Taxpayers might be forced to repay Sh170 billion loans three State-owned enterprises took after the Treasury omitted them from a list of guaranteed debt yet retained in the debt-stock computation.
The auditor-general has flagged the omission of the guarantees to Kenya Airways (KQ), Kenya Ports Authority (KPA), and Kenya Electricity Generating Company (KenGen) in a National Treasury statement for financial year ended June last year.
The national carrier, in particular, is in a weak financial position and a substantial part of its obligations including guaranteed debt have been picked up by the Treasury in the past five years.
At the end of the review period, the Treasury reported the total loans guaranteed by the government was only Sh152 million— which is owed by the defunct Cereals and Sugar Finance Corporation— but left out the Sh170 billion which had been recorded in the previous financial year.
“The summary statement of public debt stock for the year ended 30 June, 2023 reflects guaranteed debts from three entities totalling Sh170 billion which have been omitted from the statement of obligations guaranteed by Government of Kenya,” auditor-general Nancy Gathungu said in the audit report for the 2022/23 financial year.
“In the circumstances, the completeness, accuracy and the status of the outstanding obligations guaranteed by the Government of Kenya as at 30 June, 2023 could not be ascertained.”
Of the Sh170 billion, Kenya Airways owes Sh88 billion, KPA (Sh79 billion) while KenGen owes Sh2.5 billion.
The State is obligated to service the guaranteed loans in case the corporations default.
“Although the guaranteed loans are serviced by the recipient entities and would only be charged to the Consolidated Fund in cases of default, the guaranteed loans constitute contingent liabilities and form part of public debt,” Ms Gathungu said.
Shareholder loan
During the audited period, KQ had defaulted on repaying the guaranteed debt that it owed the Export-Import (Exim) Bank of US, officially making it a liability of the government as the guarantor.
The Treasury started to repay the debt in October 2022, and had paid Sh12.3 billion by the end of the financial year, according to audited financial statements of the ministry.
In its annual report to shareholders for 2022, KQ said it will treat this amount as a “shareholder loan,” and will be duly repaid in line with the terms of other such loans.
However, while there is no news of default on the loans advanced to KPA and KenGen, the Treasury might have silently taken over their repayment as well, albeit without disclosed terms, putting more pressure on the exchequer, which is already strained with other loans.
In the 2021/22 financial year, the National Treasury had reported in different statements that it had guaranteed the Sh152 million loan taken by the Cereals and Sugar Finance Corporation and Sh145 billion taken by four other State corporations.
At the time, the audited statements revealed that the total State guarantees amounted to Sh145.5 billion, with KQ’s debt being Sh77.8 billion, KPA’s Sh33 billion, KenGen’s Sh24.5 billion, and Kenya Power (Sh9.9 billion).
KPA’s debt has since more than doubled, KQ’s accrued more interest, while KenGen’s loan decreased.
Kenya Power's debt was officially taken over by the Treasury in return for asset transfers to the State-owned Kenya Electricity Transmission Company.
KPA is fully State-owned, but the government has expressed intentions to privatise it, while KenGen and KQ are 70 percent and 48.9 percent in the hands of State respectively.
Added to the omission of the three loans, Ms Gathungu says the Sh152 million reported in the Treasury’s statement of obligations guaranteed was also not substantiated, yet the State institution is being wound up.
“Although management has indicated that the activities of the State corporation will be closed once winding up process has been finalised, it is not clear how the guaranteed debt will be cleared without supporting documentation on the same,” the auditor-general said.
