The taxpayer will continue to bear the cost of servicing the debt of a fertiliser factory that was never realised to keep its credit rating high and attract financing, Finance ministry PS Joseph Kinyua said on Tuesday.
Mr Kinyua said that a decision to stop paying the debt would see Kenya lose support from global financiers, stalling key development projects.
The government entered into an agreement with a collapsed American firm, N-Ren, to guarantee the construction of a fertiliser plant back in 1970 at a cost of Sh350 million at an interest of 8.5 per cent. The debt has since risen to Sh5.1 billion.
“It is in the interest of the country that we avoid suffering lower credit rating,” said Mr Kinyua in response to a report from the office of the Controller of Budget mid this month that blamed the government for spending billions of shillings to service ghost debts.
In April , Kenya was given a strong debt rating of B+ (stable) by rating agencies Fitch, and Standard and Poors. The country has been seeking financing arrangements such as syndicated loans to keep its key infrastructure projects rolling. The loans are largely dependent on a country’s rating.
Mr Kinyua was speaking in Nairobi on Monday when he presided over the signing of partial risk guarantees to guarantee financing of private power producers.
The office of the Controller of Budget said Sh731.7 million of taxpayer funds was spent on the debt in the financial year ending July 31, 2012.
The Treasury paid Sh676 million in principal and Sh53.7 million as interest chargeable on the debt. Ken-Ren was a joint ownership of Kenya and N-Ren Corporation in which the two entered into several financing and equipment procurement contracts with various Austrian and Belgian banks and suppliers. The Government of Kenya was the guarantor.
The total guarantee provided to Ken-Ren, by the Kenyan government, was $42,796 million (about Sh350 million). The suppliers of equipment and machinery were Coppee-Lavalin of Belgium, and Voest Alpine of Austria.
The fertiliser factory project failed to take off and Ken-Ren was subsequently placed under receivership in September 1978, with the Registrar-General appointed the official receiver and provisional liquidator.
Kenyan taxpayers will have paid over Sh5.1 billion by 2015 when the debt payment will come to an end. Ken-Ren was to build a factory at Changamwe, Mombasa.