual issues, which if you look closely are a result of poor decision-making,” Dr Kiptoo explained.

Since taking the reins, the Kenya Kwanza administration has demonstrated heightened keenness to smooth out budgetary hitches to ensure the productive utilization of government funds.

It is in the spirit of avoiding wastage of public resources that President William Ruto is considering privatizing the national flag carrier Kenya Airways, which has become the epitome of financial incompetence owing in state corporations due to its overreliance on the National Treasury to stay afloat.

Since 2020, the International Monetary Fund (IMF) has equally been flagging perpetual government bailouts for underperforming public businesses which have become the norm, especially Kenya Airways (KQ).

“The authorities reduced extraordinary SOE support to Kes17.5 billion (0.14 percent of GDP) in FY 2021/22 from an originally budgeted Kes32.3 billion, while the FY2022/23 Supplementary Budget will reflect extraordinary support of Kes37.3 billion (0.3 percent of GDP).

“The bulk of this would go to KQ, while support to KPLC (Kenya’s electricity distributor) would be reduced. Given limited fiscal space, the focus remains on identifying cost-saving reforms at KQ and KPLC,” said the IMF in its most recent assessment of the economy.

Mr Mudavadi spoke to the importance of being in the good books of institutions such as the IMF to maintain a favorable view in the international community.

“When you lose the IMF and similar organizations, you are in big trouble. It will be like sending a message to the world that your economy is in Intensive Care Unit (ICU).

“They are the stamp of approval to your economy. When you work with [them] you get to negotiate your case,” Mr Mudavadi said.

newsroom@maudhui.co.ke

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