The approval of the 2019/20 budgets for State corporations has suffered a hitch after the Treasury rejected most of them, citing an overshoot in spending limits and ambiguous expenditure plans.
“In the process of review it has been noted that concise explanatory notes to the submitted budget and financial statements were not provided by majority of the State corporations as required by Treasury Circular No. 14/2018 of November 27, 2018,” Treasury Permanent Secretary Kamau Thugge said in an April 15, 2019 circular to chief executives of all State corporations.
“Further, it has been noted that some state corporations have factored GoK (Government of Kenya) grants for both recurrent and development budgets that are above what has been agreed and allocated by line ministries during the financial year 2019-20 sector working groups,” he added.
Explanatory notes are crucial disclosures that further explain numbers on the financial statements or budgets by providing details to justify the amount allocated per item.
In its guidelines for budget preparations for 2019/20, the Treasury demands that State corporations only take up priority projects that they could afford and are consistent with objectives of their respective sector and line ministry.
Further, State Corporations are also required to submit a summary of the feasibility study reports and concept or justification notes for the projects they intended to implement.
“State corporations should not initiate new projects of more than Sh 100 million before undertaking feasibility study whose outcome provides proper project justification/rationale and viability of which are approved by the line Ministry and The National Treasury and Planning,” the guidelines read in part.
The corporations are additionally required to take into account funding requirements of all ongoing projects and multi-year funding requirements of capital projects up to their completion before initiating any new projects.
The Treasury has been keen to lock out funding of phantom projects as the government moves to rein in wasteful spending to stay within austerity measures adopted by the government.
The decision by the Treasury to reject most of the budget proposals threw many State corporations into confusion after they were handed a grace period of only four days to make changes. The deadline for the fresh submission of the amended document lapsed on Friday.
“The management of the respective State corporations are requested to submit the detailed breakdown of the rationalised recurrent and development budget to the office of the Director-General, Public Investments and Portfolio Management, National Treasury not later than April 19th,” the circular directed.
It was not immediately clear how many State corporations had complied by Friday.
The move by the Treasury sheds the spotlight on questionable spending by some State corporations on stalled projects, pending bills and non-servicing of debts.
Over 30 CEOs of State Corporations are under investigation or prosecution for various corruption related offences, as noted by President Uhuru Kenyatta during the recent State of the Nation address.
Some of the corporations like the Kenya Airports Authority (KAA) and the National Social Security Fund (NSSF) were in the spotlight for questionable payments of billions of shillings on projects.
Last year, the Kenya Airports Authority paid two Chinese firms Anhui Construction Engineering Group Ltd and China Aero-Technology International Engineering Corporation, Sh4.3 billion yet no work had been done on the cancelled Greenfield Terminal at the Jomo Kenyatta International Airport in Nairobi.
The NSSF hired China Jiangxi to finish building the 39-storey Hazina Tower between June 2013 and July 2016. It paid the Chinese firm Sh2.5 billion last year, yet the project stalled on the 15th floor.
Treasury Secretary Henry Rotich had last year cautioned of a bloated project portfolio, stalled projects and inflated costs contributing to the under-execution of budgets by State corporations that delayed translation of the investment in projected economic gains.
He had warned them that incurring expenditure not approved by their parent ministry and the National Treasury is irregular and they will be held personally liable for such expenditures.
Mr Rotich had further directed State corporations not to borrow from external sources, saying they must first clear outstanding debts as the government tightened the noose on wastage amongst its agencies.
“The National Treasury will not give concurrence for borrowing or make recommendation for National Government guarantees of corporations which are in default of loan repayments or other statutory obligations,” he said.
Rejection of the budget proposal comes months after the Treasury, through the draft Public Investment Management (PIM), proposed a powerful agency to vet and approve new public projects valued above Sh100 million to curb rampant wastage of billions of shillings.