Another Sh57b goes down the drain as loans hit Sh869b

Kenyan taxpayers are pouring billions of shillings in loans into failing parastatals even as the Government’s plan to privatise them stalls.

Latest data from the National Treasury indicates the total amount of money lent to State corporations and government agencies increased from Sh811 billion in the 2016/2017 financial year to Sh869 billion as of June last year.

“The seven per cent increase of Sh57 billion is attributed to new concessionary loans procured by government and on-lent to various agencies to implement strategic projects,” explains Treasury in part.

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However, almost a third of this is in bad debts owed by State organs, ranging from sugar firms to local authorities that Treasury will now have to write off.

“Out of the total loan amount outstanding, Sh682 billion are active loans and are being serviced by respective government agencies, Sh116 billion are non-performing loans, while the balance of Sh27 billion was dormant and have since been written off,” explains the Treasury in part. The Athi Water Services Board owes the biggest chunk of the non-performing loans, having been lent Sh39.5 billion.

Athi Water, which is the largest public water services body in the country, has only repaid Sh481 million of the outstanding amount.

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The list of shame also includes the Coast Water Services Board that owes Sh12 billion and the Lake Victoria North and South Water Services Board which cumulatively owe Sh20 billion.

The three have not paid a cent towards servicing their loans.

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Parastatals have traditionally been a drain on taxpayers’ revenue over the past decade, with each Government promising to overhaul them, many of which have duplicating functions.

Shortly after assuming office in 2013, President Uhuru Kenyatta appointed a task force to give policy recommendations for turning around the dozens of commercial government-owned entities.

The task force found there was a lack of clarity in the role of State corporations to the economy while poor linkages between the entities and the central and county governments facilitated mismanagement and waste of public resources.

Merge corporations

“Poor governance leading to resource loss and burdening the public purse, including a multitude of legal and institutional frameworks that generate multiple reporting and accountability lines, compounding the challenge of the effectiveness of boards and chief executive officers,” stated the report in part.

The task force recommended merging State corporations into a giant government-owned entity that would have the constituent parastatals as directorates.

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The boards of directors of the parastatals would be dissolved and their enabling legislation repealed.

This would save billions of shillings in wages given that more than half of the parastatals are dependent on the National Treasury to pay their salaries, which in 2013 stood at more than Sh65 billion.

However, the Government Owned Entities Bill, 2014 was shelved and the State-owned enterprises continue to be used as a vehicle to reward political patronage.

Last year, President Kenyatta appointed 125 people to serve as parastatal and board members. Many of these were politicians who lost in the 2017 general election. This comes even as Treasury was recently forced to write off Sh27 billion in bad debts owed by some of the most indebted corporations.

In May last year, Treasury wrote off Sh24 billion it had underwritten for national carrier Kenya Airways after offering the airline’s lenders a debt-for-equity swap deal.

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The airline, which last year posted a Sh7.5 billion loss, remains in the red despite several attempts at turning it around.

These include the recent failed proposal to take over the management of the Jomo Kenyatta International Airport (JKIA).

Many of the other parastatals that hold Treasury’s non-performing loans are in the agricultural sector with debt stock that stretches back decades.

The Kenya Meat Commission (KMC) is the biggest culprit with Sh940 million in non-performing loans.

The parastatal was on its death bed in the late 90s before revival attempts by the retired President Mwai Kibaki’s administration in 2003 failed to change its fortunes.

In 2013, an audit into the company by the Inspectorate of State Corporations found a Sh1.2 billion hole in the firm’s accounts, which saw almost the entire board sent home.

Sugar millers, including the troubled South Nyanza Sugar Company and Nzoia Sugar Company, owe the Government Sh199 million and Sh158 million respectively, while the defunct Miwani Sugar Mills and Miwani Sugar Company owe Sh78 million and Sh16 million respectively.

The plan to privatise the millers has failed to take off despite them operating at below capacity owing to ageing infrastructure and perennial cane shortages.

The Pyrethrum Board of Kenya, which regulated Kenya’s vibrant pyrethrum sector in the 70s and 80s, has fallen from grace in the past two decades, and last year Treasury wrote off its staggering Sh863 million debt.

The State agency was rebranded to Pyrethrum Processing Company of Kenya (PPCK) as part of efforts to breathe new life into it.

However, allegations of corruption still dog the firm, with senior management in 2017 accused of awarding themselves hefty travel allowances.

But some of the taxpayers’ investments, particularly those in listed companies or involved in more formalised sectors of the economy, are bearing fruit.

For instance, the Government’s 35 per cent stake in leading telecommunications firm Safaricom earned the State Sh15 billion in dividends in the year ended June 30, last year.

The State also raked in Sh1.6 billion from its stake in KCB Group over the same period.

The Government also earned Sh8 billion from the Communications Authority of Kenya that levies various forms of license fees to information technology service providers like mobile network operators and television broadcasters.

Other regulators that raked in significant revenue over the same period included the Insurance Regulatory Authority, which earned Sh750 million, and the Kenya Bureau of Standards (Sh100 million).

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