KPC is a national asset that shouldn’t be sold

Apart from being a commercial entity owned by the government, the efficiency of KPC’s operations has a direct bearing on domestic petroleum prices. The price charged to oil marketing companies for pumping product is passed to the consumer.

Do we really want to involve private parties in the ownership and control of an entity whose mandate includes regulatory responsibilities and functions?

Given the inherently profit-driven inclination of private shareholders, any proposal to transfer control and ownership of such a strategic parastatal must only proceed after a national consensus has been reached.

We also need to examine and debate this privatisation proposal within the context of KPC’s role in the region. This is not an ordinary parastatal.

KPC is a strategic national asset whose efficiency carries major implications for the cost of doing business across East Africa. It is the spinal column of the region's petroleum sector.

If we alter its ownership and control simply to tick a box in a policy prescription document imposed by the Washington consensus, we risk triggering tensions and disruptions with ripple effects across the macro economies of Kenya, Uganda, Rwanda, Burundi, and eastern Congo.

We often forget that our East African neighbours are engaged in a continuous cloak-and-dagger contest with us over economic dominance. Remember when Kampala opted to route its oil pipeline through Tanzania on the dubious grounds of insecurity at Kenya’s coast — a claim that ignored the decades of security along the existing KPC wayleave?

Or when Kigali chose to develop a railway link through Dar es Salaam instead of Mombasa?

What’s my point? In the context of this ongoing economic rivalry, our competitive edge lies in increased public investment in infrastructure such as KPC — and in other cross-border facilities such as major transport corridors, seaports, inland container terminals, and waterway networks.

Yes, the government is cash-strapped, and it should not come as a surprise that it wants to unlock value from a mature asset such as KPC by floating shares on the bourse. KPC is among the few state corporations with the profit profile to meet listing requirements.

Read: Listing Kenya Pipeline on NSE can be a major gift to the public

But aside from the need for cash flow, what is the real justification for selling this family jewel? What has Kenya’s experience with privatising large, strategic parastatals taught us? That listing a large strategic parastatal providing critical infrastructure at the Nairobi Securities Exchange does not mean that you are going to get more capital to invest.

We often end up with a small elite of shareholders who are reluctant to contribute when there is a capital call. Yet the parastatals whose shares they hold provide critical infrastructure and require continuous capital investment. The burden of financing these investments ultimately falls back on the taxpayer.

Take the case of KenGen’s privatisation in 2004. The only group that truly benefited was the tiny elite that owns the 30 percent public float. They earn generous dividends every year from assets built with public funds, yet they consistently fail to show up when additional capital is needed.

Meanwhile, the taxpayer continues to service billions of shillings in government-guaranteed loans taken to finance KenGen’s projects — from power plants to geothermal drilling.

A look through the external public debt register shows billions borrowed from China and Japan, then on-lent to KenGen at concessional rates for geothermal development in Olkaria.

When KenGen launched a rights issue in 2017, the 30 percent shareholders failed to participate. The company had to offload billions of shillings’ worth of untaken shares to a South African pension fund — one owned by public sector employees in that country.

Today, the top 10 shareholders in KenGen include entities whose ultimate beneficial ownership is hidden behind nominee accounts, private equity funds, pension schemes, and sometimes even companies domiciled in tax havens.

We used to argue that privatisation protects strategic parastatals from political interference. Yet the government still appoints all the directors at KenGen, Kenya Power, and Kenya Commercial Bank.

KPC is a strategic national asset. It should not be sold.

The writer is the former managing editor of The EastAfrican.