DEEPLY IN DEBT

Restructure, privatize loss making state owned agencies – CoB

KPLC, KQ, UoN, KPLC and KPA among agencies facing financial stress

In Summary
  • Nyakang’o said the enterprises have become a liability to the government
  • In 2020, the government wrote off an Sh24.2 billion loan to assist the loss-making airline bounce back to profitability.
Controller of Budget Margaret Nyakang'o.
COB: Controller of Budget Margaret Nyakang'o.
Image: COURTESY

Loss making state owned enterprises could be headed for radical restructuring if the state implements a recommendation by controller of budget Margaret Nyakang’o.

The country’s budget boss wants the loss making enterprises, among others restructured – including collapsing and merging some – and having others privatized in a bid to enhance their productivity.

Nyakang’o said the enterprises have become a liability to the government with the Treasury often forced to bail them out, often, at the expense of development and other pressing needs.

“The CoB recommends restructuring of SOEs performing similar functions to eliminate duplication,” Nyakang’o said in her budget implementation review report covering the three months of the current financial year.

According to the report, the agencies under financial stress include Kenya Airways, Kenya Airports Authority, Kenya Railways Corporation, Kenya Power and Lighting PLC,

Others are Kenya Ports Authority  and Kenya Electricity Generating Company PLC

The University of Nairobi, Kenyatta University and Jomo Kenyatta University of Agriculture and Technology are also in the red.

Worse, she noted, the SOSs have accumulated massive debt.

The SOEs borrow to finance the strategic government development plans.

"The borrowing has increased guaranteed and non-guaranteed public debt," the report reads in part.

However, the budget boss noted that stock of publicly guaranteed debt decreased from Sh165.25 billion in January 2020 to Sh162.61 billion in June 2021.

In the last and the current financial year, treasury has pumped billions of shillings to solve cash flow challenges facing state-controlled firms and parastatals

For instance, Treasury argues that Kenya Power and Kenya Airways (KQ) are key in “fueling economic growth and the creation of employment” and should be supported through cash injection in the budget.

The national carrier has made clear its plea for additional cash from anchor shareholder, the government, to help it out of its precarious financial position.

“We are in a negative equity position, which means we are insolvent as an Organisation, obviously made worse by the pandemic,” KQ chief executive Allan Kilavuka said on August 26.

In 2020, the government wrote off an Sh24.2 billion loan to assist the loss-making airline bounce back to profitability.

The Treasury had then revealed that the loan was part of Sh27.2 billion worth of dormant loans that the Cabinet authorized to be written off.

Equally debt-laden Kenya Power has also sunk into a near dire financial position with operating costs rising faster than revenue, exacerbated by elevated financing costs and system losses which hit Sh15.99 billion for the year through June 2020.

In the COB latest report national government budget implementation review report for the first quarter of financial year 2021/2022, the funds spent to bail out state parastatals can be applied to other development activities to create assets and capital.

“Such an approach would help the government improve financial performance and reduce public borrowing, thereby promoting overall economic growth in the long run,”Nyakango says in her report. 

To enhance the performance and rescue the troubled state firms, COB has also recommended enforcement of sound financial management to promote prudence in the use of public funds.

“The Parent Ministries should only approve borrowing by SOEs with authority from the National Treasury.

She also proposes privatization of non-performing and non-strategic SOEs to turn around their fortunes by market forces.

In addition to, timely auditing to provide checks and balances and timely identification of areas that require action.