Why Sh55bn KQ bailout cash could go down the drain

Audit reveals there are no formal agreements between Treasury and KQ on the loans

In Summary

•There was no evidence that the National Treasury had entered into any formal agreement with Kenya Airways on the recovery of loans.

•State defaulted on a foreign loan KQ took, forcing an emergency spend of Sh7 billion.

Kenya Airways planes at JKIA.
Kenya Airways planes at JKIA.
Image: FILE

Taxpayers could lose more than Sh55 billion that the government has spent over the years to bail out Kenya Airways.

Details have emerged that the airline has not provided any security to the government in the event it defaults in the repayment.

A new audit further reveals that the National Treasury has no formal agreement with Kenya Airways – commonly known as KQ, on repayment of the defaulted amounts.

Auditor General Nancy Gathungu has flagged the deal in the report of the national government accounts as of June 2023 – the first under President William Ruto administration.

“There was no evidence that the National Treasury had entered into any formal agreement with Kenya Airways on how the guaranteed loan repayments would be recovered,” she said.

The audit found out that the monies were disbursed even before the loan agreements were signed.

The report shows that the total outstanding amount due from Kenya Airways as at June 30, 2023 stood at Sh55,374,969,781.

In the year under review, the government transferred Sh10 billion to Kenya Airways as an on-lent loan.

The amount was in addition to other loan disbursements to the airline totalling Sh31.3 billion remitted in the past two financial years.

In a blow to the taxpayers, the loans issued had accrued interest and penalties totalling Sh1.8 billion.

Gathungu stated that the amount remained outstanding as at December 31, 2022, bringing the total accumulated loan to Sh43,048,075,609.

But during the year under review, the National Treasury paid out another Sh12.3 billion to settle a loan that was borrowed from foreign lenders.

The audit reveals that while the foreign loan repayment was Sh10,635,604,751, the state incurred finance costs of Sh1.7 billion.

Of the amount [Sh12.3 billion], Sh7 billion was made through a supplementary budget.

“The amount was in respect to guaranteed debt to the company with a foreign bank which was defaulted,” Gathungu reported in the review of the National Treasury’s books.

But in the face of findings that the loans have not been secured, the auditor has cast doubt the bailout cash would be recovered.

“In the circumstances, it was not possible to confirm whether the guaranteed loan repayments amounting to Sh12,326,894,172 would be recovered and whether the airline had provided any security to the government as a fallback,” the report reads.

Gathungu said that in the circumstances, “the completeness and recoverability of the loans to Kenya Airways Limited amounting to Sh55,374,969,781 could not be confirmed.”

The auditor further revealed that the cash-strapped airline is struggling with repayments, and defaulted in the year under review.

“The payments were in respect to guaranteed Kenya Airways Limited loan with a foreign bank which the carrier had defaulted in repayments.”

The National Treasury commenced repayment of the loan in October, 2022.

The irregularities were revealed in an audit review of documents and correspondences between the National Treasury and KQ.

The auditor further put the National Treasury on the spot for failing to disclose the loans Kenya Airways owes Exim Bank of USA.

The report shows that while the carrier has a guaranteed debt of Sh88 billion from the lender, the same was not disclosed in the financial statements of the Treasury.

The amount was among guaranteed debts totaling Sh170 billion from three entities which were not disclosed in the statement of obligations guaranteed by the government.

Kenya Ports Authority, the details show, has guaranteed the loan of Sh79 billion from the government of Japan.

KenGen for its part has guaranteed Sh2.5 billion from the German government.

Gathungu said that without the disclosure, the accuracy and the status of the outstanding obligations guaranteed by the government could not be ascertained.

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