Kenya's bold step towards carbon market regulations
Effect of the Enactment of the Privatisation Act, 2023
Market Insight 08 November 2023 08 November 2023
Regulatory & Investigations
On Monday, 9th October 2023, President Hon. Dr. William Ruto assented to the Privatisation Bill, 2023 at the Kisumu State Lodge, marking a significant shift in the legal landscape concerning the privatisation of public entities in Kenya. The Privatisation Act 2023 (the Act) replaces the Privatisation Act, 2005 which ushers in new regulatory dynamics for privatising public entities in Kenya.
Key Features of the New Act
At the core of the Act is the formation of the Privatisation Authority (the Authority), envisioned to replace the existing Privatisation Commission (the Commission). The Authority will possess a broader spectrum of duties and roles compared to the Commission. It is structured to guide the government, aid in executing governmental policies on privatisation, work alongside other institutions and ensure adherence to the Act, collaborate with other organisations within or outside Kenya, as it may consider appropriate in furtherance of the objects of the Act, implement specific privatisation proposals in accordance with the privatisation programme and oversee the execution of the privatisation initiative, indicating a more centralised approach to privatisation oversight.
Appointments of Members
Unlike the Privatisation Act 2005, the Act scraps the need for National Assembly approval when appointing members of the Authority, now the Cabinet Secretary will appoint the members who will be required to possess the relevant skills and competencies that may be necessary in achieving the objects of the Act. The conduct of the business and affairs of the Board are set out in the First Schedule of the Act.
The Act mandates the Cabinet Secretary to employ a comprehensive set of criteria while identifying entities for privatisation. This includes relevance to government policies, strategic priorities and policy goals to be achieved by the privatisation, potential benefits, strategic nature of the public entity to be privatised, avoiding unregulated monopolies, the need to avoid a privatisation that may accord the new owners' special protection or access to credit on concessionary terms as a result of the National Government's sovereign status etc.
During the formulation of the privatisation programme, the Cabinet Secretary is mandated to make appropriate consultations with persons who are likely to be affected by the privatisation of a public entity.
The National Assembly's role is to ratify the programme, with its execution entrusted to the newly established Authority. This is a notable shift from the Privatisation Act 2005 which involved a multilayered approval system, potentially reducing the timeline of the approval process.
Privatisation Strategies and Privatisation Agreement
Firstly, when an entity is earmarked for privatisation, the Authority is tasked with creating a comprehensive privatisation proposal. Any person, whether Kenyan or non-Kenyan, is eligible to participate in a privatisation, provided that it shall not affect the application of any other law imposing restrictions on participation by non-Kenyans. However, the Cabinet Secretary has the mandate to limit participation in any privatisation to Kenyans or ensure that there is a specified minimum level of participation by Kenyans in any privatisation.
The proposal, while aligning with the Commission's initial mandate, has been enhanced to include detailed information previously not mandated. Specifically, the proposal will now delve deeper into the entity's foundational purpose, operational achievements or shortcomings, the rights, entitlements, and resources dedicated to its establishment, and any recommendations for its continued success. In addition to this, the financial health and valuation of the privatisation venture will be detailed. Where applicable, a recommendation on how to undertake socio-economic investments to the host community will be considered. Additionally, stakeholder engagement is to be undertaken by the Authority while preparing the privatisation programme.
Secondly, the Act brings innovation in privatisation methods including introducing the sale of shares via public tendering as a novel approach. It still retains the traditional methods like initial public offerings and sales from pre-emptive rights. On the other hand, strategies such as asset liquidation, unless specifically approved by the Cabinet, are no longer recognised as privatisation methods. Notably, the sale through public tendering necessitates a competitive bidding process, wherein the evaluation of bids will be overseen by a committee comprising representatives from pivotal institutions like the National Treasury and the Authority, ensuring that the evaluations align with pre-defined tender criteria.
Upon approval and implementation of a privatisation, an agreement to give effect to a privatisation agreement shall be prepared which is to be binding once executed by the registered owner of the shares and countersigned by the Cabinet Secretary, but after the period of objections or appeals has lapsed. It is further noted that the Act caters for a situation where there would be an unregulated monopoly. In this instance, the Authority shall subject to the Competition Act to ensure that the agreement to give effect to the privatisation provides for the regulation of the monopoly and seek the approval of the Cabinet Secretary on the agreement.
Objections and appeals
If one is dissatisfied with the Authority's decision under the Act or the implementation of the privatisation programme, they may file an objection. This objection should be lodged and assessed based on the procedures in the Third Schedule of the Act. If still discontented with the Authority's judgment, an individual can appeal to the Privatisation Review Board, with the appeal's handling and resolution following the Third Schedule's procedures. If the Review Board's decision remains unsatisfactory, one can appeal to the High Court.
The recent enactment has profound implications for various stakeholders, encompassing investors, the general Kenyan populace, and public entities set for privatisation. The Cabinet Secretary, under the new provisions, has the discretion to restrict the level of privatization involvement to Kenyan nationals or stipulate a minimum Kenyan participation in privatisation activities. This could reshape the ownership landscape of public entities.
Furthermore, the Act aims to expedite the privatisation process, reducing the previously required steps by eliminating certain procedures. This streamlined approach is designed to attract more investors and catalyse the privatisation of more firms, contributing to private sector growth. Introducing the sale of shares through public tendering might infuse the economy with enhanced efficiency and competition. It also avails an opportunity for the Kenyan public to have a stake in privatized firms. A point to note is that the sidelining of parliamentary approval in the new Act might compromise accountability and transparency.
As Kenya embarks on this new privatisation chapter, the balance between progress and safeguards becomes pivotal. We urge businesses and stakeholders to familiarise themselves with the nuances of the Act. For more information on the Privatisation Act 2023 please reach out to us.