Debt-laden State broadcaster teeters on brink of shutdown

PHOTO | WILLIAM OERI The entrance to the Kenya Broadcasting Corporation in Nairobi.

What you need to know:

  • The debt-ridden corporation is seeking a Sh4.3 billion rescue package from the government over the next two years
  • A Cabinet memo drafted in July by the Ministry of Information seen by Smart Company points out that KBC is cracking under the weight of debts amounting to Sh1.56 billion
  • In the 2010/11 financial year, KBC recorded a Sh2.3 billion deficit

Years of neglect have seen the State broadcaster flirt with collapse as revelations emerge that the Kenya Broadcasting Corporation needs about Sh7 billion to remain afloat.

The debt-ridden corporation is seeking a Sh4.3 billion rescue package from the government over the next two years.

The request is contained in a Cabinet memo drafted in July by the Ministry of Information and Communication and signed by the minister, Mr Samuel Poghisio. The memo seen by Smart Company points out that KBC is cracking under the weight of debts amounting to Sh1.56 billion.

KBC is currently unable to finance its recurrent and development expenditure. The broadcaster also finds it difficult to meet operating costs like water and power bills. In the 2010/11 financial year, it recorded a Sh2.3 billion deficit.

Urgent policy intervention

“This requires an urgent policy intervention to rescue the corporation from collapse,” Mr Poghisio notes in the memo.

The current management puts the power bill at Sh34 million a month, driven largely by obsolete equipment and expansive transmitter stations meant to help it meet its obligation to broadcast to all corners of the country. Accomplishing this duty is now in doubt, given the Sh1.56 billion debt and lack of funds to maintain and buy new equipment.

These difficulties have been partly attributed to waning revenues over the past decade as KBC found itself on the losing end of a heated battle among local broadcasters for advertisers, viewers, and listeners.

“When the Narc government came to power in 2003, one of the things they did was to cancel permit fees for radio and TV. The policy makers, however, forgot to give KBC alternative revenue streams as this was the broadcaster’s lifeline,” said Mr Waithaka Waihenya, the KBC managing director, who pointed out that the charge was enough to finance the broadcaster’s operating costs.

The cut and the fact that the country was moving to a liberalised media hit the broadcaster’s bottom line, pushing it to its current sorry state.

KBC owes the Kenya Revenue Authority Sh452 million in value added and pay as you earn tax arrears accrued before 2006.

Foreign programme suppliers are claiming Sh137.2 million while Sh458 million is due to the KBC staff pension scheme in unpaid employer and employee deductions.

The broadcaster also owes the City Council of Nairobi Sh522 million in land rates for the KBC Norfolk land parcel and its main offices premises.

The ministry is asking the government to clear KBC’s pending bills and cover the cost of rationalising its “bloated” staff. It has 883 permanent staff and 400 non-permanent employees.

The company’s wage bill is Sh828.96 million against an estimated annual income of Sh1.6 billion. The wage bill rose to Sh919.79 million in July this year after the management granted striking staff a salary increase.

Information and Communication permanent secretary Bitange Ndemo said the planned changes were aimed at making KBC more competitive in the current broadcasting environment.

“Right now, KBC cannot compete with the private industry. It does not have the equipment, qualified personnel, or funds. The restructuring will help resolve this problem,” he said.

After the bills have been cleared and staff rationalisation completed, the ministry hopes to attach a further Sh900 million annually of taxpayers’ money to pay for public broadcasting services.

The funds will go into modernising the broadcasters’ equipment, expanding coverage to all counties, and migrating from medium wave to FM in vernacular radio transmission.

Kenya’s plan to migrate to the digital broadcasting platform is putting pressure on KBC’s pocket and the ministry wants the government to subsidise the rolling out of infrastructure to the tune of Sh800 million. “It is critical that the government funds public broadcasting,” said Mr Waihenya.

KBC’s subsidiary, Signet, is one of the companies tasked with rolling out digital television infrastructure and the State broadcaster has spend Sh1.5 billion over the past three years to fund its activities.

KBC’s woes have been traced to the 1989 transition from the fully government-funded Voice of Kenya (VOK) to an entity with limited government funding that was still expected to fulfil the role of public broadcaster by providing universal access to information. (Timeline: Ups and Downs of the Kenya Broadcasting Corporation)

The State broadcaster was expected to raise revenue through sale of advertisement. Although the name and funding changed, KBC inherited VOK’s large, inefficient workforce.

In 1989, KBC also borrowed Sh2.3 billion (16 billion Japanese yen) from the Japanese Government to purchase new equipment. This line of credit, meant to revitalise broadcasting services, would return to haunt the firm.

In the 1990s, KBC would continue to be on the receiving end of Kenya’s increasingly liberal communications sector. Competition for advertising revenue rose as new players came on the scene.

Following the enactment of the Kenya Communication Act in 1998, KBC lost one of its key revenue streams as the government revoked its right to issue licences to radio and television owners.

At the same time, interest from the 1989 Japanese loan was accruing. KBC’s equipment was aging and with reduced revenues, the firm could not replace it as easily as its counterparts in the private sector. As of May this year, the Japanese loan had ballooned to Sh22 billion and the Treasury was paying it off, then billing KBC.

“The capacity of KBC to meet its financial obligations through advertising revenues has been greatly reduced by the multiple commercial players in the industry and the fact that it no longer issues licences to Kenyans owning TVs and radios,” Mr Poghisio says in the memo.

The firm, which currently controls more than 10 television and radio products, saw its market share decline progressively. According to research by audit firm Deloitte in March 2012, KBC had less than 10 per cent market share in radio broadcasting. In television, it had the third largest market share, controlling less than 20 per cent of national viewership.

Earlier this year, matters came to a head as the State broadcaster’s staff downed their tools, protesting at poor working conditions, mismanagement, and low pay. On March 1, the employees, through Gwassi MP John Mbadi, filed a petition in Parliament, asking the government to investigate misconduct at the national broadcaster.

During the parliamentary hearing, Finance minister Njeru Githae testified that the government had allocated KBC Sh650 million in the 2011/12 financial year, up from Sh450 million in 2010/11.

However, this was still a drastic drop from the Sh1.3 billion allocated in 2007/08. He also said that the Treasury had considered the reinstatement of TV and radio permit fees to boost KBC’s revenues.

In the subsequent report by the joint committee on Energy, Communications, and Information and the House Broadcasting Committee, it was recommended that KBC be split into three departments — commercial, technical, and public service.

On competition in the broadcasting sector, Deloitte echoed the joint parliamentary committee report by recommending that KBC’s public-service and commercial activities be separated operationally and financially. The audit firm also called for a transparent accounting system and recommended that transactions carried out between the public-service and commercial arms be done at market rates.

Dr Ndemo said split of services was underway. KBC’s infrastructure department will offer a platform for distribution of digital signals, the public service will provide universal access to information without the burden of raising finances to perpetuate its existence, while the commercial department will make money for the group.

He added that the Treasury was yet to give its nod to the request for more funds. Five years ago, Mr Poghisio proposed a similar scheme to save KBC but failed to get the Finance ministry’s approval. It is, therefore, not clear whether Mr Githae will be amenable to the latest plan.

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