On 9 October 2023, the Privatisation Bill 2023 was assented to by Kenya’s President William Ruto to repeal and replace the Privatisation Act which was passed in 2005. The implementation of the new legislation commenced on 27 October 2023. Please refer to our previous article summarising the provisions of the Bill before it was enacted into law.
Below are the key changes to Kenya’s privatisation regime as introduced by the new legislation from a high-level perspective:
Transition of the existing regulator: Following the enactment of the new legislation, the Privatisation Commission is renamed to the Privatisation Authority. As the implementing agency, the roles of the Privatisation Authority include advising the government on all aspects of privatisation of public entities, facilitating the implementation of government policies on privatisation, implementing the privatisation programme and privatisation proposals, and monitoring and evaluating the implementation of privatisation programmes in Kenya.
Privatisation programme: Unlike the repealed legislation which required the privatisation programme to be prepared by the former Privatisation Commission, the new legislation requires the privatisation programme to be formulated by the Cabinet Secretary to the National Treasury, and approved first by the Cabinet and then by the National Assembly.
Parliamentary approval: In order to address delays associated with the parliamentary approval process, the new legislation requires the National Assembly to make a decision within sixty (60) days after receipt of the privatisation programme. Where no decision is made within ninety (90) days, the privatisation programme is deemed to have been ratified. The specific timeline is expected to expedite the process of privatisation going forward since the former legislation did not have similar time limitations.
Once ratified by the National Assembly, the privatisation programme is required to be published in the Kenya Gazette and is to be valid for a period not exceeding five (5) years from the date of gazettement. This period may be extended by the Cabinet Secretary to the National Treasury for not more than a further twelve (12) months.
The privatisation programme will set out all the public entities identified and approved for privatisation and is required to serve as the basis upon which any privatisation is to be undertaken. It is to be audited and reported on annually for enhanced monitoring and evaluation. Further, the Cabinet Secretary to the National Treasury is required to table an annual report on privatisation to Parliament (including the Privatisation Authority’s annual report).
Public participation: During the formulation of the privatisation programme, the Cabinet Secretary to the National Treasury is required to make appropriate consultations with persons who are likely to be affected by the privatisation of a public entity, including the public, relevant experts and representative organisations.
Methods of privatisation: The methods of privatization include initial public offer of shares; sale of shares by public tender; sale resulting from the exercise of pre-emptive rights; or such other method determined by the Cabinet. Although the sale of assets is not specifically listed as a method of privatisation (it had been included in the repealed legislation), where appropriate, the Cabinet has the power to approve privatisation through any other method, including the sale of assets (likely through public tendering).
Privatisation proposal: Where an entity has been identified for privatisation in the privatisation programme, the Privatisation Authority is required to prepare a privatisation proposal on the entity. The privatisation proposal is then required to be forwarded to the Cabinet Secretary to the National Treasury who is then required to submit it to the Cabinet for approval. Among other matters, the privatisation proposal is required to include the following details:
- The financial position of the entity to be privatised;
- The recommended method of privatisation;
- The estimated costs of implementing the proposed privatisation;
- Any recommendations for dealing with the employees directly affected by the proposed privatisation including any benefits they are entitled to;
- Where applicable, a recommendation on how to undertake socio-economic investments to the host community;
- The benefits to be gained from the proposed privatisation;
- A work plan for the proposed privatisation;
- Any information relating to the repeal, amendment or enactment of any law for the proposed privatisation to be carried out; and
- Any proposals on how Kenyans can participate in the transaction.
The agreement to give effect to a privatisation (privatisation agreement) is required to be executed by the registered owner of the shares and countersigned by the Cabinet Secretary to the National Treasury. Execution is to be delayed until the period for filing, determining and appealing an objection has lapsed. Objections are filed with the Privatisation Authority and where one is not satisfied with the decision of the Privatisation Authority, they can lodge an appeal with the Privatisation Review Board.
Once the privatisation agreement is signed, the Privatisation Authority is required to promptly publish a notice of the privatisation in the Kenya Gazette. The notice is required to specify a description of the entity being privatised and the transaction used to give effect to the privatisation; the names and addresses of the persons to whom the shareholding is being transferred (not applicable to a privatisation undertaken through an initial public offer of shares); and any other relevant information.
Valuation: To assist in the implementation of the privatisation proposal, the Privatisation Authority is required to appoint qualified persons to conduct a business and assets valuation for each privatisation. A public entity to be privatised is required to provide the Privatisation Authority with such true, complete and accurate information as may be necessary to effectively implement the privatisation within fourteen (14) days of receipt of a request for information from the Privatisation Authority. Any person in breach of this requirement commits an offence and is liable, on conviction, to a fine not exceeding KES 5 million or to imprisonment for a term not exceeding two (2) years. and payment of an equivalent amount of the gain made or loss incurred.
Utilisation of proceeds of privatisation: The new legislation has also effected changes in the utilisation of proceeds of privatisation. Proceeds from the sale of a direct national government shareholding are required to be paid into the Consolidated Fund, while proceeds from the sale of a public entity’s shareholding are required to be deposited in a special interest-bearing account established for that public entity’s privatisation in order to protect the erosion of the balance sheet of the public entity. These proceeds are then required to be credited into the Consolidated Fund within ninety (90) days.
The new legislation does not contain provisions allowing the public entity to utilise the proceeds in any way (which is a departure from the provisions of the Bill and the former legislation which allowed utilisation of the proceeds, including to settle debts and incur capital investments).
Ongoing privatisations: Following the commencement of the new legislation, the privatisation of public entities published under Gazette Notice No. 8739 of 14 August 2009 has lapsed and the process will have to be restarted under the provisions of the new legislation. Among others, these public entities include:
- Kenya Meat Commission,
- Kenya Energy Generation Company (KenGen),
- Kenya Pipeline Company Limited,
- Kenya Wine Agencies,
- Kenya Ports Authority (Outsourcing of stevedoring services, Eldoret Container Terminal),
- Chemelil Sugar Company,
- Development Bank of Kenya, and
- Consolidated Bank.
With the new legislation in place, we anticipate a more streamlined, more organised, highly monitored and more timeous process of privatisation in Kenya. We also expect the Cabinet Secretary to the National Treasury to publish relevant regulations, guidelines and forms under the new legislation.
Written by Mahesh Acharya – Partner at ENSafrica l Kenya, Meshack Mboya – Associate at ENSafrica | Kenya, Minna Mumma – Junior Associate at ENSafrica | Kenya and Wesley Omondi – Pupil at ENSafrica | Keny