Treasury to lease, merge loss making parastatals

The government has spelt-out new privatisation terms for poor performing state-owned sugar mills, as it moves to cut on wastage, including merger of state agencies.

National Treasury Cabinet Secretary Ukur Yatani has said due to the challenges the privatisation challenges of the of the sugar companies over the years, it has been decided to proceed with their privatisation through a long-term lease model.

This will see the “transfer the Rights of Use (ROU) of each factory to the lessor for development and operation,” the CS notes in the Draft 2021 Budget Policy Statement, which outlines his spending plan and post-Covid economic recovery in the next financial year, starting July 1.

Five financially struggling state-owned sugar mills earmarked for privatisation are Nzoia, Chemelil, Miwani, Sony and Muhoroni sugar.

The government is also mulling an amnesty for loans of about Sh58 billion and tax areas worth Sh4 billion owed to Kenya Revenue Authority by the sugar mills.

Privatisation Commission data shows the five firms owed the government and the Kenya Sugar Board an estimated Sh40 billion as of 2019.  This includes penalties and tax arrears.

While the government has been keen to sale the struggling millers, it has proved difficult to buyers for the debt ridden mills.

Yatani has however affirmed that the government's privatisation programme remains on course.

“The Privatisation objectives aims at unlocking the potential of the identified institutions to capacity expansion, modernisation, performance and efficiency improvement, mobilisation of private capital, improved competitiveness and reduced reliance on public financing,” he notes.

Restructuring of state corporations/State Owned Enterprises (SOEs) is also in progress, a process that begun with recommendations by a presidential task force constituted in 2014, which had restructuring and reforms of State Corporations as one of its key recommendations.

In line with these reconditions the process for merging of Industrial and Commercial Development Corporation (ICDC), Industrial Development Bank (IDB) Capital, and Tourism Finance Corporation (TFC) is at an advanced stage, the CS has said.

“The merging of ICDC with the IDB and the TFC to create the Kenya Development Corporation will enhance capacity to meet the financing requirements of key sectors of the economy at below commercial rates and long tenure debt financing,” he says in the BPS.

The merging of Export Promotion Council and Brand Kenya was completed in 2018 to form the Kenya Export Promotion and Branding Agency (KEPROBA).

Further, merging of KEPROBA on one hand with Ken-Invest, KTB and Kenya Year Book on the other hand to form Promotion Kenya Agency is at advanced stage.

About 26 poorly performing state corporations have been on the privatisation card to cut down government spending, mainly continued capital injection.

Despite Yatani's next budget plan increasing to Sh2.968 trillion from the current financial year's Sh2.8 trillion, he plans to continue with austerity measures which could send more entities into mergers.

This, as the government moves to inject funds on a post-Covid economic recovery programme to help achieve at least a 6.4 per cent growth from the 2020 projected 0.6 per cent, pegged on adverse effects of the pandemic.

“The government has embarked on expenditure rationalisation and prioritisation to ensure that expenditures are on the most impactful programmes that yield the highest welfare benefits to Kenyans,” says Yatani.

In December, the CS had said the government is keen to fold agencies that have remained on the bail-out list of the exchequer year-on-year, with those with duplicating roles being merged to reduce wastage of resources.

There will also be a major restructuring in agencies that have "serious governance issues''.

Some of the ministries with a high number of state agencies include agriculture, transport, tourism, energy, industrialisation, trade and enterprise development, and sports, culture and heritage, which could face a major rationalisation.

A huge number of these entities have remained in losses or yielded low dividends for the government, forcing the exchequer to bail them out.

According to the latest Consolidated National Government Investment Report for the year 2019/20, by the National Treasury,127 state agencies out of 247 state firms reported losses in their end year results.

“Some of them have become a burden,” CS Yatani said when he appeared before the National Assembly Committee on Finance and Planning, chaired by Homa Bay Woman Representative Gladys Wanga.