When part of a listed entity’s stake is owned by the government, the rest of the investors spend sleepless nights- worrying over what decision the government is likely to take and how this will affect the company. In most cases, the government controls a major stake giving it key decision making responsibilities. 

Consider the recent resignation of the East African Portland boss, a government appointee, together with 5 other directors.  The move was said to have been sparked off by government intervention after the sacking of a director by the CEO.  Although the government owns less than half of the firm, the decision made by the government greatly affected its performance making the share price tumble and raising fears of suspension from the Nairobi Stock Exchange (NSE).  At a period when elections are just around the corner, such decisions can be highly politicized, greatly affecting a company’s performance in the long run.

A similar occurrence hit Kenya Power and Lighting Company (KPLC), Kenya’s monopoly power supplier, after it failed to agree on a bulk tariff with its supplier, KenGen. It has taken government intervention to create a short term solution to the problem with the future still being bleak for the two firms.

Where does that leave the ordinary shareholder in such companies?  Of course anyone who takes position in such ventures trades at the mercy of the government. These two are not the only public entities where the government has a stake.  Mumias Sugar Company, Kenya Commercial Bank, National Bank of Kenya, Bamburi Cement, KenGen Company and Kenya Airways are other examples. The government has made promises to relinquish control of these firms and let the private sector fully run businesses in the country.  It’s taken time however and as the Kenyans cash in on the government promises to give them a share of ownership, speedier action will be desired.

Looking at the woes surrounding the two power firms (KPLC and KenGen), both of which are partly government owned, it is clear that companies need full privatization to run profitably for the sole benefit of shareholder wealth maximization (SWM). 

To start with, the bulk tariff being too expensive for KPLC was not the only problem the company had to solve.  KPLC, if properly managed, would have been keen enough to seek lasting solutions like any good business.  Keenness would have meant capitalizing on the available power from KenGen which is cheaper than the available alternative of importation.  Next, KPLC should have sought internal cost cutting measures to help them maintain their profitability. We still know that KPLC like most other parastatals still operates on the huge power hierarchies which make decision making very difficult.  In addition the staff still demands huge benefits.  We also know that the company is marred by bad internal cost controls and poor management of billing systems. 

If the US$250 million feasibility venture by the government works out by the year 2008, then there could be great improvements in the company. But simple practices have to be sought before the grand projects can bear fruit. 

On the other side, if KenGen has a surplus 40MW power production, should they raise tariffs of their only client without due considerations?  Wouldn’t that leave them without a ready market for the already surplus power produced?  My opinion is, it should only have taken two CEO’s a week to agree on the issue and not ministers who have a ‘national’ interest as opposed to ‘business interest’. And now that the government offered a short term solution to the problem, shouldn’t the CEO’s of the two companies be debating on the next move?

Promises for the government’s divestiture may be music to our ears. What matters more is how soon this will be executed. The faster it is executed, the quicker we overcome the associated teething problems, and more so, the earlier we get to see the results. 

The challenge in the implementation of this lies in the past mistakes by the government that have burdened business, mostly the Financial Institutions to a point of near collapse.  Most affected was National Bank whose gross non performing loans stood at Kshs.33.74 billion compared to a portfolio of Kshs.25.27 billion as at June 2006.  The government, that holds the chunk of the non performing portfolio made a promise to bail it out but my concern would still be, how can that hold.  Shouldn’t they have given in to the earlier request by Stanbic to buy a portion of the non-performing debt portfolio?

We have witnessed bail outs by the governments in the past.  The latest being Uchumi Supermarkets, yet, currently the company is still trading on emotions.  Its full long term survival will not need the government but private investors who will not only inject in money but ideas and vibrant staff- free from the hierarchies that are characterized by government entities who appoint leaders to gain political mileage.