KQ, Kenya Power to get Sh37bn State bailout
International Monetary Fund headquarters building in Washington, DC.
Struggling national carrier, Kenya Airways (KQ) and Kenya Power will get a bailout of Sh37.3 billion in the current financial year to support restructuring at the two State-owned entities to wean them off annual government funding.
The funding is part of fiscal consolidation conditions set by the International Monetary Fund (IMF) as the lender presses the government to accelerate reforms at parastatals, many of whom are in perennial loss-making positions, to return them to profitability.
The National Treasury expects to spend a total of Sh54.8 billion to bail out struggling State-owned enterprises (SOEs) in the financial year 2021/22 and 2022/23 causing a strain on the budget.
KQ will receive Sh34.95 billion and Kenya Power Sh2.35 billion in the allocation which is less than that in the original budget for the financial year 2022/23 after the supplementary budget cut the funding by Sh8.7 billion.
The airline, which is mired in $835 million (Sh102.82 billion) worth of debt, had by September already received Sh10 billion from the Treasury to help service its debts.
KQ has payables amounting to Sh44 billion owed to aircraft lessors, operation, and maintenance costs, landing and rental fees, fuel costs, rent, navigation, handling charges, and taxes.
The Treasury says the bailouts to KQ are already bearing fruit after the lender reduced its operating losses in the first half of 2022 by 31.5 percent to Sh5 billion, adding that the airline would have turned a profit in the absence of higher fuel prices.
“Commercial performance paired with initiatives under the restructuring plan have already had a positive impact on KQ’s solvency issues,” said the Treasury.
As part of KQ’s restructuring, the airline is optimising its network to cut 12 loss-making routes and has already retired flights to 16 destinations globally.
The carrier will also reduce its fleet size by terminating some aircraft leases and eyes negotiations with operating lessors to cut its annual lease costs.
KQ is also targeting to lay off staff to reduce staff costs and is eyeing further cuts in other costs including operations and maintenance, distribution costs, ticketing, procurement, and fuel costs.
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“The government will continue to support KQ financially in the financial year 2022/23 to facilitate normalisation of overdue payments to prevent defaults for settlement of operating lessors’ arrears and completion of payments, as well as other working capital support,” said the Treasury.
Kenya Power will on the other hand use the Sh2.35 billion bailout to address the liquidity gap left by the reduction of electricity tariffs in January. The cut in power tariffs ends this month.
The company has already received Sh7 billion in budgetary allocation to support the tariff reduction that is estimated to punch a Sh26 billion hole in the utility’s revenues.
