Disruptions bad for state firms
From left: Vivianne Yeda, Francis Muthaura, Rita Okuthe, David Ngugi and Lewis Nguyai.
It has become a practice that when a new political regime comes to power in Kenya, public officials have to be replaced arbitrarily and the careers of board members and managing directors of parastatals terminated prematurely to create space for the new ruler to fill these positions with his cronies.
The appointment of the chairperson of the state-owned petroleum transport giant, the Kenya Pipeline Company (KPC), Ms Rita Okuthe, was last month abruptly revoked, nearly eight months to expiry.
The new chairperson, Ms Faith Boinnet, immediately fired the CEO, Dr Irungu Macharia, on the grounds that his three-year term had expired. It is a bizarre scenario because Dr Macharia insists he has been serving on a five-year contract that expires on January 1, 2025.
Even if we all agree that it is the turn of the new ruler’s tribesmen to eat, do these firings and revocations of appointments have to be applied with such crass insensitivity? The organisational disruption created by the rushed firings, the by-passing of normal succession processes and the arbitrary trashing of running contracts has left KPC with big holes at the top—a new board chairman and a new CEO in a matter of months. And the principal secretary in the Department of Petroleum, Mr Mohamed Liban, is an ophthalmologist.
The petroleum sector depends on KPC for its competitiveness. This is a company that serves as the umbilical cord of East Africa’s petroleum sector. KPC is among just four large state investments which contributed 86 per cent of dividend payments to the government in 2020. The others are Safaricom, Kenya Ports Authority and Kenya Airports Authority.
I picked those numbers from a 2021 World Bank study on fiscal risks of state corporations in Kenya.
Large strategic parastatals like KPC also contribute to revenues to the government in terms of corporate income taxes, return of surplus funds and proceeds from divestiture. When these large parastatals are governed recklessly, the risk of revenue losses in the event of unexpected revenue out-turns can be very big.
I do not want to comment on the substance of the legal dispute. Whether Dr Macharia is right in maintaining that his term expires on January 1, 2025 will be decided by the Employment Court. But the fact that something as rudimentary and basic as the term and tenure of a CEO can be made to look so messy is a big statement on the mess at the heart of corporate governance of this strategic parastatal.
Policy and procedure manual
Several questions arise. Since every parastatal must have an approved human resource policy and procedure manual, what does it say about the length of the tenure of the CEO? How did the controversy arise in the first place, and was there mischief in this entire saga?
Blame for the messy situation must be apportioned between three entities—namely; the management, the board and that medley Office of the President-based entity known as the State Corporations Advisory Committee (SCAC).
I have seen correspondence showing that in July 2021, the head of SCAC, Wanjiku Wakogi, wrote to KPC to inform them that the MD’s term was for a period of five years, renewable and subject to performance. It was on the strength of this letter that the board proceeded to write to Dr Irungu to extend his term from three to five years.
On October 8, last year, almost one and a half years later, SCAC wrote another letter reversing its earlier position and stating that the July 2021 letter that gave the MD five years was written in error. With this new letter from SCAC, the board had no leg to stand on the matter since SCAC, the ultimate authority, had ruled that the CEO’s term is three years.
Clearly, it is SCAC that is squarely on the spot on this matter. You increase the tenure of a CEO of such an important state corporation by two years and then come back one and a half years later, just a few weeks after the new government has been sworn in, to say that it was an error? Let them tell that to the birds.
What are the policy implications of the goings-on at KPC?
We need to repeal the State Corporations Act so that we can scrap entities such as SCAC and the Inspectorate of State Corporations and do away with the phenomenon known as “parent ministry”. The government’s powers should be made analogous to the power of shareholders of private companies.
Today, a total of four government officials sit on the nine-member KPC board as ex-officio members , representing the Attorney-General, the National Treasury, the Inspectorate of State Corporations and the Ministry of Energy. How do you avoid conflict of interest or inappropriate information sharing—for instance, between the ministry and the regulator—under such a corporate governance regime?
We must go back to the idea of creating the proposed Government Investments Corporation (GIC).
