Taxpayers forked out Sh17.4 billion in the nine months to March 2024 to service a Kenya Airways loan that the government has now taken over, disclosures by the National Treasury show.
The $641.49 million (Sh83.4 billion) KQ loan was a 12-year facility originally provided by US lenders Citi Bank and JP Morgan in 2017 before it was taken over by US export financier Private Export Funding Corporation (Pefco) with the US Exim Bank and the Kenyan government joining as guarantors.
Kenya Airways took up the loan to finance the purchase of seven aircraft and an engine but failed to fully service the debt due to cash flow challenges linked to Covid-19 disruptions.
Interest and principal payments
The Treasury’s guarantee covered $525 million (Sh68.3 million), which is now being serviced fully until maturity by the taxpayer after the government converted the guarantee to external commercial public debt.
“Supplementary Budget II estimates indicate that in 2023/24, the payment of Kenya Airways PLC guaranteed debt was converted to mainstream external public debt stock and a subsequent entry of a new external commercial loan owed to Exim Bank USA/PEFCO was captured,” said the National Assembly’s Privatisation and Public Debt Committee in a report on Supplementary Budget II 2023/24 and 2024/25 Budget Estimates.
“Interest and principal payments for this new loan amounted to Sh14.3 billion and Sh20.9 billion in 2023/24 and 2024/25, respectively, with further Sh21.3 billion and Sh10.7 billion in 2025/26 and 2026/27, respectively,” adds the report.
Earlier disclosures by the National Treasury indicated that there was also an interest payment of Sh3.1 billion on the loan.
Taxpayer risks losing out
Even before the conversion of the guarantee into public debt, the government had since last year been servicing the debt on behalf of the national carrier after it defaulted on its obligations to the US Exim Bank.
Treasury had previously indicated that the loan repayments done by the government on behalf of KQ will be recovered through a subsidiary loan agreement between the State and the airline as per the requirements of the Public Finance Management Act, 2012.
The Public Debt and Privatisation Committee of the National Assembly has, however, raised the red flag that the taxpayer risks losing out on the repayments following the conversion of the guarantee to mainstream debt, which would be contrary to the provisions of the Public Finance Management Act.
The removal of the debt from the books of Kenya Airways is positive for the restructuring efforts, making it easier for the airline to attract a strategic investor.
