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Economy

Treasury races to raise more cash from parastatals

Ministry of Finance Permanent Secretary Joseph Kinyua. He has told the parastatals to chip in with dividends to help bridge budget shortfall arising from rising wage bill and spending on counties. Photo/FILE
Ministry of Finance Permanent Secretary Joseph Kinyua. He has told the parastatals to chip in with dividends to help bridge budget shortfall arising from rising wage bill and spending on counties. Photo/FILE  Nation Media Group

The Treasury has ordered parastatals to submit regular dividends as it seeks to raise more revenue and cover expenditure gaps caused by introduction of counties and higher public service wages.

The Treasury said State firms should live within their means and submit expenditure plans based only on projects of confirmed viability.

In a circular to parastatal heads, permanent secretary Joseph Kinyua ordered State firms that had not yet submitted the previous financial year’s dividends to do so before they forward their proposals for the 2013-14 Budget at the end of next month.

The government also asked directors of the commercially-oriented corporations to submit dividend policy documents which could help it estimate how much revenue to expect from parastatals.

State-linked firms, especially banks, have been giving fat dividends to the Treasury every year.

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In 2011, KCB gave Sh655 million while the National Bank of Kenya (NBK) paid the Treasury Sh712 million in dividends. The Central Bank of Kenya paid Sh2 billion in the financial year ending June 2010, but did not pay a dividend in 2011.

The Treasury is under pressure to increase revenues in view of the considerable increase in wage bill following industrial unrest by teachers, lecturers and doctors.

A strike by nurses seeking to have their union registered has paralysed public hospitals since last week. The nurses want the union to press for better terms of services for them.

The expenditure ceilings for the 2013-14 Budget exceeds Sh1.2 trillion, and may reach Sh1.5 trillion when debt servicing and emoluments to constitutional office holders estimated at Sh300 billion are considered.

The gross public debt has risen to over Sh1.8 trillion, or about half of the GDP, with Sh45.8 billion being paid in interest at the end of November, up from Sh33.9 billion in October and Sh25.2 billion in September.

The Value Added Tax (VAT) Bill that would have brought an extra Sh40 billion annually by removing exemptions and zero-rating on more than 400 items is yet to be approved by Parliament.

This has constrained new revenue streams expected to yield Sh40 billion. MPs have already proposed to retain exemptions on basic items – such as foodstuffs, fertilisers, seeds, processed milk and sanitary towels.

Finance minister Njeru Githae fears the busy parliamentary calendar will stall the law, delaying the Treasury ability to raise any extra funds.

His PS, Mr Kinyua, said commercial corporations should henceforth generate reasonable returns to justify their continued existence.
He said capital projects are supposed to be benchmarked with those of the industry in which the state corporation operates.

For parastatals whose main purpose is not making profits, they are to assess each project on its socio-economic impact.

“State corporations are urged to improve efficiency in the management and utilisation of resources entrusted to them with a view to deliver services in cost effective manner,” said Mr Kinyua.

He said “state corporations should not enter into commitments or initiate new programmes, projects or activities in excess of funds allocated to them under the national budgetary provisions or funds available to them from other sources including internally generated revenues.”

Those who have served in managerial positions in parastatals say the first challenge in running the organisations is to meet the strategic goals and make a return at the same time.

“How do you make a profit when your first aim is to fulfil strategic purpose? You cannot sacrifice purpose for profit in a public organisation. However, in attempting to reach defined strategic goals, it is good if you can make a profit once in a while,” said Mwendia Nyagah, former managing director of National Oil Company of Kenya (NOCK).

Mr Nyagah said most parastatals were created to fulfil some strategic purpose but bad governance had forced the government to insist on performance for returns.

“In the past parastatals did not care how they spent public funds and actually used the organisations for patronage,” said Mr Nyagah, now a consultant in the oil industry.

Mr Kinyua said projects should only commence when funds had been identified, approved by the line Ministry and given the greenlight by Treasury.

“There should be clear indications of how each project links to one or more objectives of Vision 2030 Medium Term Plan priorities, sector and ministry strategic objectives and the corporation’s strategic plan,” said Mr Kinyua.

He added that the Treasury’s approval for domestic or external borrowing would only be granted for investments that demonstrate commercial viability and satisfy the rate-of-return criteria.

“The investment should be able to generate sufficient revenue to repay the loans in full without recourse to the Exchequer for bailout,” said Mr Kinyua.

Tony Orwochi, a research officer at the Kenya Debt Relief Network (KenDren), said up to Sh7.6 billion had been guaranteed as loans to parastatals in the past decade.

“The Treasury paid Sh1.4 billion in the last financial year for guaranteed loans. It would not be doing this if parastatals were managing their finances properly,” said Mr Orwochi.

State-owned enterprises are to submit their annual budgets for 2013/2014 financial year to the Treasury and their respective ministries by January 31.

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