Parastatals ordered to give back idle cash to Treasury

Acting Cabinet Secretary in the Ministry of Labour Amb. Ukur Yatani address press on July 24, 2019, at NSSF Building office in Nairobi. [Edward Kiplimo, Standard]

Cash-rich parastatals have started remitting billions to the Treasury following a directive ordering State departments to surrender surplus cash.

The State-owned entities have in past years handed the Treasury meagre dividends, with many claiming to plough back their surplus cash into different projects.

Under the latest initiative, the Treasury has directed parastatals to stop re-directing surplus funds to projects before they get approvals.

This follows regulations published in 2018 that demand parastatals remit reasonable returns to shareholders. Regulators, on the other hand, are required to remit 90 per cent of their net surplus. 

Among the firms that have so far remitted huge dividends are the Kenya Pipeline Company (KPC), which has returned Sh5 billion, and the Kenya Airports Authority (KAA) that remitted Sh12 billion.

Officials at the Treasury said they expected more companies to pay up today, ahead of a deadline that Treasury had given earlier this year.

The Treasury has also promised that it will provide a full list today of State firms that have honoured the directive, which is seen as an attempt to mobilise the last shilling to help bridge the country’s growing Budget deficit.

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KPC yesterday confirmed that the money paid to the Treasury was in the form of a special dividend that had accrued following close to two years of pursuing a lean financing strategy.

“We have been trying to drive efficiency, and over the last 18 to 24 months, we have gone from a position of having just enough cash, to a position where we have substantial cash. From the savings that we have made through running efficiently, we are now able to pay a special dividend to Treasury,” said KPC Chairman John Ngumi.

He added that the firm felt that it was comfortable giving its shareholder the extra cash. 

The move was, however, questioned by the Departmental Committee on Energy Chair David Gikaria, who argued that KPC had other pressing needs that are still unattended, and it could have used the funds to address them.

“Under Cap 486 in the Companies Act, it stipulates very clearly that a company will do business with the sole intention of getting profits,” said Mr Gikaria, who is also the MP for Nakuru Town East.

“If you get these profits, there are two issues: give back some to shareholders, and whatever is left is pumped back to improve services.”

The Treasury has in the recent past decried the poor dividends it receives from State companies, and said it is exploring enlisting the services of the Kenya Revenue Authority (KRA) to improve collections. 

According to the latest Budget Review and Outlook Paper, dividends received from State corporations remained below target, with cash received in the last financial year coming to a low Sh8.9 billion.

“During the 2017-18 financial year, the government received investment income in the form of dividends, surplus funds and directors’ fees amounting to 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 the 2016-17 financial year,” said Treasury last year.

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ParastatalsNational TreasuryUkur YataniKRAKPC