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23 State-owned assets lined up for privatisation, official reveals

Saturday November 24 2012

Hilton Hotel, Nairobi. Photo/PHOEBE OKALL

Hilton Hotel, Nairobi. Photo/PHOEBE OKALL 

By JOSHUA MASINDE [email protected]

The newly installed Privatisation Commission says it has lined up 23 State-owned assets for sale. The commission, which was gazetted two weeks ago, says it will give priority to assets that had a Cabinet nod.

The commission says three State-owned hotels, five sugar companies and government owned Kenya Wine Agencies are top on its list of assets to be privatised.

The process of privatising government parastatals to plug a budget deficit stalled in 2010 after Parliament declined to ratify names submitted for the Privatisation Commission by then Finance minister Uhuru Kenyatta on the basis that the appointments were unprocedural.

This left the Treasury to rely heavily on borrowing from the public to offset budgetary shortfalls with domestic debt now nearing Sh1 trillion.

Finance minister Njeru Githae, however, appointed members of the commission in a Gazette notice on November 9, clearing the way for the sale of government assets.

The hotels targeted include Inter-Continental (International Hotels Kenya Limited), Hilton Hotel (Kenya Hotel Properties Limited) and Mountain Lodge.

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“The transactions that have been approved by the Cabinet include five sugar companies, three hotels and Kenya Wine Agencies,” Mr Solomon Kitungu said in an interview.

The sugar companies targeted for privatisation include Nzoia, Sony, Chemelil, Muhoroni, Kibos and Miwani, some of which are said to be in massive debts. The move to privatise them is expected to attract investors to help turn around their fortunes.

Under the Sugar (Amendment) Act, sugar cane farmers and outgrowers are entitled to 51 per cent stake in all government-controlled sugar companies which are set to be privatised.

However, the government would underwrite the farmers’ share through promissory notes that would help the companies to raise funds from external sources.

Committee approval

In October, a parliamentary committee approved a Sh11 billion investment plan by South African based Eaglefin Structured Finance Mauritius Limited to revive Miwani Sugar Company as government moves to privatise State-run sugar firms to raise efficiency ahead of the expiry of the Common Market for Eastern and Southern Africa (Comesa) guidelines restricting sugar imports.

Also, a privatisation programme approved by the Cabinet in 2008 targeted Golf Hotel in Kakamega, Sunset Hotel in Kisumu, Kabarnet Hotel, Mount Elgon Lodge, Mountain Lodge, The Ark Limited and the Kenya Safari Lodges and Hotels Limited.

Other parastatals to be privatised include Consolidated Bank, National Bank of Kenya, Development Bank, Kenya Meat Commission, Kenya Pipeline and East African Portland Cement.

In July this year, the Finance minister directed the commission’s chief executive to prioritise the sale of Kenya Wine Agencies Limited (KWAL) that would see it offload a 30 per cent stake to South Africa’s wine maker and seller, Distell.

Currently, the government owns a 72.65 per cent stake in KWAL through Industrial and Commercial Development Corporation, while Centum Investment has a 26.43 per cent stake.

Mr Kitungu, however, noted that the implementation of sale transactions was awaiting the conclusion of the presentation to the Finance, Planning and Trade Committee submitted to Parliament.

The proposals to conclude the transactions were made in 2010 and 2011 by the ministry of Finance in line with the requirements of the Privatisation Act.

The commission would also have to grapple with formulating how the national and county governments will share proceeds from the sale of State corporations.

The County Transition Authority will help in the separation and validation of existing assets and liabilities as either belonging to the government or the county government.

“However, the Commission is also empowered by Section 19 (1) of the Privatisation Act to review the assets and operations of a public entity for the purposes of determining whether to include a privatisation relating to the public entity in the privatisation programme,” Mr Kitungu said in the interview.

Section 22 (2) of the Privatisation Act states that privatisation can only be implemented under the Privatisation Programme.

This includes the transfer of a public entity’s interests in a State corporation or other corporation, the transfer of the operational control of a State corporation or a substantial part of its activities and any other privatisation prescribed by regulations.

The Privatisation Act further states that the proceeds from the sale of government stake shall be paid into the Consolidated Fund, while the proceeds from the sale of a State corporation’s equity holding shall be deposited in a special interest bearing account established specifically for that State corporation in order to protect the erosion of the balance sheet of the State corporation.