Leeches of public funds cost taxpayer Sh14 billion last year :: Kenya

Ten struggling parastatals gobbled up Sh14 billion of taxpayers’ money in the past financial year, widening a national black hole that should have been fixed through prior proposals.

The lost funds are more than three times the allocations to the countrywide free maternity healthcare programme that is meant to reduce maternal deaths.

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Heavy investments are being put into these parastatals, making a mockery of the Government’s efforts to reduce wastage and redirect savings to critical sectors.

Top on the list is the Kenya Railways Corporation (KRC), which is sometimes defended as strategic rather than a commercial entity, and Nzoia Sugar Company, which has been “sick” since its establishment 40 years ago.

Others are Postbank, which was to provide a platform for savers to create a pool for the Government to borrow from, and Sony Sugar Company.

Keeping them is a huge cost to the taxpayer, more than five years after sweeping proposals to reform the State corporations were made.

Treasury CS Henry Rotich gave the extent of the losses in a performance update of State corporations handed to Parliament.

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In many instances, the accumulated losses have eaten up the parastatals, leaving huge loans that are repaid from the exchequer.

Mr Rotich did not give reasons for the sustained bleeding of public funds, only stating that promoting good governance would improve efficiency.

“In order to enhance the contribution of the State corporations, key reforms aimed at addressing systemic weakness and challenges facing the individual institutions will be pursued,” said Rotich.

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It was not clear, from the update, what the reforms would include. The weakness have been linked to mismanagement.

However, the CS spoke of merging agencies with replicating or overlapping mandates, specifically as relates to the Industrial and Commercial Development Corporation, the Industrial Development Bank and the Tourism Finance Corporation. Rotich told Parliament that the Standard Gauge Railway was delivering benefits in cheaper and faster passenger and cargo movement between Mombasa and Nairobi.

In essence, according to the CS, the gains from SGR are not about profits but easing movement of people and cargo.

Operating train services on SGR, especially at sub-optimal level in the first year, was never projected to make a profit from the outset, explaining KRC’s reported position.

For Nzoia, its financial challenges have been historical and have never been resolved since the miller became operational in 1978.

It has been an expensive affair trying to keep Nzoia afloat, starting with multi-billion shilling expansion plan that failed as soon as the factory was opened.

The miller had outstanding loans worth Sh40 billion by June 30, which are guaranteed by the State.

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Part of the loans date back to the 1970s, when an ambitious plan to increase milling capacity from 2,000 to 7,000 tonnes was abandoned midway.

Billions in loans had been secured from an American lender for the expansion that would be executed by an American firm, Ms Arkel.

The contact price would be at the centre of a dispute between the State, management and the contractor.

An inter-ministerial committee investigating the failure of Nzoia in 1995 blamed the huge price variation for the abandoning of the expansion. It recommended that the stalled project be completed.

This never happened, with the project lying dilapidated at a huge cost to the taxpayer.

It is the same case at Sony Sugar, which remains wholly Government-owned but delivers little value to the ordinary citizen.

Both have been earmarked for privatisation as the only way to take the load off the taxpayer. However, political interests and indecision have stalled the plans.

Postbank, which in its heyday controlled most of the banking in rural areas, cost the State Sh1.36 billion last year.

Rapid development of the banking sector, coupled with the inability of Postbank to embrace newer technologies such as cash dispensing machines, saw it lose out on customers to newer banks.

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Agro-Chemicals Limited, which manufactures ethanol and other industrial products, is also a huge spender. It drained over Sh700 million last year.

Abdikadir Mohamed, who chaired the taskforce on reforming State corporations, said in his 2013 report that the parastatals were inefficient and would only eat up public resources if urgent interventions were not taken.