Category Archives: Kenya privatization

Kenya’s Money in the Past: Digital Kenya

Digital Kenya, by Bitange Ndemo and Tim Weiss, charts the rapid emergence of Kenya in the world of technology. Through stories and interviews with people in the sector, you learn about risk-taking and making policy from humble beginnings back in the mid-1990’s when the whole country shared 32 kbps, and the then telecom Kenya Posts & Telecommunications (KPTC) monopoly declared internet services as being illegal. At the time, KPTC was connecting about 10,000 users to the phone network, and with 77,000 potential customers waiting, they envisioned a 5% tele-density in Kenya by the year 2015. The tele-density in 2015 turned out to be 88% thanks to rapid changes that came after fibre cables and the cheaper mobile phones emerged.

One story is a narration of how, as a peace agreement was being signed in February 2008 to end the post-election violence in Kenya, the ICT Ministry managed to secure a guarantee to enable the laying of the TEAMS fibre cable that ultimately changed the face of ICT in Kenya. This came after the ministry had stepped back from another long-discussed  bureaucratic cable project – one called EASSY. This was one of the examples of government officials circumventing red tape for a good outcome. Another was the roll out of M-Pesa which is also cited here, ahead of regulations and thanks to some  individuals in government giving it their cautious blessing. Not all of them turned out well, and one case cited is of officials at the Postal Corporation sabotaging a land deal that would have led to the establishment in Nairobi of the headquarters of a multinational telecommunications organization.

There are many other stories that show issues of privatization, race, the lack of vision & finance, tech startups, the need for skills to scale, and the disconnect between local capital & the tech sector. It also shows the disconnect of ICT with both formal banking and also with the agricultural sector, two crucial links yet to be adequately bridged in Kenya.

Thanks to the Ford Foundation, the books is available free of charge and a free book download can be obtained.

Oil Pipeline, Economics & Politics

It’s been reported that the oil pipeline from Uganda is going to go through Tanzania, not Kenya. Two forgotten facts about the Uganda oil decision are that; (1) President Museveni of Uganda has been steadfast that he wanted to refine oil in Uganda, not export raw crude (2) Uganda’s oil has been said to be waxy or heavy. This means it would require complex heating to keep it flowing along a complex oil pipeline through the rift valleys and hills – to the coast of Kenya.

M7 poster 2

The cost, insecurity and difficulty of building infrastructure have been cited reasons that Uganda opted to go through Tanzania. Still Kenya has several LAPSSET projects on the cards including an oil pipeline to go to Lamu where there would be a new highway, railway, coal plant and modern, deep-sea port.

Pipeline Impact

Last year at the TDS Nairobi summit, during the 10th  Ministerial Conference (MC10) of the World Trade Organization (WTO), a session was held on local content in extractive (and oil) industries. Some interesting comments there included:

  • It is a legitimate objective for any resource rich country to try to maximize the value of its resources.
  • If a country puts restrictions on raw exports, it may distort the local economy; it creates artificial demand – and if it is not efficient, local related industries will not survive.
  • Kenya energy expert Patrick Obath suggested that Kenya, Uganda and South Sudan have to talk together and implement projects together for projects like the oil pipeline to be viable. That would also have to happen to get more value-addition from the oil in the countries e.g. can the countries plan to get fertilizer from oil?
  • With mining, you have 20 years of opportunity for local suppliers and jobs, but with an oil pipeline that’s only there in the beginning, then goes away once the pipeline is built (there wont be many local jobs after, and communities don’t get an economic boom from having an oil pipeline passing through their land..which may lead to some local frustration).

More on Kenya Pipeline:

oil tankers

  • The Kenya Pipeline Company is charged with transporting and storing of petroleum products.
  • A (presidential task force on parastatal reforms proposes the Treasury incorporate a holding company known as the Government Investment Corporation (GIC), into which Kenya Pipeline Company should be transferred to determine (its) intended privatization.
  • Meanwhile Kenya Pipeline is continuing with its projects including replacing the current Mombasa-Nairobi Pipeline.

Kenya Companies Act 2015

This morning, a session was held by the law firm of  Anjarwalla & Khanna in Nairobi to advise stakeholders abount the new Companies Act and Insolvency Act that are now law.

The Cabinet Secretary for Industrialisation, Adan Mohamed, said that the day when President Uhuru Kenyatta signed 4 bills into law – the companies act, insolvency act, special economic zones act and business registration act – was his proudest day in two years in the Cabinet.

Partners at the law firm explained various sections of the new companies act including:
  • It makes businesses easy to register and operate – and one person can form a company.
  • Memo (can be one page long) & articles are simpler
  • Role of the company secretary has been clarified. Corporate governance has been clarified with penalties for directors and management including for conflict of interest.
  • 30% local shareholding in a foreign company. Adan said this was a mistake that the government would rectify. The team from Anjarwalla & Khanna said that while the 30% rule  is probably constitutional it’s impractical, and the AG & government agree. They also explained that it is for new branches only – and does not apply to existing branches, or to any subsidiaries of foreign companies
  • It gives minority shareholders court powers if main shareholder/management are prejudicial or make bad decisions / transactions on behalf of the company
  • New company is able to do anything including borrow unless if it restricted
  • PE Investor oversight: Investors can attend board meetings as observers  and  without being directors or  legally bound by decisions
  • A company must have at least one natural person as a director (all companies have 6 months to rectify this)
  • Companies can buy back shares from other shareholders
  • Kshs. 6.75 million (~$67,500) is the minimum paid-up share capital for a public company (this will affect some land owning companies and large property developers)
  • Public companies need to know who beneficially owns their shares (the true owners behind proxies)
  • Companies are required to have websites and to publish financial statements online
  • Share buy backs are now allowed.
  • All shareholders have rights to preemption when companies create new shares – (and this can only be from profits, not new money)
  • MBO and LBO: Banks could not finance acquisitions, but now they can. e.g. Management can to a  bank and use the assets of the company secure financing to buy it or pay off foreign outgoing shareholders – (this opens another exit opportunity for investors)
Adan also said that the insolvency law, which previously was aimed on recoveries for secured creditors, is now focused on bringing insolvent companies back to life.
November 9, 2015.

Understanding the KQ & KLM Partnership

 The IFC-led privatization of Kenya Airways (KQ) in which KLM became a strategic partner, and shareholder, in the airline,  purchasing 26% of the Kenya government’s shares in the airline for US$26 million, and after which the shares of the company were listed in an IPO, was celebrated as one of the most significant privatization deals for a decade, until Kengen and Safaricom.

But that’s all in question with the recent loss announced by Kenya Airways with quite a bit of blame being directed at KLM for the position in which the KQ finds itself in. What does this entail?

A master cooperation agreement and shareholders agreement were signed between KLM and KQ in 1995, and a codeshare agreement and joint venture agreement followed in 1997.

KLM has seats on the board of Kenya Airways and some of the tenets of master cooperation agreement give any KLM director veto power over KQ decisions on:

IFC celebrates KLM's investment in KQ

IFC celebrates KLM’s investment in KQ

  • The appointment or dismissal of the Managing Director or Finance Director of KQ
  • The acquisition or disposal of any aircraft and any other variation in the size and composition of  KQ’s fleet. (KQ’s 2012 rights issue IM notes that following the approval of a 10 year business plan in July 2011,  KQ’s management embarked on implementing the strategic initiatives for the first five-year period. In particular, the Business Plan envisaged that KQ will acquire 46 aircraft over the period to March, 2016.) 
  • The allotment and issue of any shares
  • Entering into of any co-operation agreement with an airline that is a major competitor of KLM.
  • Material alteration KQ’s existing route network or material increase or reduction in the capacity on its routes
  • Material commitment or expenditure on sales and marketing or distribution of KQ’s products and services
  • Any sale of shares by the Government of Kenya to a major international airline.

Other notes from the IM and media

Global ticketing: In 2010, Kenya Airways became a full global airline partner of the SkyTeam global airline alliance, alongside KLM, having been an associate partner since 2007. KQ is currently the only SkyTeam member with significant operations in Africa.  With 14 SkyTeam member airlines, KQ’s passengers can take up to approximately 14,000 daily flights to 926 destinations in 173 countries. (So KLM helped KQ join? Will a break from KLM mean a break from Skyteam?).

Freight: In support of KQ’s expansion into freighter operations through the launch of a dedicated freighter business, the Board of Directors approved the acquisition of 12 freighter aircraft. In February, 2012, KQ introduced its first dedicated cargo aircraft, a Boeing 747-400F, to be operated in association with KLM and which was expected to fly twice weekly between Guangzhou, Nairobi and Lagos.

Passengers: This translated article hails Kenya Airways as being a jewel in the crown of KLM:  “The investment by KLM Kenya Airways is one that works out well for both parties.  Both companies fly each day between Amsterdam and Nairobi which there is a double daily connection..collectively the route has about one million passengers transported per year..

The cooperation agreement was expanded in November 2013: ..the collaboration was extended with the new routes London-Nairobi, Amsterdam-Entebbe / Kigali, Amsterdam-Lusaka-Harare and Amsterdam, and the Amsterdam-Kilimanjaro / Dar es Salaam. Kenya Airways and KLM jointly total around 44 weekly flights with a total turnover of over US$500 million.

However, this week, the KQ CEO said that the “In the context of the revenues and the costs on the routes in the joint agreement venture which we share 50-50, over the last three years, the route has been loss making,” ..and he said the Dutch Airline had since paid them a settlement transaction. 

Lamu, Kenya and Amu Power – Part II

See Part I of the visit to Lamu with Amu Power

After the morning session with the county officials, we had a chance to visit the planned site of the Amu Power coal plant at Kwasasi, on the mainland. This was my third visit to Lamu in four years, but my first chance to visit the mainland of Lamu County.

The Lamu islands are incredibly beautiful, and once you experience Lamu, you are unlikely to look at Mombasa the same way again. It’s a beautiful place for tourists to visit; boat rides, the endless beaches of Shela, the quaint town with tiny streets, curio shops, friendly residents,  ancient buildings, tasty foods served on roof top restaurants, and a world heritage status conferred on the town.

Also for tourists who come to Lamu, unlike travel to Mombasa where they have to contend with at least an hour of traffic around both Jomo Kenyatta and Moi airports, they can fly to Lamu having skipped the traffic bit by using Wilson airport in Nairobi, while in Lamu, there’s no such thing at traffic – as you land on Manda island, walk 300 meters and get on a boat that can get you to a hotel or villa within ten minutes. But while it’s beautiful for tourists, life is not getting better for residents. The boat rides are expensive, unemployment is high, and education is low, and the land has other challenges.

Mainland jettyTo get to the Kwasasi site, we took a 15-minute boat ride to Mokowe jetty where several taxis were waiting. Mainland Lamu, which borders Somalia about 100 kilometers away, has been in the news over the last two years due to sporadic attacks and incidents, with the most catastrophic being Mpeketoni in June 2014, where 48 people were killed by a terror gang.

The first stop after stepping off the ferry on the mainland was to drive to the local police station to collect some armed policemen that the company had hired for the day. After that it was a long drive over about an hour that covered about 30 kilometers on narrow dry dusty roads. Lamu County is said to have 6 kilometers of tarmac, but this main road on the mainland had none.

Eventually, we got to a Navy base, which also marked the edge of the port area. This was our starting point and we drove along the fence of the navy base, which had a road then away from the fence with satellite tracking devices to pinpoint the coordinates of the corners of the site and this took about two hours to navigate. Amu Power had contracted a landscape architect to produce real life drawings of what the plant would look like in the current environment, and he took several pictures at each corner of the site and strategic points on the road.

Kwasasi 1The site of the plant was a large plain field with sparse bush. This was a shock as I expected to find warehouse sheds, office and residential buildings to mark the edge of a LAPSSET (The Lamu Port Southern Sudan-Ethiopia Transport Corridor) port city. But the place was sparsely populated and devoid of structures or developments.

This was apparently communal land, but there were sticks in the ground to mark boundaries in some places and burnt bushes in other places presumably for cultivation clearing. In some places targeted for LAPSSET projects, speculators in the area have pushed up the price of land five times in the last few years.

Another shock was seeing many women and girls walking along the road with yellow 20-liter drum, full of water. This is an arid area, with few water points and the role of fetching water is one performed by women who walk long distances. We later stopped at one of Amu Power’s CSR projects, which were a series of water tanks at a  central point to which a company lorry delivers water every week for area residents to use. It should not be the business of prospective investors to provide water, but that’s the reality of doing business in many parts of the world, and the water delivery has made life easier, with more to be done.

Hindi water pointAmu Power has plans for the construction of a water desalination plant, which will be the first ever, built in Kenya, and the excess of this will be shared with the local community.

We left just before sunset and asked the taxi driver about the ongoing curfew that was in the area. He said it was still in force, but had been relaxed of late.

After we got back to the Island we had a few more talks to recap the day. Earlier, one of the community leaders has  talked of the challenges Lamu had faced and why it had remained largely unchanged 50 years after independence with issues like  water shortages, transport challenges and lack of roads. He said, while Lamu was poor, there had been resistance to several past attempts to introduce development projects  in the area– including a fertilizer plant, the new port (because it would spoil fishing), and wind power in Shela (because it would spoil the water).

Kwasasi 2The day after the visit, as we prepared to leave and fly back to Nairobi, we started hearing reports of the ongoing attack at the university in Garissa. The full scale of the attack did not become apparent till later in the day.

It is expected that President Uhuru Kenyatta will be in the area in a few weeks to commission the first three berths of the Lamu port that is set to be completed in 2019.

The port, crude oil pipeline, the coal plant in Lamu and Lamu-Garissa-Isiolo Road will raise the profile of Lamu and thus the government’s investments to enhance the security profile of the area. The fringe benefits of this infrastructure will be to open up the Eastern and Northern part of Kenya to development and settlement, the way that the British railway did over 100 years ago between Mombasa and Kisumu.

Clearly, not only is change coming to Lamu, change has to come to Lamu. The LAPSSET projects and the coal plant are about 30 kilometers from Lamu town and the picturesque islands that most people in Lamu are familiar; that’s about the distance from Mombasa island to Diani beach and its possible that the two will coexist and mutually benefit like the South coast neighbours.