Treasury spent Sh1.4bn on bailouts to June

East African Portland Cement factory in Athi River. The cement-maker’s debts have been settled by taxpayers. FILE PHOTO | NMG

What you need to know:

  • The government is now left claiming the amounts from the bailed-out firms whose financial health has worsened over the years.
  • Besides the Kenya Broadcasting Corporation (KBC), the other firms whose debts were settled by taxpayers include East African Portland Cement Company (EAPCC) and Tana Athi River Development Authority (Tarda).
  • The three companies and others have cost taxpayers billions of shillings over the years in similar bailouts, with the amount standing at a cumulative Sh4.9 billion in the past four years alone.

The Treasury spent Sh1.4 billion in the financial year ended June on settling debt owed to it by three struggling parastatals including the national broadcaster KBC.

The government is now left claiming the amounts from the bailed-out firms whose financial health has worsened over the years.

Besides the Kenya Broadcasting Corporation (KBC), the other firms whose debts were settled by taxpayers include East African Portland Cement Company (EAPCC) and Tana Athi River Development Authority (Tarda).

“During the full year 2017/18, government paid Sh1.4 billion as called up guarantee debts owed by public enterprises that were in financial distress,” the Treasury says in its latest public debt management report.

The amounts are meant to be recovered from the companies whose loans were guaranteed by the State as required by the Public Finance Management Act, 2012.

The three companies and others have cost taxpayers billions of shillings over the years in similar bailouts, with the amount standing at a cumulative Sh4.9 billion in the past four years alone.

The interest expenses have been aggravated by the weakening of the shilling over the years, with the loans denominated in US dollars, euros and Japanese yen.

The troubled firms have suffered from a mix of losses, mismanagement and fraud, leaving them technically insolvent. The government has continued to support some of the companies for strategic reasons while plans to privatise others have stalled.

Most of the loans were issued by the World Bank and foreign governments such as the United States, Japan and Germany.

Weak corporate governance, concerns over corruption and operating losses have seen the creditors demand government guarantees when issuing loans to the companies. Amounts spent on similar bailouts could rise if more publicly guaranteed debt is not paid by State-owned enterprises.

The Treasury documents show that the government is backing some Sh138.8 billion worth of loans taken by seven State-owned firms, most of which are in financial trouble.

They include Kenya Airways whose loans have been guaranteed to the tune of Sh75.7 billion, Kenya Ports Authority (Sh30.1 billion), Kenya Railways (Sh4.5 billion) and EAPCC (Sh836 million). Some of the guarantees were issued as recently as last year while others date back to 1980s.

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