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Taxpayers bear burden of failing parastatals

By By JEVANS NYABIAGE | September 11th 2013
City Hall has defaulted on the Sh212 million loan that has now grown to Sh1.5 billion, having been procured from the United States Agency for International Development (USAid) in 1985 at an 8.5 per cent interest rate per year.


The Government spent Sh1.93 billion in the last financial year to service loans defaulted on by three parastatals, as servicing debts incurred by profligate agencies becomes a big burden to taxpayers

In the 2012/13 fiscal year, the government spent Sh470 million above the Sh1.46 billion that it had budgeted to spend on servicing principal and interest on guaranteed debt on behalf of the state corporations.

According to the Budget Implementation Review Report Fourth Quarter 2012/13 released Monday by the Controller of Budget, the variance between the budget allocation and the exchequer issues is attributed to payment of a Sh664.1 million installment on a guaranteed loan to Nairobi City Council paid in arrears in the current financial year.

Due to financial mismanagement and political interference, State corporations that had taken foreign loans on government guarantee, were unable to repay forcing Treasury to bail them out.

City Hall defaulted on a Sh212 million loan that has now grown to Sh1.5 billion, having been procured from the United States Agency for International Development (USAid) in 1985 at an 8.5 per cent annual interest rate.

The council, which is heavily indebted, was supposed to repay the 30-year loan by 2014 but it has defaulted on the back of the heavy loans burden it is carrying.

Early this year, the government paid Sh656.5 million to the Japanese International Corporation Agency (JICA) on behalf of KBC, which defaulted in honouring its debt obligations for the period ending June 30, 2013.

The public broadcaster has hit the taxpayer the most as the Treasury had to pay Sh1.33 billion to the Japanese Agency for International Development (JICA) on behalf of the public broadcaster for a 16 billion yen loan taken in 1992 —which was then Sh2.2 billion and now more than Sh15.6 billion.

FM Stations

The firm had taken the loan to spread its reach across the country through the medium wave (MW) radio broadcast network. However, the proliferation of FM stations from the mid-1990’s and mismanagement has seen KBC lose market share. The strengthening of the yen over years has made the loan unbearable to the broadcaster.

Another parastatal, the Tana and Athi River Development Authority (TARDA) forced the state to pay Sh264.9 million to service a debt owed to JICA in payouts in the first quarter of the 2012/13 financial year.

In the third quarter, the government paid Sh261.40 million, uncovering the depth of the financial trouble faced by the firm. 

Use of taxpayers’ money to bail out public institutions is coming at a time when the government is faced with a tight budget in an environment of waning revenue sources.

 Parastatals are legal entities created by governments to undertake commercial activities on their behalf. Their legal status varies from being a part of government to stock companies with the state as a regular stakeholder.

Mid this year, President Uhuru Kenyatta formed a new taskforce to recommend radical changes to public bodies. The Head of State unveiled a 10-member team to review parastatal policies, identify challenges and propose a new policy direction for State firms. President Kenyatta said that the membership of the taskforce includes professionals from the state and private sector.


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