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KQ debt to cost taxpayers Sh1.42bn more, MPs say

KQ plane

 Kenya Airways Boeing 787-8 Dreamliner aircraft as seen on final approach landing at London Heathrow International Airport in England, UK, on October 20, 2019.

Photo credit: File

Taxpayers are set to pay Sh1.42 billion more in interest and principal payments on the refinanced Kenya Airways guaranteed loan, the Debt and Privatisation Committee has said in a report.

The committee says the payment for the KQ debt is expected to rise by Sh1.42 billion or 10 per cent from Sh14.68 billion to Sh16.10 billion.

“The increase is due to an increase of Sh186.43 million in interest payments and an increase of Sh1.24 billion in principal payments,” Mr Abdi Shurie, who chairs the committee, said in a report on the audit of the Consolidated Fund Service (CFS).

“This is the second increase in repayment from an earlier increase of Sh12.41 billion in the Supplementary Estimates I for the financial year 2022/23."

In a report tabled in Parliament on June 29, 2023, the committee said this represents a rise of Sh13.84 billion or 611 per cent in a single year.

“Therefore, while the government must meet its obligations in respect of the guaranteed debt, these should be planned to avoid fiscal disruptions that may be caused by large increases in expenditure during the year,” Mr Shurie said in the report.

In February, a US-backed lender slapped the Treasury with a default notice for defaulting on a Sh57.8 billion loan guaranteed by the government to Kenya Airways.

Treasury Principal Secretary Chris Kiptoo told Parliament that the US Exim Bank had served a notice of default after Kenya failed to keep up with payments on the loan.

KQ has defaulted on part of its $525 million (Sh64.6 billion) loan from the Private Export Funding Corporation (PEFCO) of the US, which was guaranteed by Exim Bank of the US, which in turn was guaranteed by the Kenyan government.

The Exim Bank, which is wholly owned by the US government, provides direct loans, commercial loan guarantees, export credit insurance and working capital guarantees to American exporters.

Dr Kiptoo said the Treasury had guaranteed the loan to the ailing airline at an exchange rate of Sh84 to the dollar. The exchange rate is currently at Sh140.6 to the dollar.

Treasury said Kenya has an outstanding balance of $462 million (Sh57.77 billion).

“Now, to tell you the truth, we don't have enough headroom to pay, but what is important is that we pay,” Dr Kiptoo told the Public Debt and Privatisation Committee in February.

Technically, a loan call means that the lender can demand full repayment of the debt if it fears the borrower's future ability to pay.

The KQ loan was a 12-year facility originally provided by Citi Bank and JP Morgan before PEFCO took it over, with Exim and the Kenyan government joining as guarantors.

The airline stopped making payments when it ran into financial difficulties, exacerbated by the Covid-19 pandemic.

The airline stopped payments on both the guaranteed and non-guaranteed portions of the loan, the Treasury said in an earlier report.