Uncertainty surrounds the planned sale of 19 per cent shares of state-controlled power utility KenGen to a foreign strategic partner as news begins to filter that the Cabinet  had ordered  a “rethink” of the rationale behind  the whole idea of selling any more shares in  strategic infrastructure parastatals to private interests.

In a conversation with The EastAfrican, Energy minister Kiraitu Murungi  confirmed that the Cabinet had ordered a re-examination of the objectives of privatisation to determine whether sharing ownership of large infrastructure parastatals with foreign investors seeking quick returns was in the long-term interest of the country.    

“We have looked at privatisations in the infrastructure sector and are convinced that most strategic investors are risk-averse types who don’t take a long-term view in terms of capital expenditure,” he said.

Mr Kiraitu argued that the government was yet to realise any tangible value from selling 30 per cent of shares  in KenGen three years ago.  

The full  implications of the dramatic policy shift within the Cabinet is still not clear. But  it is sure to create major ramifications on the plans to bring in a foreign strategic investor into KenGen.

Indeed, KenGen’s privatisation plans are at an advanced stage. The transaction advisor  appointed in August last year to conduct due diligence and advise on both the timing and method of privatisation has already produced an inception report.

Chances are that KenGen may well turn out to be another playground for an emerging trend of turf wars between the Treasury and the Ministry of Energy over the country’s energy investment programme.

That turf war is behind failure by the government to reach a consensus on how to  structure guarantees to enable key energy independent power producers  reach financial closure.

Such have been the differences that even after the Cabinet  came up with what was hailed as an innovative formular of financing the five IPPs, the proposal would not see the light of day.

It is noteworthy that even as Mr Kiraitu was confirming that the Cabinet had   asked for a “rethink” on the intention to invite a foreign strategic investor, both KenGen and the Privatisation Commission were pleading ignorance about  the  change of policy at the Cabinet level.

“I have not  not heard anything about the Cabinet decision’, said KenGen’s managing director Edward Njoroge.

Speaking to The EastAfrican, the CEO of the Privatisation Commission of Kenya, while admitting that he may have heard about the new development from informal sources, clarified that the Privatisation Commission — which is the ultimate authority on privatisation  policy  — had not received  official communication from the government about a change of policy on  KenGen’s privatisation.

Investment Secretary Esther Koimet declined to comment, saying she was under oath to keep discussions  and deliberations  of the Pribatisation Commision secret.

If  the  shift in privatisation policy indeed happens, it will also affect plans to bring in startegic investors for the Kenya Ports Authority and the Kenya Pipeline Corporation.

Included  on the chopping block are National Bank of Kenya, Kenya Wine Agencies and sugar companies Chemelil, Miwani, Muhoroni, Nzoia and Sony.

The planned rights issue is the centrepiece of KenGen’s financing strategy, without which the company would breach its debt convenants to investors and possibly derail the development of key generation projects that are expected to generate cashflows that will help repay the Ksh15 billion ($187.5 million) corporate bond it raised last year and a planned Ksh10 billion ($125 million) bond it plans to issue.

KenGen has promised its bondholders that it would target a debt to equity ratio of 60:40 as a minimum threshold of maintaining a healthy balance sheet that is not overrun by debts. This means that for every Sh1 of capital it holds, KenGen will only borrow Sh1.50. to ensure it can keep up with debt repayment if bad times were to ever come up.

In developing the financial projections for KenGen, it has been assumed that the Company will maintain a debt/equity ratio of 60:40,» stated the prospectus, “At the existing debt level of Sh20.96 billion ($250 million) as at 30 June