Tuesday, March 27, 2007

Kengen’s Raw Deal

The decision to split Kengen into two corporations is something to wary about. According to media reports, geothermal plants—which are wholly owned by Kengen—could be transferred to the state.

Here is the problem: The public already owns 30% of Kengen assets. They should subsequently own a third of the yet-to-be-incorporated Geothermal Company. But they might get nothing from the deal.

Yesterday’s Business Daily reported that geothermal sub-sector is worth about Kshs 15 billion. Publicly owned geothermal assets are therefore worth Kshs 4.5 billion, which is what the state want to take from capital markets. That’s another raw deal for Kengen shareholders, who were lied on tariff increase during IPO.

Bottom-line: The state must purchase geothermal’s Kshs 4.5 billion assets from the public or allocate them shares of the same amount in the new company. It is also hypocritical for the state to nationalize part of a company it recently privatized.

3 comments:

Ssembonge said...

When governments own the majority shareholding, there is always the risk of political decisions overiding sound business decisions.

I wonder how this plays into the rumours that Kibaki's golfing buddies have been increasing their KenGen holdings. Could it be that they are trying to drive the share price down with such 'news'?

coldtusker said...

Kenyanomics is right that 30% of the shares in the new firm should be spun off to the existing shareholders.

An alternate is to pay KenGen the value of assets in question.

The former is better since those shareholders who believe in Geothermal can keep or buy shares in the new entity.

I think GoK is trying to do too much too soon. They should divest 19%, then act on the split within the next 2 years.

Kenyanomics said...

Ssembonge--Am sort of buying into Kibaki buddies' story. They will stop at nothing to control the lucrative energy industry.

ColdTusker--It's weired that the state has kept mum on geothermal project's shareholding structure, or whether they will pay Kengen the 4.5 billion.

It still doesn't make sense why the state privatized Kengen only to hive-off 20 percent of the same.