WHEN THE STATE EXITS: GOVERNANCE RISKS IN THE FIRST YEAR OF PRIVATIZATION

By Tim Munyi Mugo | Advocate of the High Court of Kenya

On 10 March 2026 President William Ruto rang the bell at the Nairobi Securities Exchange and Kenya Pipeline Company entered the capital markets as a listed entity. The moment was described as a historic milestone. Six weeks later the company removed its Managing Director and Chief Executive Officer, Joe Sang, following a fuel scandal. Within days of that removal the board advertised the vacancy. Within days of the advertisement the Kenya Petroleum Oil Workers Union filed a formal petition to the Capital Markets Authority dated 15 May 2026, accusing the current board of proceeding with the recruitment before the company's governance structure had been properly reconstituted following its transition from a State corporation to a publicly listed company.

The board has not yet filled the position. The union petition is live. Foreign portfolio investors are, according to market analysts, delaying further equity acquisitions until the leadership question is resolved through a process they can trust. KPC's stock performance is already reflecting the uncertainty.

This is what the first year of privatization looks like from the inside, and it deserves an honest account.

THE CLEAN LEGAL ACCOUNT

The legal structure of KPC's transition is straightforward. When the National Treasury revoked the company's classification as a national government entity by gazette notice in April 2026, two consequences followed automatically. The State nominated directors, one representing the Attorney General and one representing the relevant Principal Secretary, ceased to hold office. Their seats had existed only by virtue of Section 6 of the State Corporations Act, which requires such nominees while the State corporation classification is in force. When the classification fell, the seats fell with it.

The company simultaneously moved from the governance regime of the State Corporations Act and the oversight of the State Corporations Advisory Committee into the Companies Act 2015, the Capital Markets Authority framework, and the discipline of daily share price accountability to a public register of shareholders. This is privatization working precisely as designed.

What no gazette notice can accomplish is the reformation of a governance culture. That takes longer, and it begins with the first consequential decision the post transition board makes alone.

WHY THE CEO RECRUITMENT IS THE RIGHT TEST

An executive recruitment is not merely a human resource exercise. In the twelve months following a major corporate transition it is a governance statement. It signals to regulators, shareholders, and the market whether the institution intends to behave differently under its new structure or whether it intends to replicate the habits it learned under the old one.

The union's petition to the Capital Markets Authority makes precisely this point. The argument is not that the vacancy should not be filled. It is that the board conducting the recruitment is itself a product of the transitional period, and that its composition and authority to act have not been formally reconciled with the new shareholding structure under the Companies Act 2015, the Capital Markets Authority guidelines, and the company's Articles of Association. A recruitment conducted by a board whose legitimacy is disputed produces an appointment whose legitimacy is inherited. That exposure follows the incoming CEO from day one.

The union's intervention is significant beyond its immediate effect. A trade union petitioning a securities regulator over a board's governance conduct is not a conventional industrial relations move. It reflects an understanding that the regulatory terrain has shifted. The Capital Markets Authority is a different kind of overseer from the State Corporations Advisory Committee. It is accountable to shareholders, sensitive to disclosure obligations, and attentive to anything that suppresses investor confidence. The union went to the right door.

WHAT JOE SANG'S REMOVAL ACTUALLY TELLS US

The circumstances of Joe Sang's removal deserve separate attention. He was removed by board decision following a fuel scandal, weeks after the company listed. The timing carries a particular weight. A privatization is, among other things, a reputation event. It invites new scrutiny from new audiences who did not previously follow the company closely. What was managed quietly inside a State corporation becomes a listed company disclosure problem. The conduct that triggered Sang's removal may have predated the listing or may have emerged during it. Either way, the board had to act under a more demanding standard of transparency than it had previously operated under.

This is one of the less discussed costs of privatization. A State corporation can, and frequently does, manage internal failures through administrative processes that attract limited public attention. A listed company manages the same failures under the gaze of the Capital Markets Authority, the securities exchange, the financial press, and a shareholder register. The accountability is not merely greater in degree. It is different in kind.

THE STRUCTURAL PROBLEM BENEATH THE SURFACE

Both the union petition and the CEO removal point to a condition that predates either event. The KPC that listed on 10 March 2026 carried into the capital markets the governance habits of a State corporation. This is not unusual. It is, in fact, the default outcome of privatization unless active measures are taken to interrupt it.

Privatization transfers ownership in a day. It transfers governance culture over years, and only if the institution deliberately pursues the transfer. The instruments for doing so are known: board refreshment that is more than cosmetic, a first executive recruitment designed to survive challenge before it is launched rather than after, documented governance policies that reflect the new regulatory environment, and a willingness to treat early friction, a union petition, a departing independent director, a market analyst's caution, as information rather than noise.

KPC currently has a board whose composition is in question, a vacant CEO position, a pending regulatory petition, and a listed share price absorbing all of the above. None of these conditions is irreversible. Each of them was foreseeable.

THE LESSON THAT TRAVELS

Kenya is entering a phase in which more State assets will pass into private hands under the Privatization Act 2025. Each transaction will be presented, accurately, as a milestone. The instructive question in each case will not be whether the listing happened. It will be what the company looked like in the twelve months after, when the State had exited and the habits it left behind had not.

A privatization is not a cure for a governance problem. It is a change of terrain on which the governance problem must now be resolved, under harder lighting, before a larger audience, with fewer places to manage the optics quietly.

The union petition at KPC is a data point in that larger story. So is the market response. So is the vacant CEO chair. Read together they make an argument that governance reformers have been making for years, and that privatization advocates sometimes understate: the market will hold you to account, but only if the board does not first remove the conditions under which the market can do its job.

A listing transfers ownership in a day. Governance is transferred more slowly, and only if someone insists on it.

 

 

Tim Munyi Mugo is an Advocate of the High Court of Kenya and Co-Founder of Veritas Governance Institute. He writes on corporate governance, board integrity, and the law governing public institutions.

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Disclaimer- The information provided is for general informational purposes only and should not be considered as professional advice. Please consult a qualified professional for specific guidance.