The allegory of the man who killed the goose that laid the golden eggs is similar to what the Government has done to profitable State entities such as Kenya Power, Kenya Pipeline and Kenya Electricity Transmission Company Ltd.
The entities have sunk into huge debts through State policies.
This is as other entities sink into insolvency at an alarming rate led by Mumias, Uchumi, East Africa Portland Cement. Others are loss-making or struggling, including Kenya Airways, Consolidated Bank, National Bank, and State-owned sugar millers.
Only a few companies remotely tied to the State including Safaricom and Kenya Commercial Bank are making good money for the government. This is what former Mandera MP and presidential advisor Abdikadir Mohamed said was a missed opportunity to implement reforms on in the public sector.
“Seriously though...90 per cent of commercial parastatals are insolvent. As for the regulators, they are on a crazily taxing binge ... just to waste funds on useless foreign trips,” Abdikadir said.
Mr Abdikadir who led President Uhuru Kenyatta’s 2013 taskforce on parastatal reforms found numerous overlapping functions, conflicting laws and duplicated provisions that have led to confusion in interpretation and application.
In the tourism sector alone, there is the Tourism Fund, Tourism Regulatory Authority, Kenya Tourist Board, Tourism Research Institute, Kenya Tourist Finance Corporation, Kenya Utalii College and Brand Kenya Board.
“The mandates and functions of all State Corporations (260) were examined and the number was to be reduced to 187,” said Research and Policy Officer at Government of Kenya, Philip Nyingi when making a presentation to Masinde Muliro University on August 2015. Mr Abdikadir said that although there has been progress, it has been slow due to lack of political will.
“The agricultural sector has done well in terms of consolidation. For the regulators, it is also work in progress to have one or two instead of so may we currently have,” Mr Abdikadir said.
“There are funds where we should have one big kitty instead of Uwezo, Women Fund, Youth Fund etc. There is also something going on there. Even banks are supposed to be merged.”
At the time, most State corporations and regulators were making profits, but a series of missteps and poor leadership have left them broke, in debt or losses - making the task of reforms harder or impractical.
“During the financial year (FY) 2017/18, the Government received investment income in form of dividends, surplus funds and directors’ fees of Sh24.1 billion against a revised target of Sh31.6 billion, resulting in a negative variance of Sh7.4 billion. This was a decline of 16.5 per cent compared to FY 2016/17,” Treasury Principal Secretary Kamau Thugge in the Budget Review Outlook Policy.
A source at Treasury who did not want to be named said the push to get returns from State firms showed desperation since, during the Mwai Kibaki days, the government never bothered corporates to bring in revenues.
The amount of money remitted to the State used to differ with each year and its economic performance. “The golden years were between 2004 and 2013,” a source at Treasury told Financial Standard. Initially, there was no requirement to remit the money and State corporations other than the Central Bank which was required by law had to give the exchequer’s purse its dues. State-owned commercial firms sent dividends, which they still do, while regulators could give their surpluses at their discretion.
But as Safaricom grew and deposited Sh15.42 billion in dividends for the 14.02 billion shares (a 35 per cent stake) in the firm and is expected to contribute 80 per cent of total dividends this year, Treasury’s appetite in the profits of its entities – both State-owned firms and regulatory bodies - has also grown.
The State has been mired in business despite the private sector offering the best opportunity to divest and seal losses to struggling business.
Move to take up stake in Kenya Airways and Kenya Electricity Generating Company (KenGen) shows a government going against its own recommendation under the State Corporations Advisory Committee report to exit the private business or merge parastatals. Public corporations continue to fail due to crony capitalism of rewarding politically correct individuals, inefficiencies and bureaucracies, inability to attract talent as well as accumulate crippling debt.
Mr Abdikadir said reforms are overdue especially since it is a big avenue for corruption and incompetence is huge in parastatals.
“The parastatals need to have a clear mandate. Do not appoint cronies then give them a budget and let them account for it like the private sector,” he said.
Meanwhile, the corporations continue soaking up liabilities which will be footed by taxpayers since the debt is guaranteed by the government.
By last year the State guaranteed Sh141.4 billion taken by firms where it has shareholding, part of which is in default including KBC’s Sh6.9 billion loan, Tana Athi River Development Authority’s Sh542 million and EAPC’s Sh674 million. “Some of them have huge debts, for instance, KBC has huge debts in foreign currencies including the Yen,” Abdikadir observed.
The Kenya Ports Authority is guaranteed to the tune of Sh33 billion by the State while loss-making KQ has Sh76.3 billion.
Kenya Power has listed taxpayers as guarantors for Sh14 billion debt, Ketraco Sh10.8 billion and Kenya Railways Sh4.5 billion.“This excluded CBK overdrafts and suppliers credits,” Treasury said in a debt sustainability report. This means firms have far higher debt than stated.
For instance, Uchumi which got State bailout in 2017 has supplier debt of Sh3.6 billion. Creditors are also seeking over Sh3 billion from the retailer. East African Portland Cement (EAPC) needs Sh15 billion to get out of the debt owed to banks, suppliers, and employees.
The fortunes of Kenya’s pioneer cement maker also seem to be dwindling after the firm posted a Sh1.26 billion loss for the half year to December last year.
The company can barely meet orders for its Blue Triangle cement and its cash position is negative. According to the firm’s financials released last year, its insolvency also increased by Sh1.3 billion in just six months.
In a similar period last year, the company posted a Sh969 million loss but had managed to bring in revenues amounting to Sh3 billion. This financial year, the company only sold cement worth Sh1.3 billion in the six months, a 55 per cent decline.
Politically motivated investments such as the push to connect millions to the national grid electricity, even those with no capacity to sustain connections are now crippling Kenya Power.
The electricity transmission company is now losing billions of shillings for keeping low electricity consumers on the grid as transmission costs mount.
System losses stood at 22.8 per cent over the half-year to December 2018, higher than 20.3 per cent recorded over a similar period in 2017, according to the company’s half-year financial report. “The system losses rose… largely attributed to the expanded grid. The master plan for the firm is to cut these losses into early teens in five years,” said Harrison Gitau, a senior research analyst at Apex Africa Capital.