As the Treasury goes through a rough patch, the government has now turned to parastatals to help ease the burden by releasing extra cash from their coffers — as a special dividend.
On Tuesday, Kenya Pipeline Company (KPC) became the first parastatal to hand over its cash by paying Sh5 billion to the Treasury — just days after a State House meeting.
The State corporation’s dividend comes as the Treasury grapples with financial deficits on the backdrop of less than expected tax collections and huge local and external debts, some of which are about to fall due.
Sources told the Nation that on Monday, President Uhuru Kenyatta ordered parastatals to surrender surplus cash to the Treasury, as the government looks for ways to finance its development projects and pay debts that have now gone through the ceiling.
It is no secret that the coffers are running dry, and the fact that the government is to start repaying the second batch of interest payments on the 2014 Eurobond of Sh204 billion next month might only add more pressure on the Treasury.
Kenya is also expected to start paying in January next year the principal amount for the Sh324 billion loan taken to construct phase one of the Standard Gauge Railway, which will pile more pressure on President Kenyatta’s administration.
Despite the debt load, the government still has a budget to finance, which could have informed President Kenyatta’s decision to look to parastatals as an alternative revenue source.
KPC chairman John Ngumi on Thursday confirmed to the Nation that the State corporation had issued a special dividend to the Treasury from the surplus it has, owing to revision of its internal operation policies.
“What we had was not ‘idle cash’ but cash generated by efficient operations. The cash could have been used to invest, or to pay back to the shareholder,” said Mr Ngumi.
“Due to cuts in our capital expenditure, we found Sh6 billion and another Sh1 billion in capital expenditure,” he said.
By the time of going to press, acting Treasury Cabinet Secretary Ukur Yatani had not responded to our queries on whether other parastatals have remitted any money.
Parastatals usually remit annual dividends to the government — their sole shareholder. KPC’s annual reports indicate that in each of the past two financial years, the State corporation has paid the government Sh300 million.
Mr Ngumi said KPC’s policies require it to only pay dividends if it makes a return on its assets of at least 15 per cent.
But because the parastatal has not been able to make the laid-down returns, it has in the past few years revised the dividend policy to use profits, rather than return on assets.
The KPC boss added that cutting down on expenses in the past three years has helped it build a huge cash reserve.
At the beginning of the 2019-2020 financial year, the Treasury froze capital budgets for all parastatals and limited operating budgets to only one quarter of July to September.
It is the savings from the rationalised budgets that the Treasury is now eyeing to help it bridge the financial gap.
Sources also say the Treasury reasoned that it had a lot of cash in local banks — held by parastatals — and yet it had to borrow the money from the same banks, with interest.