Companies

State firms rescued in Sh37bn debt write-offs

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National Treasury building. FILE PHOTO | NMG

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Summary

  • The on-lent loans which were written off to keep the State-backed firms afloat were part of the slightly more than Sh74.01 billion that were in arrears in the review period.
  • The Treasury usually borrows cash from foreign and domestic lenders for on-lending to State-owned enterprises (SOEs) that play a strategic role in the economy.

The Treasury wrote off Sh37.06 billion debts by struggling parastatals in the year ended June 2021, exposing the deteriorating financial health of the State-controlled firms tasked with strategic roles in economic development.

The on-lent loans which were written off to keep the State-backed firms afloat were part of the slightly more than Sh74.01 billion that were in arrears in the review period, comprising Sh38.03 billion in principal and Sh35.98 billion in interest.

The Treasury usually borrows cash from foreign and domestic lenders for on-lending to State-owned enterprises (SOEs) that play a strategic role in the economy, but cannot get funding on their own because of their weak financial positions.

As a prerequisite, the Treasury should ensure the projects funded through on-lent credit “hold a top-level priority on the development agenda of the government”.

“[A] majority of the SOEs are facing financial constraints and have applied for consideration of their loans to be written off,” the Treasury said in the annual debt report for the review period.

The outstanding stock of on-lent loans to State-controlled entities stood at Sh921.93 billion at the end of June 2021, the Treasury data shows, a growth of nearly Sh54.93 billion, or 6.34 percent, over Sh867.01 billion a year earlier.

The disclosures are part of the latest International Monetary Fund (IMF) programme which in April gave Kenya access to $2.4 billion (Sh266.4 billion under prevailing exchange rates) over 38 months towards budgetary support.

The IMF programme requires the Treasury to expand coverage of public debt to include all loans held by entities partly or fully funded by the State.

Previously, the Treasury only captured parastatal loans it has guaranteed when compiling quarterly public debt reports.

Haron Sirima, the director-general for Public Debt Management Office at the Treasury, told the Business Daily in April the expanded coverage on debt exposure — which now captures parastatals, State-owned agencies such as universities and county governments — was aimed at “enhancing transparency”.

The Treasury says only 15 out of 56 parastatals that had government on-lent credit as of June 2020 serviced their loans in the year ending June 2021.

Receipts from on-lent facilities amounted to Sh8.35 billion in the review period, comprising nearly Sh6.26 billion in principal sums and Sh2.1 billion interest.

This translates to 11.29 percent of the Sh74.01 billion which were overdue by end of June 2021.

Power producer KenGen — which held Sh115.61 billion in on-lent loans the previous year — accounted for 92.91 percent, or Sh7.76 billion, of the repayments, the data shows.

Struggling Kenya Power, which had the second-highest stock of on-lent loans as of June 2020, did not make any repayments in the year under review.

The presidential task force mandated to come up with a strategy to turn around fortunes at the near-monopoly electricity distributor is now pushing for a two-year moratorium on the debt obligations.

The Treasury has, however, flagged water supply and irrigation firms, whose on-lent loans topped Sh169.44 billion at the end of June 2021 as notorious defaulters.

The data shows Nyeri Water and Sewerage (Sh65.23 million), Eldoret Water and Sewerage Co. Ltd (Sh39.96 million), and Lake Victoria North Water Services Board (Sh10.65 million) serviced the on-lent credit facilities out of more than 15 water and sewerage firms with outstanding loans.

“Most waterworks development agencies face financial difficulties and, thus, are unable to meet their on-lent loans obligations,” the Treasury says. “An Inter-Ministerial Committee has been constituted to review all water sector loans and recommend the mitigation measures to be adopted.”

Overall, most of the parastatals which have defaulted are in water and irrigation (Sh22.72 billion), transport and infrastructure (Sh17.46 billion), planning, and devolution (Sh15.56 billion), and agriculture and livestock (Sh12.64 billion).

The debt report does not disclose the parastatals whose on-lent loans have been pardoned.

The Treasury, however, says it has taken over the debt it on-lent to Kenyatta University (Sh10.86 billion as of June 2020) to build Kenyatta University Teaching, Referral and Research Hospital.

The government has since taken over the management of the hospital to “recover the loan amount after non-settlement of their arrears”.

The Treasury further says on-lent loans to Agro-Chemical and Food Co. Ltd (Sh2.85 billion as of June 2020) and Kenya Meat Commission (Sh940.24 million) will “henceforth be addressed under the privatisation framework” as the two firms are set to be sold to private investors.

This comes on the back of an earlier report by the Treasury that more than half of Kenya’s 247 parastatals posted either a deficit or a loss in the last financial year that ended in June 2020.