KPLC, KQ, Sugar Millers Reap Big in Bail-out Plan

Sugar millers, Kenya Airways, and Kenya Power stand to benefit the most from the government’s bailout plan for bankrupt institutions, with the Treasury earmarking billions for the initiative.

This comes as the Treasury remains concerned about prospective loan defaults by state-owned companies and some universities, which have remained in debt despite numerous bailouts.

President William Ruto has reaffirmed his government’s support for reviving the debt-ridden failing organizations for economic gain.

Among these are state-owned sugar companies Nzoia, Chemelil, Miwani, Muhoroni, South Nyanza, and Mumias, for which the Cabinet has approved a Sh117 billion rehabilitation and commercialization plan.

During a five-day development visit to Western Kenya, Ruto stated that his government had a detailed plan for the country’s sugar industry.

“I have asked the members of parliament to write off the debt facing our state-owned cane millers,” Ruto said.

Kenya Power’s balance sheet is also being restructured, with a Sh19.4 billion bailout plan concentrating on the massive loan balances, payables, and receivables.

The government, according to Treasury CS Njuguna Ndung, is pursuing a four-point action plan that includes, among other things, the transfer of all transmission assets and lines to Kenya Electricity Transmission Company (KETRACO).

It also wants to close a Sh19.4 billion operational and maintenance cost imbalance in Rural Electrification Schemes (RES) by June 2022.

Kenya Power, Rural Electrification, and Renewable Energy Corporation (REREC) will also enter into a commercial contract for the future maintenance costs of Rural Electrification Schemes.

The corporation is seeking government assistance in converting a portion of its dollar-denominated debt to Kenya shillings in order to relieve pressure caused by the local currency’s depreciation.

If Treasury listens, up to 30% of its foreign currency loan book, according to managing director Joseph Siror, might be re-denominated.

According to the most recent annual report, Kenya Power’s total borrowing in the fiscal year ending June 2022 was Sh103.8 billion, of which Sh76.2 billion was issued in US dollars.

The remaining debt was divided into two parts: Sh17.5 billion in Kenya shillings and Sh10.1 billion in euros.

Kenya Power fell back into the red in the half year ending December 2022, as debt payment costs totaling Sh7.4 billion wiped out the company’s Sh5.7 billion operating profit, resulting in a Sh1.1 billion deficit.

For the fiscal year ending June 30, the government serviced guaranteed debt on behalf of Kenya Airways totaling Sh12.3 billion, with additional assistance planned.

“The government’s policy stance is to turn around the airline and position is as a Pan-African carrier,”CS Ndungú said during his budget speech.

According to the Treasury, more money will be put into the airline’s operations to “ensure it is run with profitability and sustainability objectives, eventually reducing the airline’s dependency on budgetary support.”

A number of universities, water utility boards, the East African Portland Cement Company, the Kenya Tourism Development Corporation, the Kenya Meat Commission, and the Development Bank of Kenya are all struggling.

Universities have been pressing for fee increases in order to address the institutions’ financial predicament.

According to the Treasury, approximately Sh921 billion in interest payments have gone unpaid by state corporations and partially government-owned companies.

This is money granted by the government (taxpayers) to entities in order to strengthen their operations and position them for profitability.

According to official figures, the government has lent the entities more than Sh1 trillion as of June 30, 2022, of which Sh973 billion had been disbursed.

It had allocated Sh95.5 billion to alleviate cash shortages in important parastatals over three years beginning in July 2022, a sum that is anticipated to rise to more than Sh200 billion under the incoming administration.

A huge number of state-owned companies rely on exchequer money to finance their payroll and other expenses, which have remained a significant burden to the exchequer over the years, according to the National Treasury.

This has resulted in unpaid statutory duties and pension liabilities totaling billions of Kenya shillings.

To address budgetary shortfalls, the World Bank and the IMF have advocated for the sale of loss-making state entities and the merger of those with duplicative roles.

The country has around 400 State agencies, with half of them serving as regulatory organizations.

Treasury believes that parastatals have a maximum fiscal exposure of Sh2.8 trillion in the event of loan defaults, even though some are on perpetual bailouts that drain public funds.

Based on a fiscal risk study completed in the previous fiscal year, 18 significant parastatals face a cash shortfall of Sh382 billion in five years, which has been exacerbated by the recent epidemic.