Unacceptable: MPs grill Treasury over KSh55b KQ debt and irregular spending

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Members of Parliament on Tuesday took the National Treasury to task over KSh55.37 billion owed by Kenya Airways (KQ), after the Auditor-General reported that billions were lent to the national carrier without signed loan agreements, a repayment plan or any security.

The Public Accounts Committee (PAC), sitting at Bunge Tower in Nairobi and chaired by its vice-chairperson, Garissa Woman Representative Amina Udgoon Siyad, was examining the Auditor-General’s report on the Treasury’s accounts for the financial year ended June 2024.

“This Committee finds it unacceptable that billions were released without any signed agreements. How does the Treasury justify lending public money informally?” Siyad asked Treasury officials.

How the KQ debt reached KSh55 billion

According to the audit, the Treasury advanced on-lent loans to Kenya Airways between 2019 and 2022, including KSh10 billion in the 2022/2023 financial year, bringing the airline’s total loan exposure to KSh41.27 billion. The money went out before formal loan agreements were signed.

Accrued interest and penalties pushed the outstanding amount to KSh43.048 billion by December 2022. On top of that, the government paid KSh12.326 billion on behalf of the airline to settle a defaulted loan from a foreign lender. Of that payment, KSh7.8 billion was spent under Article 223 of the Constitution, which allows the government to spend money before Parliament approves it, as long as approval is sought within two months.

The Auditor-General concluded that the recoverability of the KSh55,374,969,781 owed by Kenya Airways “could not be confirmed”.

“We did not see any documentation showing how the Treasury intends to recover these amounts from Kenya Airways. There is no repayment plan, no security offered, and no formal agreement,” a representative of the Auditor-General’s office told the committee.

Siyad said the committee was dealing with “very serious questions of accountability”. “These are huge sums of public money, and Kenyans deserve clear answers on where their taxes are going,” she said.

Why the KQ exposure matters to taxpayers

The government is Kenya Airways’ largest shareholder, with a 48.9% stake, and it has carried a large share of the airline’s debt during its long restructuring. The Kenyan Wallstreet reported that the State had earlier taken over about KSh83 billion in KQ loans to support the turnaround plan, and the reduction in finance costs that followed helped the airline post a net profit of KSh513 million in the first half of 2024, its first after a long run of losses.

Without signed agreements, the Treasury has no clear legal basis to demand repayment on agreed terms, and MPs warned that taxpayers could end up absorbing the loss if the money is never recovered. The airline’s own recovery and the State’s plans for its future have been covered in our reports on the Cabinet’s KQ rescue and restructuring and shareholder financing for the carrier.

MPs also question KSh6.2 billion Telkom Kenya deal

The committee also scrutinised the Treasury’s KSh6.196 billion purchase of a 60% stake in Telkom Kenya, which was also paid for under Article 223. MPs noted that the National Assembly never approved the spending.

Funyula MP Wilberforce Oundo said the Treasury had broken the law. “You cannot spend over six billion shillings and then hope Parliament will rubber-stamp it afterwards,” he said.

The Auditor-General’s office told the committee that the transaction lacked proper authentication. “Parliament’s approval is not optional. Without it, the transaction remains irregular,” an official said.

KSh97 million lost to a late contractor payment

The audit further flagged wasteful spending from a delayed payment to a contractor. The ministry had acknowledged owing KSh235.6 million, but its failure to pay led to a court award of KSh327.19 million, meaning taxpayers paid an extra KSh97.27 million in interest and legal fees.

“This is a classic case of negligence. Taxpayers should not bear the burden of interest and legal fees that could have been avoided with timely action,” Siyad said.

What PAC wants from the Treasury

The committee directed the Treasury to table all the loan agreements, repayment frameworks and the justification for using Article 223 for both the Kenya Airways payments and the Telkom Kenya buyout.

“We want to see the loan agreements, the repayment frameworks, and the justification for invoking Article 223,” the committee told Treasury officials.

The findings add to long-running concerns in Parliament about how the Treasury uses Article 223 and on-lent loans to support state-linked companies. In this audit, the Auditor-General’s office stressed that without signed agreements or security, the Treasury has no documented way to recover the money it advanced.

The committee’s report on the Treasury accounts is expected to be tabled in the National Assembly, where MPs can debate and adopt its recommendations.

Frequently asked questions

How much does Kenya Airways owe the Treasury?

The Auditor-General put the amount at KSh55.37 billion, made up of on-lent loans, accrued interest and penalties, and a KSh12.326 billion defaulted foreign loan the government paid on the airline’s behalf.

Why did MPs say the KQ loans were irregular?

The audit found the money was released before any loan agreements were signed, with no repayment plan and no security, so its recovery could not be confirmed.

What is Article 223?

Article 223 of the Constitution lets the national government spend money not yet approved by Parliament, provided it seeks approval within two months.