DEBT OBLIGATIONS

Seventeen corporations default on Sh218bn state loan

Most entities cited financial challenges as reason for not servicing loans

In Summary
  • Non-repayment of the loans has led to the continued write-offs of the loans as bad debts, opportunity costs in funding other critical areas and eventual loss of public funds
  • Amount owed by State corporations through direct loans from government has been on a steady rise over the years.
Auditor General Nancy Gathungu
BREACH OF LAW: Auditor General Nancy Gathungu
Image: CHARLENE MALWA

Seventeen institutions failed to service loans amounting to Sh218 billion advanced to them by the government, the latest Auditor-General's report shows.

The audit on national government ministries, departments and agencies for the year 2020-2021 Financial Year says the amount fell due for redemption over diverse dates over the years but were not repaid.

“Some of the loaned entities continue to perform dismally and require government bailouts,” notes the report.

“Non-repayment of the loans has led to the continued write-offs of the loans as bad debts, opportunity costs in funding other critical areas and eventual loss of public funds.”

Kenya Railways Corporation (KRC) tops the list of highly indebted corporations with a Sh179 billion loan.

KRC debt is largely attributed to loans procured by the government for the implementation of Standard Gauge Railway.

Auditor- General Nancy Gathungu said KRC cited “financial challenges” as the reason for not making any payment to service its loan.

Also in the list are Kenyatta University (Sh10.8 billion), Tanathi Water Services Board (Sh9.7 billion), Tana Water Services Board (Sh7.5 billion), and Mumias Sugar Company (Sh3 billion).

They all cited financial challenges as the cause of not making any payments.

Others are National Water Conservation and Pipeline Corporation (Sh2.4 billion), National Irrigation Board (Sh2.2 billion), Water Resource Management (Sh1.3 billion) and Kenya Meat Commission (Sh940 million).

Uchumi Supermarkets (Sh1.2 billion), East African Sugar Industries, Muhoroni (Sh177 million) and Miwani Sugar Mills (Sh78 million) are under receivership.

Also on the list are the Kenya Tourist Development Corporation (Sh48 million), Kenya Urban Transport (Sh40.7 million), Halal Meat Products (Sh27 million), Miwani Sugar (Sh16 million) and Miwani Outgrowers Limited (Sh6.6 million).

Gathungu questioned why some entities continued to get additional loans when they were underperforming.

“It was noted that institutions continued to receive additional funding even when they are underperforming, thereby casting doubt on the criteria used to determine the advancement of additional loans,” the report adds.

 “During the year under review, the 17 institutions did not make any payments against their respective due loans”

The report notes that the amount owed by State corporations through direct loans from government has been on a steady rise over the years.

The report says outstanding loans to various institutions as at 30 June 2021 stood at Sh921.9 billion.

The amount was an increase of Sh54.9 billion or six per cent of the total outstanding loan of Sh867 billion reported as at 30 June 2020.

The Sh921.9 billion included new loans issued in 2019/2020 totalling Sh46.6 billion.

During the year under review, pending bills totalling Sh108.1 billion were not settled but were instead carried forward to the 2021-2022 Financial Year.

“The pending balance comprise Sh72, 315,870,508 and Sh35, 821.055.347 reported under ministries, department and agencies and donor funded projects respectively,” says the report.

The reported pending bills for ministries, departments and agencies for the year ended 30 June 2021 decreased top Sh72, 315,870,508 from the previous year’s amount of Sh101, 109,118,284 denoting a decrease of 6.5 per cent.