Treasury declines to repay Sh1.2bn KNH owes Spain

The Treasury and Kenyatta National Hospital (KNH) have failed to agree on settlement of a Sh1.2 billion loan that remains outstanding in two years, exposing the taxpayer to bigger future repayments.

An exchange of letters between the two institutions since 2012 shows the Treasury has declined to repay the loan even as KNH insists it has no funds to cover the debt owed to the Spanish government.

The loan – which has since grown to more than Sh1.5 billion- was signed in January 2006 in the form of medical equipment and was booked as a long-term debt.

“The loan was repayable to the Permanent Secretary, Ministry of Finance in 15 years with a six-year grace period by 18, half-year equal instalments commencing on June 30, 2013,” the hospital’s annual report for the year ending June 2014 says.

But no payment has been made to the Spanish government since 2013, meaning the referral hospital has defaulted on five half-year payments.

The Treasury, which guaranteed the loan, risks paying huge sums in the coming years following the defaults, a move that will leave taxpayer with additional burden of shouldering debt payments.

The Treasury has been repaying loans contracted by Kenya Broadcasting Corporation, the Tana and Athi River Development Authority and the defunct City Council of Nairobi owed to various agencies and global financial institutions.

The three institutions have since 1989 consumed Sh13 billion of taxpayers’ money through bailouts with Sh1 billion settled in the year ended June. The still owe lenders Sh4.4 billion.

The last communication between Treasury and KNH was in June last year when the hospital maintained it did not have cash to repay the Spanish loan. Since then, the hospital says that it is in talks to solve the issue.

The Spanish government loan forms part of the debt that KNH is facing with other agencies like the Kenya Revenue Authority and the National Social Security Fund also demanding millions from the referral hospital.

The taxman’s demand of Sh593 million in unpaid taxes and penalties arose following an audit for the period between 2010 and 2014.

The NSSF arrears of S11 million relate to unpaid contributions from 2001 to 2009 — a period it had applied for exemption to the Labour ministry after the transfer of the hospital staff from the central government payroll.

The hospital also owes about S.5 billion to a staff superannuation scheme. Although the hospital has approached the government to fund this amount, the annual report notes that it may have to pay the amount if the discussions are not fruitful.

gkiarie@ke.nationmedia.com

SOURCE: BUSINESS DAILY