The National Treasury has come under sharp scrutiny from Members of the National Assembly Committee on Public Debt and Privatization for settling a Sh58 billion loan on behalf of Kenya Airways (KQ), with MPs questioning why public funds are being used to repay debts for a private entity that is now reporting profits.

Appearing before the committee, Treasury Principal Secretary Chris Kiptoo was pressed to explain how the government moved from simply guaranteeing KQ’s loan to assuming full responsibility for its repayment.

The committee, chaired by Balambala MP Abdi Shurie, was not convinced by the Treasury’s justification that the move was within the law and based on KQ’s past inability to meet its financial obligations.

In a presentation to the committee, the Treasury revealed that in 2017, the government guaranteed a loan from Exim Bank to Kenya Airways amounting to a maximum of USD 525 million. The loan was backed by the National Treasury due to the financial difficulties KQ was experiencing at the time.

PS Kiptoo told the lawmakers that KQ failed to meet its repayment obligations, prompting Exim Bank to issue a demand letter over the arrears. KQ then requested the National Treasury, as guarantor, to step in and settle the outstanding amount.

“Section 61(2) of the PFM Act Cap 212 states that; where Cabinet considers that the debt is more likely to be recovered if the borrower is allowed to pay the debt over a period of time, the Cabinet Secretary may enter into an agreement with the borrower to pay the debt over that period and at such intervals, and subject to such terms and conditions, as may be specified in the agreement. The Government therefore novated the full amount of loan amounting to Kshs 58 billion which and has entered into a loan agreement with KQ,” Kiptoo explained.

However, MPs raised concern that the government is now taking on financial responsibilities that no longer appear necessary, especially given KQ’s claims of improved financial health.

“KQ should take up their mess and deal with it. It is unacceptable since KQ is now making profit. Why is the government still paying for their loans, it is an abuse of taxes and KQ should take up their responsibility and repay their loans,” said Kinangop MP Zachary Thuku.

“Why repay debts for someone who is making profit? Through media reports, KQ has been boasting of how it is making profits,” added Wajir East MP Aden Daud.

Responding to the growing discontent among members, PS Kiptoo defended the Treasury's actions, arguing that novation of loans is not new and has previously been done for other state-linked entities.

“It is not unusual for government to novate loans contracted by private sectors,” he said, citing Kenya Power as one of the entities whose loans had also been taken over by the government in the past.

He further dismissed KQ’s reported profits as possibly only existing on paper. “The declaration that KQ was making profits must have been a book declaration,” he said.

Despite the explanation, MPs remained unconvinced and insisted on hearing directly from Kenya Airways. The committee now plans to summon the airline’s top management to clarify its financial situation and explain why it cannot repay the loan on its own.