Companies

State unveils Sh36bn Covid bailout for KQ, Kenya Power

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Treasury Cabinet Secretary Ukur Yatani. FILE PHOTO | NMG

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Summary

  • The government will spend Sh36 billion to bail out key parastatal which have sunk into losses as a result of Covid-19 economic fallout.
  • The National Treasury said companies including Kenya Airways, Kenya Power, and several universities need urgent support after their revenues dropped sharply during the pandemic.

The government will spend Sh36 billion to bail out key parastatal which have sunk into losses as a result of Covid-19 economic fallout.

The National Treasury said companies including Kenya Airways, Kenya Power, and several universities need urgent support after their revenues dropped sharply during the pandemic.

International Monetary Fund (IMF) has revealed the bailout plans in the agreements it has reached with the government as conditions for offering Kenya the latest Sh255 billion loan.

“As a result of immediate requirements that have been identified, we plan to spend a total of Sh36 billion on extraordinary SOE support in FY2020/21. All such extraordinary support is being based on careful evaluation of need and accompanied by steps to ensure that the entities are put on a sound footing,” Kenyan authorities said.

The agreements also reveal that Kenya has committed to audit nine key parastatals and reform them, according to IMF guidelines to ‘rationalise government involvement in the sector and ensure the viability of State Owned Enterprise (SOEs)’ continued operations’.

These include Kenya Airways, Kenya Airports Authority, Kenya Railways Corporation, Kenya Power and Lighting PLC, Kenya Electricity Generating Company PLC, Kenya Ports Authority, and three of the largest universities.

For Kenya Airways, the government has committed to hire an independent consultant to audit the airline and find the cheapest way of restructuring it.

The Covid-19 shock has created acute financial stress in several fully or partially government owned entities.

In many cases, SOEs were already struggling financially before the pandemic, and the added financial stresses have necessitated government liquidity support.

Kenya Airways (KQ) net loss nearly tripled to Sh36.2 billion, the worst ever in the history of the airline.

Kenya Power half-year net profit declined 80 per cent to Sh138 million in December 2020 from Sh692 million in 2019 on higher financing costs as a result of unrealised foreign exchange losses occasioned by the depreciation of the shilling against major foreign currencies.

It, however posted a net loss of Sh939 million for the year ending June 2020 after getting a Sh6.1 billion tax credit lifting the company from a pre-tax loss of Sh7 billion.

Chinese built standard gauge railway (SGR) posted a combined operating loss of Sh21.68 billion in the three years to May last year straddling Kenya Railways with huge losses.

The government has also promised the IMF it will conduct a special audit of all the money spent on Covid-19 interventions and publish the results by end of May.

In the eight months to November last year, Kenya had increased its stock of public debt by Sh971 billion under the cover of fighting the Covid-19 pandemic.