Repayment of Sh55.37 billion accrued government bailout loans and interest to Kenya Airways (KQ) is uncertain, Auditor-General Nancy Gathungu has said, citing contractual loopholes.
In the new audit report, the Auditor-General said, as previously reported, in the financial year 2022-23, the National Treasury transferred Sh10 billion to Kenya Airways as on lent loan.
This was in addition to other disbursements to the airline totalling Sh31.27 billion remitted between 2019-20 and 2021-22 resulting in a total loan amount of Sh41.27 billion.
Ms Gathungu said a review of documents and correspondences between the National Treasury and KQ, however, revealed that the funds were disbursed before the loan agreements were signed.
“Further, records available indicated that the loans issued had accrued interest and penalties totalling Sh1,778,075,609 that remained outstanding as of December 31, 2022, bringing the total accumulated loan to Sh43,048,075,609,” she said.
In addition, records at the National Treasury indicated that the government paid Sh12,326,894,172 being foreign loan repayment of Sh10,635,604,751 and finance costs of Sh1,691,289,421 out of which Sh7,812,582,663 was paid under Article 223 of the Constitution.
The amount was in respect to guaranteed debt to the KQ with a foreign bank, which was defaulted. As a result, the total outstanding amount due from Kenya Airways as of June 30, 2023 stood at Sh55,374,969,781.
“However, there was no evidence that the National Treasury had entered into any formal agreement with Kenya Airways on how the guaranteed loan repayments amounting to Sh12,326,894,172 would be recovered and whether the airline had provided any security to the government as a fallback,” warns Ms Gathungu.
“In the circumstances, the recoverability of the loans to Kenya Airways Limited amounting to Sh55,374,969,781 could not be confirmed.”
The government through the National Treasury has been bailing out KQ, as is known by its international code, with new capital injections slated in the budget books since taking over some $485 million (Sh62.66 billion at the current exchange rate) in 2022.
The airline has been a perennial beneficiary of State bailouts, with some of it being used to repay its debts. The Treasury had in the first 2022-23 Supplementary Budget revised the amount of capital injected into the national carrier to Sh20 billion from Sh30 billion.
Previously, the Treasury had disclosed to the International Monetary Fund that it would provide Sh34.95 billion in 2022-23 to Kenya Airways.
KQ defaulted on part of its $525 million (Sh67.8 billion) loan from the Private Export Funding Corporation of the US and guaranteed by Exim Bank of USA in turn was guaranteed by the Government of Kenya.
The loan was for the purchase of seven aircraft and one engine.
Following the default KQ sought the government intervention and the Cabinet gave approvals for the Government to pay the loan arrears on behalf of the airline, with the balance of the guaranteed loan being taken over by the State to prevent further call-up.
The auditor general’s concerns that have fallen on deaf ears over the years come at a time when eight banks forced the Treasury to pay them Sh19.3 billion ($149.9 million) in full for unpaid loans to Kenya Airways.
The lenders, including Equity Bank, NCBA Bank, and Cooperative Bank, rejected an offer to recover the defaulted debt through a 6.5-year bond and slapped the Treasury with a default notice after KQ indicated it had no cash to settle the debt.
