PRIVATIZATION OF PUBLIC ASSETS AND ENTERPRISES BY THE GOVERNMENT

Privatization in Kenya refers to the transfer of ownership, control, and management of public assets and enterprises to the private sector. The primary goals of privatization are to improve efficiency, promote competition, attract investment, and enhance overall economic performance.

On October 9, 2023, President William Ruto signed the Privatisation Bill, 2023, repealing and replacing the Privatization Act of 2005. The new legislation took effect on October 27, 2023.

Key Changes Introduced by the New Privatization Legislation

1. Renaming and Establishment of the Privatization Authority: The Privatization Commission has been renamed the Privatization Authority, established as a fully functional body corporate with perpetual succession and a common seal.
2. New Roles and Oversight Board: The legislation introduces roles such as the corporate secretary and managing director, along with an oversight board. Board members include the managing director (ex-officio member), the Chairperson, the Permanent Secretary of the National Treasury or a representative, the Permanent Secretary of the Ministry of Trade and Investments or a representative, the Attorney General or a representative, and four appointees of the Cabinet Secretary for National Treasury.
3. Privatization Methods: Four methods are introduced: initial public offering (IPO) of shares, sale of shares by public tender, sale resulting from the exercise of pre-emptive rights, and any other method determined by the Cabinet.
4. Approval Process: The new legislation mandates the Cabinet Secretary of the National Treasury to formulate the privatization program, which must be approved by the Cabinet and then by the National Assembly. The National Assembly must decide within 60 days of receipt of the program, or it is deemed ratified after 90 days, expediting the process compared to the previous legislation.
5. Privatization Review Board: Established as the successor to the Privatization Tribunal, it determines disputes and appeals under the Act or any other written law.
6. Specific Offenses: The legislation outlines offenses such as providing falsified information about the privatization proposal, misleading valuations, and disclosing insider information. Offenders face fines up to Kshs. 5,000,000, imprisonment up to 2 years, or both.

Privatization Proposal Process

1. Preparation: The Privatization Authority prepares a specific proposal for each privatization, detailing the purpose, financial position, recommended method, costs, employee impact, socio-economic investments, benefits, work plan, legal amendments, and public participation.
2. Cabinet Approval: The Cabinet Secretary submits the proposal to the Cabinet for approval.
3. National Assembly Ratification: Once approved by the Cabinet, the proposal is submitted to the National Assembly, which must decide within 60 days or it is automatically ratified after 90 days.

Benefits of Privatization

• Increased private sector participation in the economy.
• Improved infrastructure and public service delivery through private investment.
• Reduced demand for government resources.
• Additional government revenue from privatization compensation.
• Enhanced regulation of the economy by reducing conflicts between regulatory and commercial functions.
• Broadened ownership base in the Kenyan economy.
• Increased economic efficiency and responsiveness to market forces.
• Development of capital markets in Kenya.

Recent Developments

Shortly after the new legislation was enacted, President William Ruto announced the planned privatization of several state-owned enterprises, including the Kenya Pipeline Company and the Kenyatta International Conference Centre (KICC). However, the High Court suspended the privatization of KICC and 10 other state corporations following a case by the Orange Democratic Movement (ODM) Party, which argued for public consultation and potential referendums for certain public assets. The suspension is in effect until February 6, 2024.

Despite this, on February 14, 2024, the Cabinet approved the sale of six additional state-owned enterprises, increasing the total number to 17.

Contact Information

For further information or legal assistance on compliance or any other legal issues, please contact us:

• Email: info@wka.co.ke
• Website: wakilihub.co.ke/
• Phone: +254 798 03 580
• Address: Nairobi Hub, Parklands, Valley View Business Park, 6th Floor, City Park Drive, Off Limuru Road

Please note that this newsletter provides a general guide and should not be relied upon without seeking specific legal advice.