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Ailing Kenya Airways gets Sh38b in fresh bailout

Kenya Airways (KQ) plane at Jomo Kenyatta International Airport (JKIA). [Edward Kiplimo, Standard]

Loss-making Kenya Airways (KQ) tops in Sh38.35 billion bailout unveiled yesterday to support struggling state-owned enterprises.

Treasury is seeking parliamentary clearance to support KQ, Kenya Power and universities such as the University of Nairobi, which have been facing cash flow problems.

If approved by Parliament, Treasury will release an additional Sh26.56 billion under public finance management vote mainly to support KQ.

“Increase is on account of provision for Kenya Power among other expenditures,” reads the supplementary budget tabled in Parliament yesterday.

The allocation comes barely a month after Treasury revealed it had dropped plans to nationalise KQ and will instead roll out a Sh147 billion ($1.3 billion) multi-year restructuring programme that includes taking over debts.

Treasury told the International Monetary Fund (IMF) it will take over KQ’s debts and roll out a series of measures including reducing frequency of flights, cutting fleet size and laying off staff.

The IMF had estimated that Treasury will require up to Sh48.4 billion additional allocation to support struggling state entities in the current financial year.

Also to benefit from the supplementary budget will be universities after the university education programme was added Sh8.58 billion.

The additional funding is current expenditure meaning that it will fund operational expenses such as salaries for lecturers.

Data from the Universities Fund —an institution that guides the allocation of State cash to public universities— had shown the funding gap for public universities had more than doubled in two years to hit Sh27 billion in the current financial year.

Universities have been struggling for survival with the reduced State funding with some like the University of Nairobi opting to raise school fees in order to cut the cash shortfall.

Kenya Power has also benefited from the budget review with Sh2.99 billion going to Kenya Power under the power transmission and distribution vote head.

Treasury’s financial evaluation conducted last year had identified that it will require Sh383 billion to bridge the liquidity gap for 18 state owned enterprises, excluding KQ, over the next five years.

Taxpayers were by end of June last year already facing a Sh1.3 trillion fiscal risk from struggling state firms which may require support for critical activities including repaying loans, paying suppliers and defending court cases.

State firms such as East African Portland Cement, Mumias Sugar, Kenya Railways Chemilil Sugar, Muhoroni Sugar, Nzoia Sugar and Sony Sugar are also either in losses or negative working capital implying their inability to service short term loans when they fall due.