Kenya

Kenya - Public Sector Management Technical Assistance Credit Project (Vol.1), 2000/11/24, PID9361, Project Information Document

Continued support to experts providing technical services to GOK's change initiative Complete ministerial restructuring and implement retrenchment plan covering civil service, teaching service, and other public service institutions -linked to the medium term expenditure framework (MTEF). Review the Public Service legal framework Modernize personnel policy and improve performance management Establish benchmarks for civil service performance and measure improvement in the quality of service delivery, and also conduct periodic service delivery surveys. Develop a decentralization policy that emphasizes devolution of power to local governments and adequate financial and personnel resources.

Kenya - Privatization and Private Sector Development Project (Vol.1), 2000/11/09, PID9328, Project Information Document

[T]he GOK has decided to undertake a comprehensive overhaul of key utility sectors, including postal, telecommunications, energy, water and transport, and categorically attract private investment and participation in these key sectors. The World Bank group, particularly the Private Sector Advisory Services (PSAS), provided active consultation to the GOK to conceptualize and articulate the overall strategy. The GOK's overall strategy is to, inter alia: (a) complete the on-going PE reform agenda through privatization of remaining commercial and industrial PEs on a priority basis, (b) establish a sound enabling environment providing private investors with clear and stable "rules of the games", through an adequate legal and regulatory framework; (c) restructure and open up the utility sectors to private participation, as a means to promote competition, improve operation efficiency, maximize the commercial orientation of infrastructure enterprises, and bring in much needed management expertise and investment funds and more importantly to improve the quality and coverage of infrastructure services; and (d) strengthen the technical and managerial capacity of privatization, regulatory and sector policy institutions.

The Project is expected to have a lasting impact on Kenya's business environment and the utility sector recovery. It will help GOK improve the competitiveness of the economy by supporting both the implementation of a comprehensive privatization program, including that of major utilities, and the development of competitive market structures through upgraded regulatory systems. By the end of the project, most commercial and industrial PEs will be transferred to the private sector and operated under private management. Utilities would be largely liberalized with several operators participating in different segments of the market, under competitive entry and exit conditions. These achievements are likely to be sustainable.

Kenya - Budget Support Credit Project (Vol.1), 2000/07/28, PID8966, Project Information Document

Loan Description: The credit is focused on reforms under way in the following five core areas which are considered to be triggers in our CAS. […]
* Implementation of a right-sizing of Government, consistent with a refocusing of the public sector on its core functions and the policy priorities of the IPRSP and MTEF.
* Implementation of a new and more ambitious privatization strategy.

Kenya - Structural Adjustment Credit I (Vol.1), 1997/09/05, PIC1418, Project Information Document

Since 1993 the Government has been pursuing an ambitious program of macroeconomic and structural reform. The key features of this program are a reduction in the fiscal deficit and enhanced monetary discipline; liberalization of external and internal markets; initiation of parastatal reform based upon restructuring of strategic parastatals and divestiture of non-strategic enterprises; and improved government management through reduction of the size of the civil service and reorganizing key ministries. Government performance under this program has been generally good, with some key exceptions. The overall fiscal deficit has been roughly in line with the program's target. Within this target, however, the composition of expenditures has differed somewhat from the original program, as government expenditure control was not fully effective and the government was called upon to make debt service payments on behalf of parastatals. The performance was more impressive in the area of liberalization as the Government moved forward rapidly on elimination of exchange controls and abolished all export taxes and virtually all export licenses. Partly in response to these measures, Kenya benefited from sizable short-term capital inflows attracted by high real interest rates; sterilization of this liquidity further increased the Government's debt service burden, contributing to the expenditure overrun. Internally, controls on prices and transportation of maize were removed, increasing returns to farmers.

During the program period, the Government would substantially accelerate progress in restructuring key parastatals and reducing the size of the Government portfolio. By the end of the period, all five of the major public enterprises will have been restructured or operating under performance contracts. These programs will involve increased managerial autonomy and accountability; divestiture to the private sector of non-essential activities; and reductions in staff size. In the area of divestiture, the Government will have substantially completed the initial program of privatizations and have initiated divestiture proceedings for a number of enterprises formerly classified as strategic. In so doing, the Government will rely to a greater degree on competitive bidding procedures and ensure greater transparency in divestiture transactions.

Civil service reform. During the program period, the Government will accelerate the pace of civil service reductions and ministerial restructurings. During the period, departures from the civil service via regular attrition or the voluntary retirement program will be at least at a rate 16,000 per year. With limits on new hiring, the result will be a substantial reduction in the total number of civil servants. The Government will be in the process of implementing reorganization plans for two ministries (Agriculture and Health) and have developed restructuring plans for four others. An additional six ministries will also be chosen for restructuring.

Policy Framework Paper 1996 - 1998, February 16, 1996

The Government has since 1992 been implementing a major civil service reform programme aimed at reducing the overall size of the civil service and achieving cost containment, and rendering the civil service more efficient by improving working conditions. To this end, the civil service has been trimmed by over 33,000 since July 1993.

Privatisation of 211 non-strategic public enterprises has started, with the Government divesting its holdings in over 100 firms (including 43 tea factories in which it turned over the bulk of its shareholdings to farmers) by the end of 1995. In addition, it has reduced its holdings in another six enterprises, including Kenya Airways, Kenya Commercial Bank and the National Bank of Kenya. The Government is also making progress in parastatal reform. Initial steps to restructure key public enterprises like the Kenya Ports Authority (KPA), Kenya Railways (KR), Kenya Power and Lighting Company (KPLC) and Kenya Posts and Telecommunications Corporation (KPTC), have begun. However, further steps will need to be taken in order to accelerate progress in this area and thereby improve on the low investment efficiency that limits economic growth.

To strengthen the broader financial system, the National Social Security Fund (NSSF) will be converted into an autonomous pension fund and necessary legislation will be presented to Parliament by end-December 1996. The legislation will stipulate, inter-alia, that members of the Board be elected by pensioners, and that the Board members elect the chairman. The conversion will be carried out with the assistance of the World Bank and other donor agencies and will include, inter alia, strengthening of information technology as well as an actuarial study by an external auditor. Meanwhile, the NSSF has been instructed to invest its revenue in government securities only, except for deposits in sound and stable financial institutions which will be limited to 15 percent of NSSF's total assets. An external audit of the financially troubled Kenya National Assurance (KNA) has been completed and specific recommendations have been made for its restructuring by end-June 1996. The general insurance business of KNA will be liquidated and the life insurance business will be operated as a closed fund. This means that no new insurance will be issued and most of the existing staff will be retrenched. Any financial impact will be reflected in the 1996/97 budget. To consolidate the soundness of the banking system, no new banking licenses will be issued before end-1996 except for large new entrants, i.e., banks with capital larger than K Sh 1 billion who are judged to offer credible competition to the existing large banks. Moreover, all prudential regulations will continue to be strictly enforced.

The first of three phases of the seven-year programme of the Civil Service Reform Programme, which is intended to increase the efficiency of the Service and to improve management capacity, is now underway. As indicated earlier, in order to improve the efficiency of the Service, the programme involves the reduction of positions and staff, implementation of staffing norms for all cadres, improved establishment control, rationalisation of selected ministries and pay reform. These actions will be taken consistent with budgetary resource availability. In line with the Government's previous commitments, staff reduction measures and the corresponding positions are to be reduced by 16,000 per year over 1995/96 and 1996/97, through natural attrition, voluntary retirement and position rationalisation. During the period January 1996 to June 1997, the Government will limit new hires to 3,000 per year maximum, i.e., no more than 1500 between January and June 1996 and 3000 between July 1996 and June 1997. This will imply net reductions in civil service of 20,180 over the period January 1996-June 1997.

National Cereals and Produce Board. The Government will by end-1996 transform the National Cereals and Produce Board (NCPB) into a commercially viable entity free to make independent commercial decisions. Experts will be engaged for this purpose. The experts are expected to begin work by June 1996, based on terms of reference agreed with the World Bank. Principles governing this commercialisation, including expanding the private sector role in maize marketing, and the interim operating rules for NCPB have been finalised.

Kenya Ports Authority.-To improve the efficiency of Kenya Ports Authority (KPA), the Government has requested Singapore Port Authority (SPA) to manage and operate the container terminal at the port of Mombasa.SPA has agreed in principle, and the necessary contract will be signed before the end of March 1996. KPA will also at that time have completed the re-negotiation for the two ten-year equipment maintenance contracts it entered into in 1994, limiting the duration of these contracts to five years and establishing performance guarantees and penalties. A performance contract between the Government and KPA will be completed before April 1996. The contract will include arrangements to implement the recommendations of the ongoing staff rationalisation study.

Kenya Railways Corporation. A programme for the restructuring of Kenya Railways (KR) which has already been initiated will be accelerated early in 1996, based on the paper to be considered by Cabinet in February 1996. It will include the separation of passenger and freight services, the discontinuation of loss-making services, the contracting out of locomotive maintenance, the divestiture of marine services, and staff reductions. The maintenance contracts will be signed by August 1996 and staff numbers will be reduced to 14,500 by the end of 1996. A performance contract will be entered into before the end of May 1996.

Kenya Posts and Telecommunications Corporation. The Government will issue, early in 1996, a policy statement spelling out the privatisation programme for Kenya Posts and Telecommunications Corporation (KPTC). Legislation will be presented to Parliament in March 1996 seeking to split KPTC into three separate entities: posts, telecommunications, and a regulatory authority. If approved, the three entities will be established by December 1996. The Government will open to outside investors at least 30 percent of the capital of the new telecommunications entity through the participation of a strategic investor and through public flotation. The entity will also engage in joint ventures with private investors in activities such as cellular telephones. As part of this process, KPTC has recently liberalised telecommunication services beginning with pay phones and Very Small Aperture Terminals (VSAT) for private operators. KPTC will also divest its non-essential services including workshops and buildings by September 1996.

The Government aims to complete by the end of 1997 the divestiture of 1 all remaining (96 entities) "non-strategic" enterprises . This will be done in two roughly equal installments. In addition, in 1996 work will be initiated on the divestiture of three formerly strategic enterprises: Kenya Pipeline Corporation, Kenya Petroleum Refineries and Nyayo Bus Corporation. The Government is progressively reducing its holdings to a modest minority shareholding in the National Bank of Kenya and Kenya Commercial Bank.

Policy Matrix:
1995/96 - 1996/97: Reduce staff levels and their corresponding positions by a further 16,000 a year. New hiring to be restricted to no more than 1500 during January - June 1996 and 3000 during July 1996 - June 1997.
Dec. 1997: Complete divestiture of remaining parastatals from original list in two roughly equal tranches.
Dec. 1996: Complete divestiture proceedings for Nyayo Bus Corporation
June 1996: Institute divestiture procedures for Kenya Pipeline Corp. and Kenya Petroleum Refineries.
June 1996: Reduce Government's position in National Bank of Kenya to below 25 percent.
Dec 1996: Reduce Government's position in Kenya Commercia Bank to less than 50 percent.
June 1996: Bring Gulf Marine Services to the point of sale
August 1996: Kenya Railways to contract out full maintenance of locomotives to private contractors.
Dec 1996: Kenya Railways to reduce staff level to 14,500
March 1996: Sign contract for external management and operation of the container terminal.

Letter of Intent and Memorandum of Economic and Financial Policies, July 12, 2000

Consistent with its privatization strategy (see below), and to help strengthen the financial system, the government is committed to selling the government's shares in the Kenya Commercial Bank (KCB). The offer for sale is scheduled for September 2000, and the transaction is expected to be completed by March 2001. The restructuring of the National Bank of Kenya (NBK) will be accelerated, including by intensifying efforts to collect or restructure nonperforming loans, and the bank will be privatized as soon as possible. The loan recovery effort will be supported by a substantial increase in the number of judges during 2000 to handle debt recovery in the courts and general banking litigation. To strengthen further the role of the Banking Supervision Department (BSD) of the CBK, the following measures have been or will be adopted: (i) in July 2000, the CBK will issue regulations establishing minimum capital adequacy ratios, and the amount of risk banks may incur in foreign exchange open positions, and it will clarify the reporting requirements of banks to the CBK; (ii) in July 2000, the CBK Board will adopt (and publicize widely) a written policy for prompt, progressive intervention (including through monetary penalties) for noncompliance by banks and their managements with statutes and regulations; (iii) by September 2000, the CBK will issue prudential regulations and policies, including, inter alia, on the amount of risk that banks may incur in lending operations, with a view to clarifying and expanding on prohibited activities; and (iv) by March 31, 2001, comprehensive amendments will be submitted to the Banking Act and the Building Society Act regarding the role of CBK in, inter alia, supervising all institutions involved in banking activities.

The government completed its preliminary functional review of ministries and departments and has defined core government functions, which are consistent with the objective of establishing an efficient and affordable public service. Accordingly, the size of the civil service (excluding teachers) will be reduced by 32,348 (15.5 percent of the total) during 2000/01-2001/02; of that total, 25,783 civil servants will be removed from the payroll by September 2000. In addition, the civil service will be reduced by about 8,800 employees over the two years through national attrition. The retrenched civil servants will be provided with adequate severance pay, in accordance with a plan developed with the assistance of the World Bank staff and donors. In addition to the expected improvement in the efficiency of the public service, this reform will allow the government to increase the allocation of resources to priority areas, and to gradually improve the civil service pay structure. Furthermore, under the same retrenchment program, about 7,000 employees of the public universities, the Kenya Revenue Authority, an agricultural research institute, and the Catering and Training Levy Trust will also be separated.

Under the first phase of the privatization program, which was initiated in 1992, the government privatized a large number of small and medium-sized enterprises, but progress in privatizing key utilities and transportation enterprises has been slow. In 2000/01, the government will accelerate the second phase of its privatization program on the basis of a new privatization strategy that emphasizes limiting the role of government in commercial activities, putting in place an appropriate regulatory framework, and using competitive bidding and other modalities to ensure transparency and fairness. This is being done with assistance from the World Bank. The Kenya Posts and Telecommunications Corporation has been split into TELKOM and the Postal Authority, and a regulatory body has also been created. Moreover, a license was provided to a second cellular telephone operator to increase competition in the sector. In this context, the government has offered for sale 49 percent of the government's share in TELKOM. The separation of Kenya Power and Lighting Company into power generation (KenGen) and power distribution (KPLC) is well advanced and will pave the way for the restructuring and privatization of both companies. Regarding Kenya Railways, the government decided to offer unitary concessions to private sector operators. The government's short-term strategy for the Kenya Port Authority is to improve the availability and reliability of container terminal handling equipment by refurbishment and replacement, while partly privatizing certain services of the port, including the container terminal, through a strategic partner.

Structural performance criteria and benchmarks
Offer for sale to a strategic investor (to be identified through a bidding process) by September 30, 2000 at least 26 percent of the Kenya Commercial Bank (KCB) with an announcement that the remaining shares of the KCB will be offered for sale to the market by March 31, 2001.

Interim Poverty Reduction Strategy Paper, July 13, 2000

In order to attract the large investment and management skills needed to expand and modernize the main road corridors from the port to the neighbouring countries, the Government will design appropriate road concession arrangements to attract the private sector to construct, maintain and manage the major highways as toll roads. The Government will initiate this approach first on the Mombasa-Nairobi-Malaba road.

Kenya Ports Authority (KPA): Poor management, inadequate port facilities, outdated equipment, and high corruption, have adversely affected the delivery of quality services at the port of Mombasa. The present container terminal, which is rated at 250,000 (Technical Equivalent Units) TEUs per annum, has reached capacity saturation while projections to the year 2015 are 630,000 TEUs. The short-term strategy will be to improve the availability and reliability of container handling equipment through refurbishment and replacement of equipment and tug masters. In parallel, the Government will privatise certain aspects, which include the container terminal specifically, of KPA's operations through a strategic partner during the period. The aim is to reduce the unit costs to the economy by 20-30% in the first 2 years.

Kenya Railways (KR): Use of outdated and inefficient locomotives and old railway line have resulted in high maintenance costs and unprofitable operations at KR. Efforts will be made to improve KR's telecommunications system; increase wagon availability by 25% in the next 2 years; complete the rehabilitation of 12 shunting locomotives; overhaul 35 mainline locomotives; and, relay 60 KM of the Nakuru-Kisumu branch line in this financial year with an additional 50Km being re-laid in the next financial year. This will increase capacity to haul more traffic, capture the lucrative traffic for North Western Tanzania, Rwanda and Uganda, improve transit times for the Mombasa-Malaba-Kisumu line to 3 days from 10-15 days within the next financial year. The strategy is to privatise KR through a 20-year unitary concession during the period. Assets not required for rail operations will be managed by a new organization called the Kenya Railway Assets Authority. Kenya Railways Regulatory Authority will be created to ensure the concessionaire observes acceptable safety standards and restrict monopolistic tendencies.

Eliminating excessive delays at the port which are a major source of inefficiency and excessive costs associated with trading in Kenya. While port privatization through concessioning is being finalized, strong measures are being undertaken to increase port efficiency including (i) appointment of new management (ii) reducing the number of clearance stamps required from 27 to the bare minimum. (iii) simplifying customs clearance processes, harmonizing documentation and reducing corruption. To this end, a "green list" of ethical traders will be designated and clearance processes will be further streamlined for them with the expectation that they will maintain complete records for post clearance audit.

The third area involves financial services for enterprises. The Government acknowledges that private institutions are best suited for implementing investment programs and that the role of the Government needs to be limited to establishing prudential rules which protect savers and investors but which allow adequate flexibility for private financial institutions to develop innovative instruments, modes and methods of finance. This said, Kenya's financial markets currently do not provide adequate credit to exporters, small firms ( especially growing micro-enterprises), farm producers, or women. In addressing this concern the Government proposes to: ( i) undertake with the World Bank a financial sector study, which will assess potential alternative institutional arrangements to provide trade and working capital finance especially for exporters, small enterprises and growing micro-enterprises whose credit needs are not provided through existing institutional arrangements; and (ii) review options to liberalize, reform and/or privatize other institutions in the financial sector, including the Kenya Commercial Bank (KCB), Post Bank, National Bank of Kenya (NBK), and the DFI's.

The operational structure of the entire public sector will be rationalized and reduced to reflect perceptions of the functions appropriate to Government. Rationalization across the civil service, defence and security forces, teachers service, local authorities, parastatals and all public institutions will result in cost savings. Concurrently, management must be improved to ensure that retained activities are undertaken more efficiently. In this regard measures will be undertaken to appoint managers and chief executives on contractual appointments to enhance effectiveness. Although increased budget allocations will need to be balanced against demands to reduce Government spending, long term savings from a reduced workforce, lower running costs and more efficient operations will be available to increase personnel emoluments, allocations to operations and maintenance and public capital investment.

Ministerial restructuring and retrenchment can now be introduced. Reorganisation, redeployment and necessary retrenchment will be carefully phased. It is now expected that some 48,606 public servants (42,419 civil servants; 1,095 KRA staff; 300 Catering Training Levy Trust staff; and 4,882 University staff) will be retrenched over the next two financial years2. This will require expenditure on retrenchment packages and safety nets but also include an operational complement control mechanisms and the definition of staffing norms within the "hard" ceilings set by the MTEF. Rationalisation is to be extended to the Teachers Service and all statutory organisations.

Restoration of transparent merit-based recruitment and promotion with due attention to merit based affirmative action.

Parastatal Reform: Government is committed to removing itself from business and commercial activities in the medium term. To this end Cabinet will adopt a new privatization strategy and programme, with an implementation plan that would set out the privatization transactions to be carried out with appropriate milestones. The machinery for implementing privatization will be re-invigorated and the process of privatization made more transparent. The means to enable wider citizen participation in the enterprises being privatized will be introduced. To enhance efficiency of parastatals that would not be immediately privatized, the legal framework that at present allows Government intervention in their operations will be reviewed. The aim would be to ensure that Boards of Directors and management are given autonomy to operate within their mandate and performance requirements while being accountable and responsible for their operations. Responsibility for decision-making on cost controls, pricing and competition will be separated from those concerning the disposal and restructuring of public corporations .

The immediate major focus will be to divest the large infrastructure and service enterprises with an initial concentration upon Kenya Railways, the Kenya Ports Authority and the Kenya Pipeline Company. Over the next 18-24 months, a strategy for the privatisation of Kenya Railways through a unitary concession to a private operator of the rail infrastructure, including passenger and cargo operations, will be implemented. Within a similar time frame, at least two concessions will be let for the operation of the container facilities at Mombasa. Necessary regulatory agencies will be established in both cases. A strategic partner will be sought to take over the running of the Kenya Pipeline Company.

The current restructuring of the power sector will be completed rapidly and attention focused on bringing in a strategic partner to improve the performance of KPLC and the optimum way to increase competition within the sector. Rationalisation of the sugar industry as a prelude to privatisation is a priority. Government control and intervention in the day-to-day running of the sugar factories will be markedly reduced, proposals to rationalise their operations developed, and an industry-wide mechanism for dealing with their debt situation adopted. Once these preconditions have been completed plans for privatisation will be drawn up. Plans to divest Kenya Reinsurance Company and further privatisation of Kenya Commercial Bank will be implemented over the next 18 months.

Increase remuneration for public employees over the medium term, with resources made available by the planned reduction in the number of public employees. -- 2000-03

Parastatals and Services for Privatisation
- Completion of the privatization of Telkom Kenya and the commercialization of Postal Services;
- Concessioning of Kenya Railways;
- Concessioning of the Container Terminal and other non core services of the Port to convert Kenya Ports Authority into a land lord port;
- Privatization of electricity distribution through Kenya Power and Lighting Company;
- Privatization of Kenya Electricity Generating Company (KENGEN) through an IPO;
- Privatization of Kenya Pipeline;
- Privatization of Kenya Commercial Bank;
- Privatization of Kenya Reinsurance Company;
- Privatization of Mumias Sugar Company through IPO and if necessary sale of a portion of shares to a strategic investor;
- Privatization of Chemelil Sugar Company;
- Privatization of Agro-Chemical and Food Company Ltd. (ACFC);
- Involvement of private sector in Kenya Airports Authority through the award of concessions;
- Involvement of private sector in the Water Department of the Nairobi City Council through the award of concessions;
- Privatization of Kenya National Trading Corporation (KNTC) through liquidation;
- Privatization of Pan African Paper Mills;
- Privatization of East African Portland Cement Company through sale of shares on the Nairobi Stock Exchange;
- Privatising the Kenya Meat Commission (KMC) factory at Athi River (Privately owned meat plant at Athi River in operation -- June 2002)