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ECONOMY-KENYA: Shady Deals and Intrigues Haunt Privatisation

Analysis by Charles Wachira

NAIROBI, Sep 18 2008 (IPS) - The Kenya Railways Corporation was more than a national utility. It was a repository of Kenya’s history, beginning in the 19th century when indentured Indian labourers were brought to the East African region to build the Kenya-Uganda railway line.

At the Nairobi National Museum, majestic montages depict the legendary Lions of Tsavo that fatally attacked the Indian workers and the British colonialists overseeing the construction.

For Kenyans this part of their history was sacrilegiously violated by their government when it awarded a concession worth five million dollars in the mid-2000s to a South African firm, Sheltam Rail Corporation, which leads the consortium called Rift Valley Railways (RVR).

The transaction was arranged by the International Financial Corporation (IFC), a member of the World Bank Group and the largest multilateral source of equity and loan financing for private sector development in developing countries.

In the two years since the deal, 4,200 workers have been retrenched who are yet to receive their pay-outs while the retained 4,000 workers continue with intermittent industrial unrest over unpaid salaries.

Underlining the seriousness of the affair, the Kenyan government last month dismissed managing director and South African national Roy Puffet.

Workers have been left disenchanted in the aftermath of the sale. For example, Philip Muruini (48) had clocked 16 years by the time he was laid off from Kenya Railways Corporation in 2006. He had worked as a technician.

‘‘Up to now I’ve not been paid my dues. We were promised a handshake of 1,890 dollars and one month’s salary in lieu of notice. But two years down the road, we are only told to wait. For how long can one be patient when you have responsibilities, like feeding our families, paying rent, buying clothing?’’ asks the father of four. According to Billow Kerrow, opposition politician from the KANU party, ‘‘the concession was carried out hastily at the behest of donors and without parliament’s involvement.

‘‘At the time we as parliamentarians warned that the IFC, which acted as the transaction advisor, was driving an unworkable deal. We cautioned that RVR was only interested in asset-stripping. With hindsight, we as a country should subject the process leading to the sale of our public assets to the spirit of nationalism.’’ Kerrow was shadow finance minister in the previous parliament that ended in 2007.

The stage was already set in January 2006 for selling off national assets to foreign owned firms in a deal involving the national carrier, Kenya Airways. The Kenyan government capitulated to the advice of the IFC and off-loaded 26 percent of shares to KLM, the Royal Dutch Airlines, for 26 million dollars, the first step towards privatisation of a major African airline.

Other deals followed. National telephony outfit, Telkom Kenya, in late December 2007 flogged 51 percent of its shares to France Telecom for 369 million dollars.

Its subsidiary Safaricom Ltd, the country’s leading cellular provider, is partly owned by Vodaphone, a British firm, which has a 30 percent stake. Safaricom Ltd posted 17.2 billion dollars in pre-tax profit in the financial year ending March 31, 2008 to consolidate its position as the most profitable company in the East African region.

Less savoury transactions also followed. The latest strategic public goods transferred to a foreign firm under a cloud of controversy happened in mid-May this year when a Libyan firm, Libyan Arab African Investment, bought a landmark five star hotel called The Grand Regency for 45 million dollars which had been fraudulently built with public monies. It was apparently sold for a third of its value.

Libyan Arab African Investment is a subsidiary of Libya’s state-owned Libya Africa Investment Portfolio.

The Libyan government has since claimed that a memorandum of understanding signed in 2007 between Kenyan president Mwai Kibaki and his Libyan counterpart, Muammar Gaddafi, provided the oil-producing northern African state with most favoured status when investing in two core areas, namely the hospitality and energy sectors.

But the top honcho of trade and industry at the time denies this: ‘‘We went on a state visit. There was neither negotiation of any contract nor talk of disposal of any property. Maybe the negotiations were after the visit. There were also no promises made. We only encouraged legitimate interest,’’ says Dr Mukhisa Kituyi, former trade and industry minister.

Finance minister Amos Kimunya resigned in July this year over the scandal after parliament passed a motion of no confidence against him.

Given these shady goings-on, the disposal of national assets has understandably raised a furore.

According to Francis Awori, the secretary general of the Central Organisation of Trade Unions (COTU), an umbrella body representing workers, the government has no entitlement to publicly owned assets. It only holds them in trust.

‘‘It’s treasonable for a government to unilaterally sell public assets, particularly if the citizens feel their interests have not superseded those of the buyers. The way our strategic assets have been sold off to foreigners begs the question of whether governments over the years have really cared for their people.’’

However, the country’s permanent secretary in the finance ministry, Joseph Kinyua, insists that due diligence is carried out before privatisation, adding that where foreign firms are involved, Kenya’s national interests are always taken into account.

‘‘The Privatisation Commission, which was inaugurated early this year, understands quite well that the interests of Kenya override all other concerns. It’s very improbable that a national asset would be sold off at a loss,’’ argues Kinyua.

But suspect relationships between certain foreigners and the government complicate this picture.

In May 2006, two burly, gold-chain adorned men bestrode the Kenyan political terrain like colossuses. They were able to compromise the country’s security forces by leading an infamous midnight raid on a national television station before dropping the names of powerful government functionaries in a well-crafted act of intimidation.

Popularly referred to as the Armenian brothers – going by the names of Artur Margaryan and Artur Sargsyan – the duo were declared persona non grata three months after their arrival when it was alleged that they were mercenaries.

Bafflingly, no charge was ever slapped on them, an indication that a higher-up was keeping watch.

And, indeed, the midnight raid allegedly had to do with fears that the Standard Group, proprietors of the Kenya Television Network and the East African Standard newspaper, was about to run stories based on a damaging dossier on the Kibaki family.

This was a farce. But, next time round, it could be tragic.