Treasury unveils Sh95b parastatal bailouts

The National Treasury building in Nairobi on Sunday, May 24, 2020. PHOTO | DENNIS ONSONGO | NMG

The Treasury has budgeted Sh95.5 billion to partly ease cash crunch in key parastatals in three years from July 2022, citing their strategic roles in economic development.

A fiscal risk analysis conducted early this financial year estimated 18 key parastatals face a cash shortfall of Sh382 billion in five years in the wake of Covid-19 hurting their revenue streams.

The financial boost to debt-laden State-owned enterprises comprises Sh36.1 billion for the year starting July 2022, Sh36.6 billion for the one following and Sh22.8 billion the final tranche.

No bailout cash was allocated to the parastatals in the initial budget for the current financial year, which was approved by lawmakers in June, allowing the Treasury to provide the billions through a supplementary budget.

Cash-strapped State-run firms— including Kenya Airways, Kenya Power, Kenya Wildlife Service and several universities — got a cumulative Sh36 billion bailout in the year ended June 2021 after their revenue streams were eroded by pandemic trade shutdowns and travel restrictions.

“State Corporation Enterprises offer social goods and services to the society, therefore, by not allocating funds to run their operations, most Kenyans will be deprived [of] their rights,” Treasury Cabinet Secretary Ukur Yatani wrote in the proposed medium-term expenditure plan for the period ending June 2025.

Some of the large parastatals that pose a high degree of fiscal risk for taxpayers include Kenya Airways, Kenya Railways Corporation, Kenya Power #ticker:KPLC , Kenya Airports Authority, Kenya Electricity Generating Company and Kenya Ports Authority.

For example, the near-monopoly Kenya Power, which has seen operating costs rise faster than revenue in recent years, is struggling to service nearly Sh54 billion it owes various groups, including Standard Chartered Bank, NCBA, Equity and Rand Merchant Bank of South Africa.

Public universities, on the other hand, are facing Sh27 billion funding gap, according to the Universities Fund (UF), and have struggled to honour obligations such as payroll taxes, retirement benefits and insurance premiums for employees.

The bailout will cover about a quarter of the shortfalls in budget outlays for the parastatals in coming years, with the balance to be sourced through borrowing which will either be guaranteed or approved by the Treasury.

“The government is cautious in the issuance of guarantees and other support measures to State corporations upon such requests,” Mr Yatani says. “However, as the principal owner of all State corporations, the Government is the natural underwriter of the risks they face.”

The strategic parastatals are grappling with debts amounting to nearly Sh1.33 trillion, according to the latest Treasury estimates.

The fiscal risks facing key State corporations comprise Sh664.04 billion in loans the Treasury borrowed on their behalf and Sh239.74 billion in government-guaranteed debt.

Other debts include Sh103.07 billion non-guaranteed borrowing which the Treasury approved and Sh108.55 billion in contingent liabilities such as pending court cases.

The Treasury said earlier it wrote off Sh37.06 billion on-lent loans to struggling parastatals in the year ended June 2021 to keep them afloat, exposing the deteriorating financial health of the State-controlled firms.

The on-lent loans which were written off were part of about Sh74.01 billion that were in arrears in the year through June 2021, comprising Sh38.03 billion in principal sums and Sh35.98 billion in interests.

The State-run firms that defaulted were in water and irrigation (Sh22.72 billion), transport and infrastructure (Sh17.46 billion), planning and devolution (Sh15.56 billion) and agriculture and livestock (Sh12.64 billion).

“Due to the strategic nature of those State-owned enterprises and public companies in view of the national interest and the overall impact of their failure to the economy, the Government may be morally obligated to bail out those State-owned enterprises and public companies in financial distress,” the Treasury says in 2022 Budget Policy Statement (BPS).

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