Taxpayers forked out Sh17.4 billion in the nine months to March 2024 to service a Kenya Airways (KQ) loan that the government has now taken over, disclosures by the Treasury show.
The $641.49 million (Sh83.4 billion) KQ loan was a 12-year facility originally provided by US lenders Citi Bank and JP Morgan in 2017 before US export financier Private Export Funding Corporation (Pefco) took it over with the US Exim Bank and the Kenyan government joining as guarantors.
The carrier took up the loan to finance the purchase of seven aircraft and an engine but did not fully service the debt due to cash flow challenges linked to the Covid-19 pandemic disruptions.
The Treasury’s guarantee covered $525 million (Sh68.3 million), which is now being serviced fully until maturity by the taxpayer after the government converted the guarantee to external commercial public debt.
“Supplementary Budget II estimates indicate that in 2023–24, the payment of Kenya Airways PLC guaranteed debt was converted to mainstream external public debt stock, and a subsequent entry of a new external commercial loan owed to Exim Bank USA/PEFCO was captured,” said the National Assembly’s Privatisation and Public Debt Committee in a report on Supplementary Budget II and 2024–25 Budget Estimates.
“Interest and principal payments for this new loan amounted to Sh14.3 billion and Sh20.9 billion in 2023-24 and 2024-25, respectively, with further Sh21.3 billion and Sh10.7 billion in 2025-26 and 2026-27, respectively.”
The Treasury disclosed earlier that there was also an interest payment of Sh3.1 billion on the loan.
Even before the conversion of the guarantee into public debt, the government had, since last year, been servicing the debt on behalf of the airline after it defaulted on its obligations to the US Exim Bank.
The Treasury had previously indicated that the loan repayments by the government on behalf of KQ would be recovered through a subsidiary loan agreement between the government and the airline, as stipulated by the Public Finance Management Act 2012.
However, the Public Debt and Privatisation Committee has raised the red flag that the taxpayer risks losing out on the repayments following the conversion of the guarantee to mainstream debt, which would be contrary to the provisions of the Public Finance Management Act.
“While the payments made regarding guaranteed debt are recoverable subject to Section 54 of the Public Finance Management Act 2012, with the conversion of this guarantee to mainstream debt, recoverability seems less likely,” the committee said in its report.
In the six months ended June 2023, Kenya Airways reported a Sh21.7 billion net loss, even as it registered its first operating profit of Sh998 million in the period.
The restructuring of the airline and return to a sound financial path has been a key part of Kenya’s ongoing $ 4.43 billion programme with the International Monetary Fund.
The removal of the debt from the books of Kenya Airways is a positive for the restructuring efforts, making it easier for the airline to attract a strategic investor.
