Kenya: May clash with donors

The state corporations include the Kenya Commercial Bank, Kenya Re-insurance Corporation and Telkom Kenya. 
Sources said that the government was opposed to the sale of the remaining parastatals to strategic investors following gross undervaluation of both Kenya Re and Telkom Kenya by Zimbabwe's Zim Re and a consortium led by Zimbabwe's Econet Wireless, respectively, last year.
The new thinking, said sources, was that parastatals should in future be sold through Initial Public Offers (IPOs) at the Nairobi Stock Exchange to give broad ownership to Kenyans. 
"Any group wishing to have a stake in the entreprises can do so through subscription during the IPOs," a source said.
Planning Minister Prof Peter Anyang' Nyong'o was non-committal on the policy with regard to strategic investors. However, he said no enterprises would be sold until a privatisation law that will issue guidelines on divestiture is enacted. 
Parliament is expected to pass the law that proposes the establishment of a privatisation commission once it resumes sittings next month. Privatisation would however be delayed further until the commission becomes operational. 
"No privatisation will be done until the law is enacted and the commission is functional," Mr Nyong'o said. The commission would also determine the parastatals from which the government would divest depending on the nature of services they render, he said. World Bank officials could not be reached for comment over the issue. 
However, sources said the government wants to re-orient the parastatals so that they could play a meaningful role in an ambitious economic recovery programme that targets an 8 per cent growth rate and industrial status by 2025, creating 500,000 jobs a year in the process.
It is thought that the Kenya Commercial Bank, in which the government still holds a 35 per cent interest, will be refocused to offer more credit to the agricultural sector. 
The Minister for Agriculture, Kipruto arap Kirwa, recently suggested that KCB would be called upon to offer management for the Kenya Co-operative Creameries, which the government intends to repossess from KCC 2000, which bought the farmers body last year.
The government also believes that with continued prudent management, it can fetch more for the parastatals. With KCB's bad debt portfolio showing signs of being surmounted, the company's share price has risen from Ksh7.50 (9.5 US cents) to Ksh49.50 (60 US cents) last week, nearing a high of Ksh52 (65 US cents) recorded over the last one year.
Had the government sold its stake in 2000 as intended, it would only have raised Ksh14.50 per share, earning Ksh760 million ($9.5 million) compared with the Ksh2.6 billion ($32.5 million) that it would raise at current market prices. The government owns 52.4 million shares out of the 149.6 shares that are fully paid. 
Telkom Kenya is being looked at afresh in view of the recent growth in the telecommunications sector globally just a year after talks for the sale of a 49 per cent stake in the parastatal collapsed, with the preferred bidder Mount Kenya Consortium offering $320 million.
Former President Daniel arap Moi described the price as too low as the consortium argued that demand for fixed telephony was on the wane. The government is now seeking a review of Telkom Kenya's role with regard to increased penetration in rural areas and what kind of management would ensure optimal delivery of services.
"The privatisation commission will review what kind of management is necessary for each parastatal on a case by case basis," Prof Nyong'o said. The decision on the future of Telkom would largely affect the operations of proposed regional telephone operators who, despite winning bids in 2001, are yet to start rolling out the infrastructure.
Sources said that the regional operators want the licence fees charged for their services to be lowered. It was not however possible to confirm what licence fees they were seeking as the Communications Commission of Kenya (CCK), the regulator, failed to respond to enquiries by The EastAfrican.
However, information on the CCK website shows that regional operators are required to pay Ksh10,000 ($125) in cash and 0.5 per cent of their gross turnover in annual licensing fees. A decision not to privatise Telkom but to open it to competition is understood to be behind the intended licensing of a second national operator next year.
The government resolve to raise more from the parastatals has been bolstered by operating results for the year 2002 released by Kenya Re last week and which showed a profit of Ksh252 million ($3.3 million). 
Were the profitability to be maintained, the corporation would raise the Ksh500 million ($6.25 million) that Zim Re was offering for the parastatal last year.
Zim Re's offer was considered ridiculous given that the corporation has net assets valued at Ksh3 billion ($37.5 million), including Ksh1.1 billion ($13.75 million) in current assets. The sale was stopped under a storm of protests over the undervaluation as Prof Nyong'o, then an opposition legislator, sought to block the sale through the courts. 
Zim Re's bid was being fronted by Monarch Insurance, a company associated with the son of a then-influential politician. Zim Re's argument was that Kenya Re's properties were grossly overvalued. The company is presently reconstituting its property portfolio, an exercise that will see idle properties across the country sold.
"Commercial properties are tied to the life fund, which is long term, and they ensure a steady income stream," one source said. The company last week advertised the sale of several of its properties.
The undeveloped properties are being sold to boost cash reserves to a level that surpasses the technical reserves (outstanding claims) of Ksh2.1 billion ($26.3 million) to give the company global competitiveness. 
Kenya Re's international business has grown from Ksh134 million ($1.7 million) in 1998 to Ksh282 million ($3.5 million) last year. Its strategic value is being viewed in terms of retaining foreign exchange locally, which would otherwise be ceded to international reinsurers by local underwriters.