Why history will judge MPs harshly on Infrastructure Fund

Efforts by the government to mobilise resources from non-traditional sources seem to have survived perceived public apathy, with indicators suggesting that the Kenya Pipeline Company Initial Public Offering (IPO) has been oversubscribed.

While the official IPO performance report and subsequent debut of the shares at the Nairobi Securities Exchange (NSE) are expected next week, insider information from sections of the press confirms that the sale has met its Sh106 billion target. This is due to a strong showing by institutional investors. Alongside the Safaricom private equity deal with Vodacom, the Treasury boss, John Mbadi, may now afford a smile.

With the billions lined up, eyes now shift to the fund that is designated to hold and manage them. The proposed Infrastructure Fund had a false start when the Cabinet purported to establish an escrow account without a legal framework from Parliament to appropriate monies into the Fund.

The government has tried to rectify this false start through the National Infrastructure Fund Bill, 2025. The Bill is undergoing the parliamentary process.

On the optics alone, there is absolutely nothing wrong with the government divesting from entities or sectors of the economy that can best be performed by the private sector. Governments all over the world undertake divestiture programmes to mobilise resources from the private sector or their citizens for public projects. A good case in point here is the President Kibaki-era IPOs, such as Safaricom and KenGen.

Therefore, the ongoing public discourse on the current divestiture initiatives has nothing to do with the technical rationale behind them, but rather a problem of trust deficit on the part of the public with its own government. This is easily noticeable from social media campaigns against the given valuation and negative advice towards investing in the IPO.

However, our eyes must now turn to the vehicle that the government has proposed to hold and manage the billions now almost guaranteed. The Cabinet-proposed entity was a fully government-owned private company under the CS in charge of the National Treasury.

According to the Bill before Parliament, this has been remodelled into a Fund within the purview of the Public Finance Management Act. The Fund’s purpose would be to scale up and accelerate the development of key national infrastructure in roads, rail, air, and sea transport, energy, water, irrigation, and agribusiness. The Fund targets mobilising private and non-traditional sources of infrastructure finance.

Specific proposed sources of funding under Section 29 are proceeds of privatisation and disposal of government assets, any monies appropriated to the Fund by Parliament, any fees or monies that may accrue to the Fund in the discharge of its mandate, and monies from any other source donated or lent to the Fund.

With the divestiture money now set to roll in, the question in the minds of many Kenyans is whether their money will be used for the intended purposes or whether it will disappear into private pockets like its cousins before it. This is a legitimate worry that MPs must take very seriously.

If history is anything to go by, there really seems to be no fund that the government has ever managed successfully and for the intended purposes. Similar funds have been used as conduits of plunder in other countries.

To be fair, there are some good additions in the Bill as opposed to the Cabinet Memorandum. As earlier alluded to, there is nothing wrong with the government disposing of its assets to mobilise funding for public projects. The Bill under consideration proposes a board with an independent chair, four independent directors, and two directors with proven experience in development banking. All these directors are to be selected competitively.

The board would then select its Chief Executive Officer (CEO) competitively, set performance targets, and evaluate him or her. The board would develop an investment policy every five years and an annual work plan to be approved by the Cabinet to guide project prioritisation and implementation.

Only one CS for the National Treasury or his nominee shall be a public official on the proposed board. Public officers and politicians are barred from appointment to the board for at least five years from their last date of public or political service. Immediate family members, including parents, children, or siblings of public officials or politicians, are barred from appointment to the board. These proposals seem to improve the governance structures of the Fund.

Having said that, and as a public finance practitioner, there are notable weaknesses that Parliament must address before it passes the Bill. First, Section 14 of the Bill proposes that the board set up an Audit Committee, with the majority selected from the independent directors. Audit Committees are important instruments of governing bodies to strengthen oversight.

In line with best corporate practices and other existing government regulations, the proposed Audit Committee should be strengthened by having two independent board members (outside the constituted board) selected competitively to serve only on the Audit Committee. The third member of the Audit Committee would be from the constituted board. The chair of the committee must be one of the two competitively selected members. This will enhance the independence of the committee’s oversight role over the managing board.

The second key weakness in the Bill is Section 16, which leaves a window for the CS for the National Treasury to designate the Fund Administrator in line with Section 24(5) of the Public Finance Management Act, 2012. The point worth noting here is that while the board is mandated to recruit its CEO, the power to decide who shall be the Fund Administrator is left to the CS for the National Treasury.

More importantly, the Fund Administrator is the one allocated the powers of opening and operating bank accounts and preparing financial reports of the Fund. Technically, this leaves a window where the board’s appointed CEO may not be the Fund Administrator, creating an absurdity in the Fund’s governance structure. This must not be allowed to pass in its current form. The Bill must exclusively designate the CEO as the automatic Fund Administrator.

Third, while the Bill provides for the board to develop local capacity to originate, structure, and negotiate complex projects and funding arrangements, Section 22(2) opens a contradictory loophole for the board to engage multilateral agencies of which Kenya is a member. This exposes the Fund to predatory arrangements from these agencies, as is currently the practice. Being a sovereign fund, the Fund must leverage local expertise alone to run its affairs.

Fourth, in order to achieve the desired sustainability aspiration, the proposal for the investment policy to lapse every five years must be varied to seven years. This is to divorce the Fund’s prioritised projects from the predatory and private greed of the government of the day. The country presently loses billions in vanity projects that are choreographed to serve private political greed and plunder public coffers.

Finally and most importantly, Sections 24(1) and (2) must be deleted from the Bill in their entirety. While the earlier sections establish an independent governing board for the Fund, this section claws back all this power and reverts it to the CS for the National Treasury. Technically, this reduces the board to a puppet of an imperial CS for the National Treasury.

For posterity, the rule of thumb must be that if we are going to dispose of strategic public assets, then the proceeds must, at a minimum, be used only for projects that offer integrational benefits to the country, and for no other purpose. To our MPs, history is watching!