Hasty merger of parastatals risky

First, the news. The National Treasury recently wrote to the state-owned Tourist Finance Corporation (TFC) — formerly Kenya Tourist Development Corporation (KTDC) — directing it to immediately freeze its operations.

The parastatal was also ordered to immediately suspend all payments, including disbursement of loans to clients. The CEO shall be held personally liable for non-compliance, said Treasury Cabinet Secretary Ukur Yattani in the terse letter dated June 30, 2021.

Instructively, TFC owns prime assets, including 33.8 per cent stake in Hotel InterContinental Nairobi and 40 per cent in Hilton Hotel. Other hotels it owns include Mombasa Beach Hotel on the North Coast, Voi Safari Lodge in Tsavo East, Ngulia Safari Lodge in Tsavo West, Kakamega Golf Hotel, Sunset Hotel in Kisumu, Mt Elgon Hotel and Kabarnet Hotel, and Bomas of Kenya.

Is it proper to cease operations of a parastatal that sits on and manages huge public assets in such an arbitrary and whimsical manner? How did the minister justify the decision to dissolve TFC? According to the letter, the Cabinet had made a decision that the operations of TFC and two other parastatals — the Industrial Commercial and Development Corporation (ICDC) and IDB Capital (formerly Industrial Bank of Kenya) — be merged to create a new entity called Kenya Development Corporation.

Yet the picture you see as you try to understand these developments is that of opacity and total confusion. 

Let me start with a bit of background about this new animal called the Kenya Development Corporation, to which billions worth of state assets are being transferred. The idea originated from the presidential task force on parastatal reforms of 2014 that recommended the establishment of a large cross-cutting development bank of the ilk of the Development Bank of South Africa (Debsa). 

The idea was to merge the state-owned development finance institutions (DFIs) to create a mammoth entity with capacity to finance some of the big-ticket deals and projects listed in the Kenya Vision 2030. The word “bank” was later replaced with “corporation”. I hear that the Central Bank of Kenya opposed the idea of using the word in the name of the new parastatal.

Still, the understanding was that everything was to happen according to the law, especially because some of the entities being merged were legal personalities established by their own Acts of Parliament. These laws were to be repealed and the Kenya Development Corporation established by its own Act of Parliament.

Plans changed

It seems things went according to plan — until mid-last year, when the National Treasury publicly circulated the Kenya Development Bank Bill 2020, which was meant to give the new entity legal status and repeal of the pieces of legislation that had created the three parastatals slated for merger.

Somewhere along the line, plans changed and the idea of going to Parliament to create the parastatal was dropped. Apparently, the National Treasury decided to take a shorter route by simply hiving off the three parastatals and vesting the billions worth of assets that they own in the proposed Kenya Development Corporation.

Whichever why you look at it, however, this is a very big risk. History has taught us that when you move and transfer assets of parastatals in an environment of confusion and without the involvement of the constitutionally mandated oversight body — namely, the Privatisation Commission (PIC) — you open the floodgates for corrupt elites, who are always angling to grab public assets on the cheap. 

I don’t want to impute improper motive — yet. But whichever way you look at it, the hotels and the land they sit on are exposed. The confusion and uncertainty surrounding these transaction is compounded by the fact that PIC has not had a board since June 2019 and is totally unable to perform its mandate. Five years ago, it unsuccessfully attempted to privatise TFC’s shares in the InterContinental.

It does not surprise that, with this key oversight body rendered useless and ineffective, we are now hearing that the InterContinental building is about to be sold off. As thing stand, the property may end up being subdivided into many tiny 10 by 10 units for the so-called “exhibitions” and the space sublet to barber shops, M-Pesa shops and retail outlets selling uncustomed electronic equipment from Dubai.

The government must stop the plans to lease the property to merchants and shopkeepers and think through how Intercontinental Hotel can be revived and how the state can eventually divest from this mature investment when prices are right.

After all, when you add TFC’s 33.88 per cent stake with the 12.99 per cent owned by Development Bank of Kenya, the government is the single-largest shareholder in this company. 

The lowest we can descend to as a country is to lease this iconic property to shopkeepers and land speculators.

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