Audit report: 17 parastatals fail to repay Sh218b loan arrears

Seventeen parastatals have defaulted Sh218.8 billion and failed to provide any repayment plan exposing taxpayers to losses, according to the Auditor General.

The latest report from the Auditor General for the period ending June 2021 further casts doubt on the accuracy of Sh922 billion total loan book of parastatals after 20 entities disputed loans amounting to Sh333 billion.

According to the report on government investments and public enterprises, a total of 57 state-owned entities owe Sh921 billion as of June 2021 even though half of that amount is disputed.

According to Auditor General Nancy Gathungu, about 24 per cent of the Sh921 billion debt owed by state enterprises has been outstanding for years and remains unclear if the entities would settle the amounts.

“Included in the total loan portfolio of Sh921.9 billion as of June 30, 2021 were 17 loans amounting to Sh218.8 billion, representing 24 per cent of the total loan portfolio that had no movement during the year and remain unpaid over a significant period,” said the Auditor General.

This includes Sh179 billion owed by Kenya Railways Corporation, Sh10.8 billion owed by Kenyatta University, Sh9.7 billion owed by Tanathi Water Services and Sh7.5 billion by Tana Water Services Board.

Struggling Mumias Sugar and Uchumi Supermarket have also defaulted on Sh3 billion and Sh1.2 billion loans respectively.

“Based on the audit procedures performed, I confirm that public resources have not been applied lawfully and in an effective way,” said Ms Gathungu.

“Entities with total loan balances amounting to Sh801 billion reflected in the statement differed with the loan balance of Sh468 billion independently confirmed from the entities resulting to unexplained variances.” 

She noted that Kenya Railways topped parastatals that had the largest differences between figures recorded by the Treasury and what is reflected in their books of accounts.

Kenya Railways had been listed as owing the National Treasury Sh473 billion in legacy debt. The firm, however, indicated that the arrears in its books stood at Sh275 billion resulting in an unexplained Sh197 billion difference.

Similarly, Treasury has listed KenGen as owing taxpayers Sh124 billion in loan arrears but the State power producer indicated that the balance on its records is Sh91 billion. 

Other entities that have disputed the value of their legacy debt as listed by Treasury include Kenya Power (Sh33 billion), Kenyatta University (Sh10.8 billion), the Kenya Mortgage Refinance Company (Sh34 billion) and Lake Victoria South Water Services Board (Sh12.5 billion). The report comes a year after Kenya and the International Monetary Fund (IMF) signed a three-year credit line valued at Sh271 billion, with parastatal and public sector reforms as key conditions for the financing.

Last year a team from the IMF conducted a virtual mission to Kenya to review the government’s progress regarding the economic reforms proposed.

“Efforts to tackle difficulties of financially-troubled SOEs (State-owned enterprises), including Kenya Airways and Kenya Power, are advancing,” said the IMF in a statement following the review.

“In preparing to support the restructuring, the authorities are moving to proactively manage difficult tradeoffs while protecting social spending and achieving their debt reduction objectives in line with the IMF-supported programme,” said the lender. 

Overall, the National Treasury earned Sh45 billion in profits and dividends in the last financial year led by Safaricom (Sh25.9 billion), Central Bank of Kenya (Sh7.5 billion) and Kenya Ports Authority (Sh4.9 billion).

Earlier this year, Treasury Cabinet Secretary Ukur Yatani said the government needed up to Sh383 billion to fund troubled parastatals over the next five years.

“The in-depth financial evaluations of selected state-owned enterprises excluding Kenya Airways that face the largest financial and fiscal risk revealed a cumulative liquidity gap of Sh383 billion over the next five years,” said Mr Yatani while presenting this year’s Budget.

“This gap is expected to be covered by undertaking specific policy interventions to improve efficiencies, reduce costs and increase revenue,” he added.