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Treasury to take over 40 parastatals in changes

 

Treasury to take over 40 parastatals in changes

 

More than 40 State-owned commercial entities including Kenya Power and KenGen will be transferred to the Treasury if an International Monetary Fund (IMF)-backed bill is adopted, giving the Finance minister outsized powers in tapping independent directors and reviewing the performance of the firms.

Treasury Cabinet Secretary (CS) Njuguna Ndung’u has published the Government Owned Enterprises Bill 2024, which seeks to cut the reliance of State enterprises on taxpayers through improved governance structures.

The shift will deny CSs control of the cash-rich parastatals that have been used as centres of patronage and rewards for political cronies.

Currently, CSs hire directors in the State-owned enterprises that fall under their ministries.

Another shift is that directors will elect the chair from among themselves, a departure from the trend where the President appoints chairpersons of the firms.

“The Cabinet Secretary for the National Treasury shall exercise ownership functions over the Government Owned Enterprises by… approving the establishment of Government Owned Enterprises; holding shares of Government Owned Enterprises in trust on behalf of the national government,” the Bill reads.

“The Cabinet Secretary for the National Treasury shall [be in charge of] nominating, through a structured, transparent and competitive search and selection process, persons to be appointed as non-executive directors of the Government Owned Enterprises (GOEs),” adds the Bill.

The goal for the William Ruto-led administration is not only to privatise government entities it considers a burden to taxpayers but also to significantly reduce the budgetary support to commercial enterprises such as Kenya Power and firms like Kenya Airways where the government’s stake is less than 50 percent.

A 2019 financial risk analysis of 18 major State corporations by the Treasury found that most of the firms had liquidity challenges due to unfavourable revenue and economic performance.

The CS represents the government in most of the SOEs and State-linked firms receiving dividends on behalf of the State, the line ministry plays a bigger role in their management.

With the proposed law, the Treasury will be the “one-stop reference” for all the GOEs in far-reaching changes Kenya promised the Washington-based IMF.

Kenya has 248 State corporations, out of which 46 are commercial enterprises while 201 are non-commercial.

A high number of commercial State corporations are concentrated in the transport and energy sectors, performing strategic functions. Non-commercial enterprises are mostly public universities and colleges.

A 2018 analysis revealed that 11 of these corporations were loss-making, while another similar number had high liquidity risk, which means they could not service short-term obligations when they fell due.

The proposed law expects GOEs to be run independently with little interference from the government, with the bill proposing to fully compensate these corporations when they undertake public services.

The Public Service Obligations shall be accounted for differently. They will also be audited separately and be time-bound in what is aimed at preventing State-owned enterprises from being choked by pending bills.

As part of its plan to restructure Kenya Power under the 38-month IMF programme, Prof Ndung’u in his budget speech last year promised to pay Sh19.4 billion that the power distributor owed to Rural Electrification Schemes under the last-mile connectivity in which customers in remote areas were connected to the grid even before paying for the services.

The government had promised the IMF to table the bill in Parliament before the end of May as part of the conditions for the programme that is aimed at helping the government to reduce its debt vulnerabilities, including fiscal exposures from State corporations.

“We will begin work on the legal reforms necessary to anchor the new ownership arrangements, corporate governance requirements and other measures outlined in the Ownership Policy and other necessary legal amendments to the National Assembly, once approved by Cabinet, by the end of May 2024,” Treasury CS and CBK governor Kamau Thugge told the IMF.

Several times taxpayers have been forced to bail out loss-making, commercially-driven State corporations, including Kenya Power where the State has a 51 percent stake. The government has also been forced to backstop troubled Kenya Airways by guaranteeing, and even paying, for most of its loans.

Should the National Assembly approve the proposed law, all State-owned enterprises where the government owns over 50 percent of the shares will be run purely for profit and in line with the Companies Act 2015.

State-owned enterprises listed on the Nairobi Securities Exchange such as Kenya Power and KenGen will continue to be regulated by the Capital Markets Act like the rest of the listed firms.

Moreover, minority shareholders will be given more representation on the boards of government-owned enterprises, by being allowed to elect directors to the board.

In December last year, Kenya Power, one of the State corporations targeted by the World Bank and the IMF-driven restructuring, amended its memorandum of association to allow for the election of four directors by minority shareholders.

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