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Inside Kenya Kwanza plan to end era of bailouts for State firms

President-elect William Ruto with his deputy Rigathi Gachagua and a section of Kenya Kwanza Alliance leaders. [DPPS]

Many State-owned enterprises (SOEs) that have relied on government support will have to start pulling their own weight in the Kenya Kwanza administration.

In its plan for the economy, the coalition expressly notes that some of the government-run companies that have perennially sought State support out of sticky financial situations will no longer be bailed out.

These include entities that are classified as strategic assets. By coincidence or design, this tallies with the recent push by the International Monetary Fund (IMF), which wants the government to cease throwing lifelines to SOEs.

The Washington-based lender instead insists they should be restructured into self-sustaining entities. Among the companies that the new administration is set to reform and leave to stand on their own feet within a short period are Kenya Airways (KQ) and Kenya Power.

In the plan – titled the Bottom Up Economic Transformation Agenda 2022-2027 – the Kenya Kwanza coalition said it does not expect to continue financially supporting KQ indefinitely.

It will instead come up with a sound plan that should see the National Treasury quit its support to the carrier by the end of next year.

Kenya Kwanza added that it would not burden Kenya Power with State projects such as the Last Mile Connectivity Programme, partly blamed for the company’s financial woes.

It would instead leave the firm to focus on commercial ventures and leave social functions such as increasing connectivity in less financially attractive areas to other arms of government.

In his plan, President-elect Dr William Ruto noted that KQ has in the past proved that it can run sustainably, something he expects it to do by the end of next year.

Kenya Airways (KQ) plane at the JKIA. [Edward Kiplimo, Standard]

This is even as the incoming administration said it recognises the carrier as a strategic asset.

“Before it ran into difficulties a few years ago, Kenya Airways had demonstrated that Kenya could become a major African and even global aviation hub. Kenya Airways’ financial challenges are a reflection of internal strategic and managerial mistakes rather than the market prospects,” says the coalition.

“Kenya Kwanza is persuaded that the national airline is a strategic asset that should not be allowed to fail. At the same time, it is not financially prudent to maintain Kenya Airways on life-support indefinitely.

“Kenya Kwanza commits to developing a turn-around strategy within six months. A critical plank of this strategy will be a financing plan that does not depend on operational support from the Exchequer beyond December 2023.”

Kenya Kwanza also commits to turning around Kenya Power. In doing so, Dr Ruto will be undoing the mess he, together with outgoing President Kenyatta, created in their bid to increase electricity access through the Jubilee administration’s last-mile connectivity programme.

Under the programme, households and businesses connected to the national electricity grid increased to 8.8 million in 2021 from 2.3 million in 2013 on account of the Last Mile Connectivity Programme. The programme, analysts have noted in the past, has been the undoing of Kenya Power. Being more of a social than a commercial venture, the government was supposed to foot the bill for the cheap connections, but circumstances saw Kenya Power bear the cost, with the expectation the government would refund the money.

There were, however, delays in the refunds, resulting in Kenya Power taking a hit. To bridge the gap in finances, the company had to borrow and in some instances, these were short-term costly loans that have had a huge impact on its financials. At the same time, many of the new connections have not been using much power, and this meant little or no increase in income for the company despite the expansion in the network and customer numbers.

“The connectivity drive has come with some challenges. Consumption has not risen as expected, while operational costs have increased, and this has affected Kenya Power’s financial performance. Partly as a result of these challenges, Kenya Power’s responsiveness to consumers has deteriorated,” notes the Kenya Kwanza team.

Kenya Power offices along Harambee Avenue, August 5, 2022. [Jonah Onyango, Standard]

It further notes that the company will no longer undertake programmes that are social and developmental but will be freed up to focus on its core commercial aspect of the sale of electricity.

“We will delink government development initiatives, leaving Kenya Power to operate on commercial principles. A policy, regulatory and financing framework for off-grid community-owned development projects (mini and micro-grids) will be instituted,” reads the economic plan.

Treasury recently told IMF that it has undertaken an in-depth financial evaluation and identified a financing gap of Sh383 billion over the next five years for some 18 SOEs.

Besides KQ and KPLC, the COB also identified three of the largest public universities, - the University of Nairobi, Kenyatta University and Jomo Kenyatta University of Agriculture and Technology - as a drain on public coffers.