State-owned enterprises (SoEs) are sitting on non-guaranteed debt worth Sh111.8 billion for the last financial year that ended in June, the Treasury has disclosed, exposing taxpayers to risks of hefty bailouts in the event of default.
The outstanding loans for the review period represent a 12.65 percent, or Sh12.55 billion, growth over Sh99.25 billion debt stock in the prior year ended June 2022.
The no-guaranteed loans held by parastatals stood at 104.84 billion in the year ended June 2020 when the Treasury first made such disclosures.
The disclosures on full fiscal risks of key state-owned enterprises are part of an earlier deal the Treasury reached with the International Monetary Fund to enhance coverage on public debt to include all loans held by entities partly or fully funded by the State.
The parastatals largely contract loans to finance strategic and high-priority projects that are in line with the national development agenda.
The Treasury has in the past said the non-guaranteed loans “pose a contingent liability risk and potential fiscal commitment to the national government”.
The data shows that 58 percent of the loans were borrowed from local banks, while the remainder are denominated largely in US dollars, with a small portion in euros.
Foreign lenders owed by state-controlled entities, some of which are publicly traded on the Nairobi Securities Exchange, are First Rand Bank of South Africa, HSBC of London, and French Development Agency (AFD).
The Treasury data shows that nearly half of the total non-guaranteed debt stock is held by State-owned enterprises in the energy sector, largely Kenya Power, KenGen and Geothermal Development Company.
Kenya Power, the near-monopoly electricity distributor, held about Sh33.43 billion in non-guaranteed loans procured from a syndicated loan arranged by Standard Chartered Bank, First Rand Bank and Stanbic.
KenGen had about Sh11.97 billion, while GDC's debt was estimated at Sh2.51 billion. Major debtors include Kenya Airports Authority (Sh17.91 billion), Kenya Ports Authority (Sh14.50 billion), Kenya Pipeline Company (Sh7.09 billion) and National Oil Corporation (Sh8.57 billion).
“Contingent liabilities are frequently not recorded directly in the budget and thus are not subjected to budgetary oversight. These could lead to poor quantification of Contingent Liabilities and the possibility of large unplanned expenditures if the guarantee materialises,” the Treasury officials wrote in a draft Budget Policy Statement (BPS) for 2022.
“There is a need for monitoring of these contingent liabilities to avoid fiscal difficulties in the budget year in the event they happen.”
The non-guaranteed loans, which the firms took out largely after seeking approval from the Treasury, pose a potential financial burden on the taxpayer.
The credit was advanced by commercial lenders based on the “sound financial position” of the State corporations which have the remote risk of struggling to honour repayments.
The Treasury can only step in an unlikely eventuality of a default to avert the auction of strategic public assets committed to contract the credit.
“The entities are mandated to provide public goods, implement the government’s development agenda, policies and projects within social, business and commercial sectors of the economy,” the Treasury wrote in the Annual Public Debt Management report for the year ended June 2023.
“SOEs fund their budget through Government transfers [recurrent grants], appropriation-in-aid and loans.”