Government bailouts will not save KQ, Kenya Power

If there are two state corporations that epitomise the dilemma that the Government faces in resolving the crisis in parastatals, it is Kenya Airways (KQ) and Kenya Power Company (KPC). 

The latest financial results from the two companies paint an ever more depressing picture.

In 2020, Kenya Power registered its biggest ever loss of Sh7 billion. Further, it reportedly has an accumulated debt of Sh118.7 billion, comprising both commercial and on-lent debt. Of its Sh66 billion commercial debt, 77 per cent is dollar denominated.

This means that as the shillings keeps its recent trend of depreciating against the dollar, the debt grows in shilling terms.

The reasons why KPC is in this dire situation is well known- grand larceny from top to bottom, and complete mismanagement.

On its part, KQ reported a Sh36.2 billion shilling loss for the year 2020, tripling the previous year’s loss. This was its worst ever! 

Its total debt is reportedly in excess of Sh200 billion.

Again, the reasons for this state of affairs mirrors that of all faltering parastatals- grand larceny, fraud, and complete mismanagement.

Though Covid-19 has undoubtedly made things worse for these companies, the truth is they were already in doldrums before the pandemic.

It can be assumed, therefore, that the end of the pandemic will not reverse their disastrous results.

What does this all mean? 

Firstly, these companies are only afloat because of government injecting money onto them, commonly known as bailouts, to pay their recurrent expenses so that they stay open.

Secondly, the current financial trajectory of these parastatals is unsustainable.

Companies as heavily indebted as these eventually collapse in a heap. It’s inevitable.

Thirdly, nothing short of a radical restructuring of these companies has any hope at all of changing their trajectory to destruction.

Unfortunately, the Government seems reluctant to bite the bullet, and take the very harsh decisions necessary to salvage them.

Fourth, the Government is facing serious financial constraints, occasioned by its own profligacy, and flagging receipts from taxes as Covid-19 wreaks economic havoc, causing massive job losses and collapse of businesses.

And lastly, there is no way these two companies can ever hope to repay the massive debts in their books going by their current leveraging, highest profits ever made, ability to bring in new investors, and their massive cashflow needs. 

The money to keep making these huge bailouts for KQ and KPC just isn’t there.

What is the way forward?

Revamp the Privatisation Commission (PC) to a fully-fledged Parastatal Reform Programme Committee (PRPC), in the model of the one that was first instituted in 1994.

It should be mandated to take whatever restructuring is necessary to change the destructive trajectory of debt laden parastatals.  

It is the work of the PRPC that oversaw previous basket cases like Kenya Posts and Telecommunications Corporation (KPTC), and Kenya Railways transformed into entities that no longer rely on the Government to finance operations.

Indeed, the drastic restructuring of these monopolies spawned some entities that today generate billions for the national Treasury, in addition to being major economic drivers.

This kind of transformation can only be achieved by taking a sledgehammer to the existing structures.

As currently constituted, the PC lacks political muscle to drive the work that needs to be done on parastatals.

The PRPC was anchored in the cabinet through a Cabinet subcommittee chaired by the Minister for Finance. It operated within the Government structures.

The move to enact a law to “guide privatization,” which saw the PC it placed under an autonomous board, has robbed it of all traction in Government. Subsequently, the PC has made very little progress.

The place to start is with the restructuring is with KPC and KQ, the two most distressed companies, and which have an outsized impact on economic activity. More distressed parastatals can be brought on board as the results become evident.

It is clear that the Government has run out of easy options to tackle the problem of distressed parastatals, particularly these two. It is time for hardball. And time is not on the its side. — gathukara@gmail.com