Why Ruto is under fire over Safaricom, KPC sale

The government’s push seen in recent weeks to sell its stake in Safaricom and the Kenya Pipeline Company demonstrates Kenya Kwanza’s resolve to sell what is deemed as strategic national assets, despite the protests by many Kenyans. 

In the last week, Parliament has been receiving public views on the sale of National Treasury’s 15 per cent stake in Safaricom to Vodacom, a move that will dilute government’s stake to 20 per cent, while increasing Vodacom’s shareholding to a controlling 55 per cent. 

On Monday, the government launched KPC’s Initial Public Offer (IPO), which will be the biggest in the region in more than a decade. Through the sale of a 65 per cent stake in KPC, the government expects to raise Sh106 billion.

Critics have denounced the government’s move as auctioning Kenya, noting that the two firms do not fit the bill of firms that the government should dispose of. This is on account of the critical role that they play in Kenya’s economy in the telecommunications and energy sectors. They also note that the government has numerous options in state owned entities that are inefficient and loss making.

The government hopes to raise Sh244.5 billion through the sale of a 15 per cent stake to South Africa’s Vodacom, which is owned by UK’s Vodafone. The funds, as is the case with proceeds of the KPC privatisation, would be used to plug holes in the budget for the current financial year but also as the seed capital for the planned Sh5 trillion National Infrastructure Fund and the Sovereign Wealth Fund.  

And while Kenyans have offered different takes on different issues surrounding the sale including the strategic nature of Safaricom and termed the Sh34 a share that the government is getting as a raw deal, more details are emerging, further giving credence to the claims of auction of critical national assets. 

Yesterday, Kiharu MP, Ndindi Nyoro claimed there are individuals and entities manipulating the transaction, alleging that they have been negotiating on behalf of the government even without any contractual engagement with Treasury.

Yesterday, he told the two committees on Finance and Planning and Public Debt and Privatisation that there are ulterior motives in the transaction and as he sought full disclosure of parties involved in negotiating on behalf of Government from the start of the process. 

He claimed that some of the persons who represented the Government are neither contracted nor civil servants and now wants the Treasury to produce a list of those who negotiated on behalf of the Government.

According to him, the best way would have been for the government to cause a demerger that would see Safaricom separated into three entities before the sale. These are the telecommunications business, financial services and towers business, noting that the sum total of the three entities would be valued much higher than the whole. 

He also proposed listing Safaricom in a global and mature market like London Stock Exchange to give the company the required visibility. 

“I would request clarity from the Government on individuals who were involved in the negotiations. It is apparent that some of the people who participated in the negotiations ostensibly representing the people of Kenya are not public officers or servants and are not officially contracted to act on behalf of the Government,” Nyoro said.

Nyoro was among the first people to oppose the Safaricom sale citing the Sh34 per share prices as low compared to the historical high that Safaricom has hit, among other reasons.

He further defended his position that the share, while a premium of the Sh28 the stock has been trading at in recent past was still an undervaluation as it did not consider factors such as the telco’s Safaricom’s foray in Ethiopia, which would put Safaricom’s valuation much higher.

The Kiharu legislator is no longer a lone voice in pushing for a better and open transaction. 

The Institute of Certified Public Accountants of Kenya (ICPAK) also raised concerns questioning the valuation methodology and long-term fiscal impact. The accountants body argued that the Sh34 offer sits significantly below Safaricom’s 2021 all-time high of Sh44.7 a share.

“Monetising future dividends means future administrations lose a dependable revenue source,” said ICPAK Chairperson Elizabeth Kalunda, also making submissions before the twin committees of Finance and Public Debt and Privatisation. 

She further noted that the deal would increase Vodacom’s shareholding to 55 per cent, granting them majority control and potentially reducing the government’s leverage in strategic decision-making.

Kalunda also criticised the use of a private transaction over a public offering, suggesting it could undermine public confidence in the Privatisation Act 2025 and complicate future privatisation efforts.

“Increased Vodafone ownership may enhance access to global expertise, technology transfer and operational best practices, benefiting Safaricom’s operations in Kenya and Ethiopia, while the transaction signals implementation of the Privatisation Act 2025 and demonstrates commitment to leveraging private capital for development,” said Prof Kalunda. 

The Law Society of Kenya (LSK) has also taken issue with how the Treasury is undertaking the proposed transaction. The body has proposed the postponement of the divestiture until a transparent and independently verifiable and competitive sale structure is in place as per Article 201 of the Constitution.

LSK President Faith Odhiambo told the MPs to consider the legal, social and economic factors and risks arising in the sale of such a critical asset to a foreign entity.

Odhiambo said that while the LSK agrees with the government on the need for debt-free infrastructure funding, the divestiture must guarantee future local availability of these entities that were built and sustained by Kenyans from the ground up.

She also said that Safaricom, although a publicly listed company, is regarded as a national asset by virtue of its market dominance, its central role in telecommunications and mobile financial infrastructure through M-Pesa, and its position as a bellwether stock at the Nairobi Securities Exchange.

“The government of Kenya holds shares in Safaricom PLC in trust for the people thereby rendering such shareholding a public asset subject to constitutional safeguards,” she said.

“We propose a comprehensive fiscal impact assessment before any reduction of its shareholding, quantifying the long-term loss of dividend income, strategic influence and wider economic spill-overs against the projected benefits of the proposed sale. Such assessment should incorporate long-term valuation benchmarks rather than short-term market averages, evaluate the appropriateness.”

Stephen Mutoro, secretary general, Consumers Federation of Kenya (Cofek), commenting in the recent past noted that if the state has to cede a stake in Safaricom, it should be to Kenyans even as he noted the regulatory complexities that would come with increasing Vodacom’s stake. He argued that if the government must exit, “the only fair and constitutional route is broad public ownership, not handpicking a foreign giant. Kenya deserves markets, not monopolies.”

“Safaricom is not an ordinary company – it is Kenya’s most dominant telecommunications firm,a systemic financial infrastructure provider (via M-Pesa), a major taxpayer and a symbol of Kenyan enterprise built overwhelmingly by Kenyan consumers,” said Mutoro in his presentation to MPs, adding that Kenyans were raising fundamental questions that Treasury and other government agencies have been dismissing.

“Why does the transaction appear structured to favour Vodacom, a long standing strategic partner? Why were retail investors not clearly prioritised, despite Safaricom being listed on NSE? Why is the process perceived as predetermined, with public participation reduced to a formality?” 

The sale of Safaricom stake is part of government’s broader privatisation plan, with other state owned entities slated for sale in the short term including KPC, another firm that analysts argue is of strategic importance and called for disposal of other less strategic but also non profitable entities. 

“Selling productive assets such as Safaricom and Kenya Pipeline Company to finance inefficiency and living large for the privileged in government is neither sustainable nor justifiable,” he said. “Parliament must ensure asset disposal is a last resort, not a convenience as demonstrated in the Kenya Pipeline and Safaricom cases.”

In a recent interview with Standard Group’s Spice FM, Ken Gichinga, Chief Economist at Mentoria Economics said entities such as KPC and Safaricom remained strategic and should remain in government hands. Instead, he said, the government should consider disposal of entities that would benefit from injection of private capital as well as expertise and efficiencies. Safaricom and KPC are unlike numerous other state firms that have for years survived on bailouts.

“I believe that energy is a critical part of national security and that means that KPC should be firmly within the state’s ambit… energy is probably one of the most important aspects of a country’s sovereignty.”

“As much as I am pro-privatisation, I do not think KPC was a good choice. In privatising, you want to start with loss making entities, those weighing down on the State.” 

Aside from energy, Gichinga also noted in ceding control of Safaricom, it would be partly ceding control of M-Pesa, which is key to Kenya's monetary independence. 

Ruth Kinyanjui, an economist, however looks at the privatisation of state entities as having a silver lining, noting that the part sale to the private sector of Kengen and Safaricom had propelled the two companies into being giants in their respective sectors. 

“Looking at how Kengen has performed over the years, it has done well even after the part privatisation. It is the same for Safaricom and put Kenya on the global map,” she said.

“When it comes to KPC and as much as it is profit making, I think it is a good idea. One of the things that necessitates sale of these entities is to make sure that it can attract huge funding to be able to undertake big developmental projects,” she said, also speaking on Spice FM early this month.

In contrast to the opposition that the sale of Safaricom has received, heads of key regulatory bodies defended the transaction as a strategic win for Kenya’s economy.

Capital Markets Authority (CMA) CEO Wycliffe Shamiah argued the Sh34 price is competitive and only achievable through a “block sale.”

He noted that the market has already reacted positively, with share prices surging since the announcement, signalling investor confidence.

“Divestiture of non-core commercial functions allows the government to concentrate managerial capacity and public expenditure on priority service areas, including infrastructure, health and education,” said Shamiah.

CBK Governor, Kamau Thugge told the committee that Safaricom requested a "letter of no objection" for a change in significant shareholding following the Government's proposed divestiture.

“In response to the approval request, CBK issued a detailed query to Safaricom seeking clarity on vetting of proposed shareholders, final transaction and governance or control structures, sources of funding and intra-group control rights, operational continuity plans and safeguarding of customer funds among others,” Thugge said.

Thugge insisted that the proposed divestiture will have a positive macroeconomic impact including increased foreign exchange reserves, exchange rate stability and the additional fiscal space will reduce domestic borrowing and help sustain the reduction in domestic interest rates.

Treasury CS John Mbadi has defended the sale of Safaricom to Vodacom, noting that the firm has a history with Safaricom and its financial muscle that would guarantee business continuity.

He also noted the Sh34 that Treasury is getting, which has been deemed as low compared Safaricom historical high of Sh45 a share, is a good deal as opposed to offloading its stake to the public. Selling to the public, Mbadi argued, might have flooded the market with shares and diluted its price.   

Mbadi also said such a transaction at NSE might have affected the KPC IPO, with the two transactions competing for cash from investors. 

“We have another company (KPC) that we are giving to the public… if you give another asset, it would saturate the market,” said Mbadi.

“There is also benefit in divesting the shares to vodacom because they will pay in hard currency (US dollars) as opposed to offloading the shares in the domestic market. Hard currency has the benefit of increasing and improving our foreign exchange reserves, which would help us stabilise the shilling further.”