Treasury mulls paying suppliers owed by counties directly

The Treasury seeks to settle all pending bills at the counties directly with suppliers to end a problem that has destroyed thousands of businesses.

Principal Secretary Julius Muia told MPs yesterday that the move would ease the pressure on counties and restore business trust in public bodies.

“It is a discussion we are having with the Office of the Controller of Budget. This, however, requires an amendment of the law and we are looking at how we can do it,” the PS said in Nairobi yesterday.

Mr Muia had appeared before the National Assembly’s Energy Committee to explain the ministry’s role in signing of Power Purchase Agreements (PPAs).

Gem MP Elisha Odhiambo sought to know why the Treasury had allowed counties to delay the settlement of bills owed to Kenya Power when it could initiate measures to pay it directly to boost the firm’s liquidity.

“Counties owe Kenya Power billions of shillings in electricity bills. Why can’t the Treasury deduct these monies at source before disbursing funds to counties so that it helps the company get back to its feet?” the MP posed.

Treasury said it had prevailed on counties to pay up to Sh2.5 billion of the Sh4 billion they owed the company.

In its 2021 Budget Review and Outlook Report submitted to Parliament last month, the Treasury said counties owed suppliers Sh89 billion. This was made up of Sh51.28 eligible and Sh37.7 billion unverified claims, underlining the struggle counties are having in settling bills. 

“The National Treasury has requested OAG (office of the Auditor-General) to conduct a special audit as at June 30, 2020 as well as for the disputed pending bills. As at June 30, 2021, county governments had paid a total of Sh39.8 billion (77.66 per cent) of the eligible bills,” the Treasury said.

“In regards to ineligible bills, county governments formed Pending Bills Verification Committees which verified and paid Sh6.1 billion. The total outstanding bills, both eligible and ineligible as at June 30, 2021 stood at Sh43.04 billion.”

Governors have, however, vowed to reject the Treasury’s proposals, arguing that such a move would be illegal.

Laikipia’s Ndiritu Murithi, who serves as the chair of the Finance, Planning and Economic Affairs Committee of the Council of Governors, said they would oppose the move because it would amount to “blackmail”.

“We’ll resist it with all our might. The days of draconian procurements are long gone,” Mr Muriithi said, adding that the Treasury should focus on stimulating the economy.

“Should Treasury not wait for Auditor-General’s report on pending bills before making such pronouncements? Article 225 outlines the procedures that should be followed before such changes are made,” he added.

While the article gives the Cabinet Secretary powers to stop transfer of funds to counties or State entities on “serious material breach or persistent material breaches of the measures established under that legislation”, this has to be approved by Parliament.

“A decision to stop the transfer of funds under clause (3) may not stop the transfer of more than fifty per cent of funds due to a county government,” a clause of the article states.

The Treasury aims to increase allocation of funds to counties in equitable share to Sh406.5 billion in the financial year 2022/23, up from Sh370 billion this year, while the contingency fund will get Sh5 billion.

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