Privatization

occurs when a government-owned business, operation, or property becomes owned by a private, non-
government party. Privatization may also describe a transition that takes a company from being publicly
traded to becoming privately held. This is referred to as corporate privatization.

Telkom kenya.

Telkom kenya is one of the state owned companies that underwent privatization

Liberalization in the Kenyan Telecommunications sub sector began earnestly in 1997 when the
government embarked on progressive liberalization and privatization within the sub-sector. Before
liberalization, services were delivered within a monopolistic public sector structure - the Kenya Posts
and Telecommunications Corporation (KP&TC), which combined regulatory and operational
responsibilities (Kandie, 2001). The sector was at the time plagued by inefficiencies poor coverage and
low network coverage. According to Ouma (2009), the deregulation of the communications sector in
Kenya was initiated by the 1998 Kenya Communications Act (KCA).

The Act unbundled Kenya Post and Telecommunications into five separate entities, including Telkom
(the fixed line 4 operator to invest in network infrastructure), the Postal Corporation of Kenya (Posta,
dealing with postal services), the regulator (the Communications Commission of Kenya - CCK) and the
National Communications Secretariat (NCS). Further reforms in the sub sector were as a result of Kenya
fulfilling its obligations under the WTO framework. These have led to the development of the ICT policy,
which entails reviewing of the policy framework for investment, competition and growth including
obligation of investors to universal access.

Telkom Kenya was established as a telecommunications operator under the Companies Act in April
1999

Liberalization of the telecom sector in Kenya has led to major changes in the telecom sector with
competing firms entering the market, new regulations being instilled, customer preferences changing
and generally the operating environment has changed. Telkom Kenya's partnership with France Telecom
Group which saw the launch of the Orange brand in Kenya has also brought many changes to Telkom
Kenya. The new 43 identity of Telkom Kenya is inspired by new investments and a fresh new approach
to doing business. Over the last decade, Telkom Kenya has undergone major changes in terms of the
manner in which it does business. From being a state-owned company, becoming a parastatal and finally
partnering with France telecoms group The company has changed its organization structure, its strategic
focus, its employee size and composition and also its management orientation.

The changes have been brought about by competition, market liberalization, technological
advancements and more demanding customers, in terms of requirements for an increasing range of
products and services. The key determinants that are currently influencing change and competitive
tactics are wireless technology, where it has increasingly become the primary access technology for
voice, data access, although voice is still the major money spinner for many years to come and
newcomers displacing the traditional telecommunications operators.
PRIVATIZATION ACT NO 2 OF 2005

An Act of Parliament to provide for the privatization of public assets and operations, including State
corporations, by requiring the formulation and implementation of a privatization programme by a
Privatization Commission to be established by this Act and for related purposes [Act No. 2 of 2005, L.N.
397/2007, Act No. 15 of 2013, Act No. 7 of 2017, Act No. 18 of 2018.

The act defines “privatization” as a transaction or transactions that result in a transfer, other than to a
public entity, of the assets of a public entity including the shares in a state corporation but excludes sale
of new shares to existing shareholders through a rights issue or any balance sheet reorganization which
may lead to dilution of the percentage of shares held by a public entity;

Establishment of the Commission ;

The Privatization Commission is hereby established as a body corporate. 4. Functions of the Commission
The Commission shall— (a) formulate, manage and implement the privatization programme; (b) make
and implement specific proposals for privatization in accordance with the privatization programme; (c)
carry out such other functions as are provided for under this Act; and (d) carry out such other functions
as the Commission considers advisable to advance the privatization programme.

A commission established shall carry out specific functions as stipulated in paper no 2 of 2005 act. The
benefits of privatization are

(1) In formulating the privatization programme the Commission shall have regard to the desired
benefits of the programme as described in subsection (2).
(2) (2) The desired benefits of the privatization programme referred to in subsection (1) are the
following—
(3) (a) the improvement of infrastructure and the delivery of public services by the involvement of
private capital and expertise;
(4) (b) the reduction of the demand for government resources;
(5) (c) the generation of additional government revenues by receiving compensation for
privatizations;
(6) (d) the improvement of the regulation of the economy by reducing conflicts between the public
sector’s regulatory and commercial functions

Privatization act also defines the process of privatization.

Privatization proposals by Commission.

24. Contents of privatization proposal.

25. Methods of privatization.

26. Commission to implement proposed privatization.

`27. Steering committees.

28. Privatization to be competitive to obtain fair price.

29. Eligible investors in privatization. 30. Publication of notice of proposed privatization.

31. Valuation required for each privatization. 32. Information to Commission about asset, etc., to be
privatized.

COST OF DOWNSIZING

The first challenge was in retrenchment. According to the respondents, the company lacked a clear cut
way to differentiate between unproductive and productive employees. There were instances mentioned
by the respondents where management disagreed on who and how employees were to be retrenched.
The respondents indicated that in some instances, post-downsizing reasoning by management indicated
that Telcom Kenya needed to re-hire and therefore ending up spending more than had they refrained
from downsizing in the first place hence this has been unsustainable to Telkom Kenya.

COST OF CHANGE

Cost of changes was another challenge. The downsizing and other major changes have been managed in
phases to manage the counter effect and also to make it affordable to the government which was main
stakeholder until the arrival of France telecoms. Resources to pay the retrenched employees their
severance packages has not been forthcoming as scheduled due to the unpredictability of resources
from the government and the politics which has dodged the process over the years.

Cost of technical know-how

Further, the new employees who take management positions at Telkom Kenya lack the firm’s history
and culture and are therefore likely to repeat past mistakes.

• Hidden and indirect costs

Governments often fail to account for hidden costs, like contract monitoring and administration and the
contractor’s use of public equipment and facilities. These costs can add up. The Government Finance
Officers Association estimates that indirect and hidden costs can add up to 25% to the price of the
contract, often making privatization an uneconomical choice.1

• Inaccurate cost-benefit analyses

Research shows that cost overruns are fairly common in privatization contracts due to misleading cost-
benefit analyses and projections, loopholes, and high indirect costs. This was especially apparent in a
recent study that examined contracting in school districts. In a review of cost-benefit analyses that
school districts used to justify their contracting decisions, researchers found that financial figures were
based on faulty assumptions, old data, or no reason at all, making cost savings appear probable. In
reality, these school districts often lose money instead of saving money.2 Indirect costs that the school
district must incur, such as preparation time for the Request for Proposal (RFP), contract management,
and attorney hours for contract review are often not included in the cost-/./;.iobenefit analysis either.
• Cost overruns and change orders

Many contracts do not place caps on costs and/or allow the contractor to charge higher rates for
additional services that crop up in the course of the contract. These provisions allow the contractor to
bill the government for more than the base amount. This causes “sticker shock” to the government
when bills from the contractor come due.

3 • Bringing public functions back in-house Governments that privatize often report insufficient cost
savings. According to a 2007 survey by the International City/County Management Association, the main
reason local governments consider private service delivery is to decrease costs. However, 52% of local
governments that brought services back in-house reported that the primary reason was insufficient cost
savings.

BENEFITS OF PRIVATIZATION

1. The improvement of infrastructure and delivery of public services by the

involvement of private capital and expertise;
2. The reduction of the demand for government resources;

3. The generation of additional government revenues by receiving compensation for

privatizations;
4. The improvement of the regulation of the economy by reducing conflicts between
the public sector’s regulatory and commercial functions;
5. The improvement of the efficiency of the Kenyan economy by making it more
responsive to market forces
6. The broadening of the base of ownership in the Kenyan economy; and

7. The enhancement of the capital markets.

REFFERENCES

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