Puzzle of perpetually penniless parastatals

The Auditor-General has raised issue with the financial stability of a number of State corporations, saying without national government support, they would collapse.

Ms Nancy Gathungu notes that besides government support, continued sustainability of the firms depends on creditors and development partners’ support.

The Public Investments Committee (PIC) in its 23rd report on audited accounts of State corporations currently before the National Assembly, reveals a weak financial position of the agencies, an indication that they may not meet their obligations in the long run if the trend persists.

Kenya Wildlife Service (KWS) for instance recorded a deficit of Sh680.52 million during 2016/17 financial year. This brought the accumulated deficit to Sh4.43 billion because the internal revenues and government support were not adequate to cater for the operating costs and personal emoluments.

Sh48 million

The Sacco Societies Regulatory Authority (Sasra) is also in the red. It realised deficits of Sh23 million during the 2014/15 financial year, rising to Sh48 million in the subsequent financial year.

“It was observed that State corporations over-relied on government grants for continued operations without enhancing internally generated funds,” Ms Gathungu says, adding, “It is a going concern in the absence of support from the National Treasury.”

This comes at a time the national government is facing difficulties raising revenue to finance its operations.

For instance, in the 2020/21 financial year, the government plans to borrow at least Sh1.1 trillion to finance the Sh2.79 trillion budget that is largely recurrent with about Sh600 billion going for development projects.

A task force on State corporations chaired by former Mandera Central MP Abdikadir Mohamed recommended merging of some parastatals, including the perennial loss-making ones.

To address the issue, PIC chaired by Mvita MP Abdulswamad Sharif wants the heads of State corporations to develop and run models that maximise on returns as well as service the public. The South Eastern Kenya University did not carry out development projects amounting to Sh55.60 million in the 2015/16 financial year as these were grants budgeted for, but not received from the national government.

In the 2015/16 financial year, the Kenya Veterinary Board made a loss of Sh12.94 million. The loss was attributed to a decline in government grants by Sh7.47 million against an increase in expenditure during the year under review.

The report also notes that the Kenya Nuclear Power and Energy Agency also experienced a similar challenge. The committee has further raised concern over the huge amounts the State corporations incur in nugatory expenditures largely attributed to interest on delayed payments due to contractors.

Delay payments

This comes as the watchdog committee warned that accounting officers or board members that unreasonably delay payments when due leading to interest accruement should be held responsible for the loss of public funds.

“Some of the explanations advanced occasioning such delays were attributable to late exchequer releases and court cases,” Mr Sharif says, noting that the Kenya National Highways Authority (KeNHA) is notorious.

The committee’s report reveals that KeNHA paid Sh194 million to the contractor of Thua Bridge due to delayed payments brought about by the late exchequer releases.

The construction of the Hazina Trade Centre by the National Social Security Fund (NSSF) is another case that saw huge amounts of public funds incurred in nugatory expenditures.

On May 31, 2017, according to the PIC report, the contractor had raised a claim of Sh6.88 billion due to delays in having payments settled. The amount would, however, be assessed to Sh871 million by the Department of Public Works with the decision communicated to the NSSF management on April 12, 2020.