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Sugar millers, Kenya Power, KQ win big in bail-out plan

Treasury however remains cautious of future loan defaults.


Kenya28 August 2023 - 11:34
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In Summary


•Treasury had budgeted Sh95.5 billion to partly ease cash crunch in key parastatals in three years from July 2022, an amount that is expected to increase.

•A fiscal risk analysis conducted in the last financial year estimated 18 key parastatals face a cash shortfall of Sh382 billion in five years, worsened by the recent pandemic.

President William Ruto chairs a past Cabinet/FILE

Sugar millers, Kenya Airways and Kenya Power are the biggest beneficiaries in the government’s bail-out plan for broke agencies, as Treasury lines up billions for the programme.

This comes even as Treasury remains cautious of future loan defaults by state-owned corporations and some universities, which have remained  in debt despite numerous bail-outs.

President William Ruto has affirmed his government’s support to breath back life into the debt-choked struggling entities, for economic benefits.

Among them are state-owned sugar companies–, Nzoia, Chemelil, Miwani, Muhoroni, South Nyanza and Mumias, where Cabinet has approved a revival and commercialisation plan to cost at least Sh117 billion.

Speaking during his five-day development tour of Western Kenya region, Ruto said his government has an elaborate plan for the country’s sugar industry.

“I have asked the members of parliament to write off the debt facing our state owned cane millers,” Ruto said.

Kenya Power's balance sheet is also undergoing restructuring, mainly focusing on the huge loan balances,  payables and receivables with a Sh19.4 billion bailout plan.

According to Treasury CS Njuguna Ndungú, the government is implementing a four-point action plan focusing on among others, transfer of all transmission assets and lines to Kenya Electricity Transmission Company (KETRACO).

It is also keen to settle outstanding Rural Electrification Schemes (RES) operations and maintenance cost deficit of  Sh19.4 billion, as of June 2022.

Kenya Power and Rural Electrification and Renewable Energy Corporation (REREC) will also enter into a commercial contract for the future Rural Electrification Schemes maintenance cost.

The company is seeking government's help to convert a portion of its dollar-denominated debt to the Kenya shillings, in a bid to ease pressure coming with the depreciating local currency.

According to managing director Joseph Siror, up to 30 per cent of its foreign currency loan book is up for re-denomination, if Treasury listens.

The latest annual report indicates Kenya Power’s total borrowing stood at Sh103.8 billion in the year ended June 2022, of which Sh76.2 billion was US dollar-denominated.

The remaining debt was split between the Kenya shilling and the euro at Sh17.5 billion and Sh10.1 billion, respectively.

In the half year ended December 2022, Kenya Power slumped back into the red after Sh7.4 billion worth of debt service obligations wiped out the company’s Sh5.7 billion operating profit, pushing the firm into a Sh1.1 billion loss.

On Kenya Airways, the government serviced guaranteed debt on behalf of the airline amounting to Sh12.3 billion, for the year ended June 30, with more support expected.

"The government’s policy stance is to turnaround the airline and position is as a Pan-African carrier,"CS Ndungú said during his budget speech.

More support will be going into the airline's operations according to Treasury, to "ensure it is run with profitability and sustainability objectives eventually reducing the airline’s dependency on budgetary support."

 A number of universities, water services boards, East African Portland Cement Company, Kenya Tourism Development Corporation, Kenya Meat Commission and Development Bank of Kenya, are also among other entities that have been struggling.

Universities have been pushing to increase fees in order to deal with the financial crisis the institutions are facing.

According to Treasury, State corporations and partially government-owned companies have failed to service interest payments amounting to over Sh921 billion.

This is cash that the government(taxpayers) provided the entities to boost their operations and position them for profitability.

Official data shows the government had as of June 30, 2022, lent the entities more than Sh1 trillion of which Sh973 billion was disbursed.

It had budgeted Sh95.5 billion to partly ease cash crunch in key parastatals in three years from July 2022, an amount that is expected to increase under the new administration to above Sh200 billion.

A large number of state corporations rely on the exchequer funding to service their payroll and other expenses, which according to National Treasury, bloated payrolls have remained a large burden to the exchequer over the years.

This has resulted in cumulated un-serviced statutory obligations and pension liabilities running into billions of Kenya shillings.

The World Bank and the IMF have been pushing for the sale-off of loss making state agencies and merging those with duplicating roles, to plug budgetary deficits.

The country has close to 400 State agencies, half of them being regulatory bodies.

Treasury estimates that parastatals have a maximum fiscal exposure of Sh2.8 trillion incase of loan defaults, even as some remain on permanent bail-out that eats into the public coffers.

A fiscal risk analysis conducted in the last financial year estimated 18 key parastatals face a cash shortfall of Sh382 billion in five years, worsened by the recent pandemic.

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