VZCZCXYZ0010
PP RUEHWEB

DE RUEHNR #1087/01 0680744
ZNR UUUUU ZZH
P 090744Z MAR 06
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC PRIORITY 0174
INFO RUEHXR/RWANDA COLLECTIVE PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY 2775
RHEBAAA/USDOE WASHDC PRIORITY

UNCLAS NAIROBI 001087 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR AF/E, AF/EPS, AF/PD, EB/ESC/IEC, AND OES/ENV 
USAID FOR AFR/EA 
 
E.O. 12958:  N/A 
TAGS: ENGR ECON EINV BTIO SENV KE
SUBJECT: KENYA TO SELL 30% OF PARASTATAL POWER GENERATOR 
 
¶1.  Summary:  The Kenyan government announced on March 3 
its intention to sell 30% of the Kenya Electricity 
Generating Company (KenGen), the country's dominant power 
generating firm, through an initial public offering on the 
Nairobi Stock Exchange (NSE).  The majority of the offered 
shares will be available to the public and to KenGen 
employees in this the first IPO on the NSE in six years. 
The enthusiasm that greeted the IPO announcement indicates 
tremendous pent-up demand by the Kenyan public for 
accessible investment products.  While touted as a step 
towards privatization, the government will still retain 
decisive control over the parastatal after the IPO.  The 
sale should therefore be seen more as a means of raising 
badly-needed cash for KenGen, and not necessarily as a way 
to make the much-criticized parastatal more efficient in 
generating a reliable and reasonably-priced supply of power 
for the economy.  End Summary. 
 
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Who's Buying? 
------------- 
¶2.  Finance Minister Amos Kimunya on March 3 announced the 
government's plan to offload 659.5 million shares, or 30%, 
of KenGen to local investors through an IPO to be held 
March 20 through April 12.  22.5 million shares will be 
reserved for KenGen employees, and the remaining will be 
available to the public, without distinction between 
individual and institutional investors.  According to 
Kimuya, the GOK hopes that a wide range of small, 
individual investors will participate.  Initial indications 
are that foreign investors will also be able to buy-in, 
through local brokerages, but with some, yet-to-be- 
announced limitations.  The set share price is at Ksh11.90 
(US$0.15) with a minimum investment of 500 shares, or about 
US$82. 
 
¶3.  The Capital Markets Authority (CMA) that regulates NSE 
activity will soon announce the process for applying to 
purchase shares, and initial indications are that the 
public is extremely interested.  Banks and company-based 
savings organizations are fielding a huge number of loan 
requests from "average citizens" who want to participate. 
According to Chairman and Chief Executive of the Dyer and 
Blair Investment Bank Jimnah Mbaru, the offer price for the 
shares makes KenGen initially one of the cheapest listed 
stocks in Kenya, and he forecasts an oversubscription. 
James Murigu of Suntra Investment Bank, one of the handlers 
of the issue, believes all investors will have a fair 
chance to purchase the issue. 
 
¶4.  KenGen's 1,500 employees will have access to 22.5 
million shares, or 3.3% of the IPO, and can purchase up to 
15,000 shares (worth about $2,460) each outside the public 
sale.  According to Ernest Nakenya Nadome, the Secretary 
General of Kenya Electrical Trades Allied Workers' Union, 
KenGen management has already approached a financial 
institution to advance loans to employees to purchase the 
shares.  Employees are to be advanced loans equal to one 
year's salary, repayable over five years.  Nadome is 
encouraging his members to purchase more shares outside the 
allocation from the public issue. 
 
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Who is KenGen? 
-------------- 
¶5.  KenGen produces about 80% of Kenya's electricity, and 
manages geothermal, hydroelectric, and thermal power 
plants.  Independent Power Producers account for about 18% 
of the country's electricity output and the rest is 
imported.  KenGen, along with the monopoly electric 
distribution parastatal Kenya Power and Light Company 
(KPLC), are widely criticized for the unreliability and 
high cost of the country's electricity supply. 
 
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Comment: Good Story, But Questions 
---------------------------------- 
¶6.  The KenGen IPO looks like a good story.  The immediate 
positive reaction from the public clearly shows a 
tremendous pent-up demand for small scale investment 
opportunities.  Moreover, if the IPO proceeds as expected, 
it may well motivate the government to return to the NSE 
for additional offerings - KPLC and the Kenya Ports 
Authority being leading candidates.  Other private 
companies might also be motivated to raise capital by going 
public. 
 
¶7.  But a number of questions remain. First, the GOK has 
not made any announcement on what it plans to do with the 
IPO proceeds, except noting that it will "diversify Kenya's 
limited electric energy sources."  It is well known that 
KenGen has been searching for new investors to expand its 
Olkaria geothermal power system.  With regular rainfall 
problems in recent years, and siltation of reservoirs, 
Kenya's hydroelectric production is also in need of 
significant new investment.  This infusion of cash may also 
make KenGen a more attractive and flexible partner for new 
independent power producers.  But the money has to be used 
wisely and transparently, and past practices at Kenyan 
parastatals suggest this is not a foregone conclusion. 
 
¶8.  Though the KenGen sale is being championed as an 
example of privatization, the government will still 
maintain firm control through the remaining 70% 
shareholding.  This gives the government ample room to go 
back to the NSE to raise more capital while still 
maintaining control over the parastatal.  This begs the 
question down the road of whether this sale will result in 
KenGen itself becoming more competitive and efficient in 
offering what the economy so badly needs: reliable and 
reasonably priced electricity. 
 
Bellamy