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Kenya's National Treasury has paid a further Ksh2.7 billion ($17.62 million) in Kenya Airways (KQ) guaranteed debt in the three months to the end of September after inheriting the burden from the national carrier.

The repayments in the quarter include Ksh2.37 billion ($15.5 million) for principal repayments and Ksh351.29 million ($2.3 million) for interest payments, according to data from the Controller of Budget (COB).

The fresh instalment brings cumulative exchequer payments on the KQ guaranteed debt to Ksh13.35 billion ($87.1 million) with the first payment having been done in the quarter ending in December 2022.

Read: Kenya Power, KQ to get $300m bailout

“The total amount paid on guaranteed loans during the first three months of FY 2023/24 amounted to Ksh2.72 billion, which was payment for Kenya Airways loan comprising of Ksh2.37 billion for principal repayment and Ksh351.29 million for interest payments,” the COB report noted.

Last year, the Treasury told the IMF it would take over the debt contracted in 2017 from the USA Export-Import Bank (Exim) as facilitation to the better management of risk for the national carrier including the potential call-up of the guarantee.

In February, Treasury Principal Secretary Chris Kiptoo told MPs that the Exim Bank USA had handed in a default notice after the delayed payment of the guaranteed loan by KQ.

Despite paying down more than Ksh13 billion ($84.83 million), KQ's guaranteed debt has soared by 13.4 percent since September last year to Ksh87.36 billion ($570 million) from Ksh76.97 billion ($502.3 million), mainly from the sharp depreciation of the Kenyan Shilling.

KQ’s debt takeover by the exchequer, also known as debt novation, is part of a wider restructuring of KQ operations, seeking to support the carrier at the least cost to the government.

The plan is set to further incorporate additional capital injection by the state, cost cuts, among other plans, cost cuts, network optimisation, and the development of key performance indicators for KQ senior executives.

Read: Kenya Airways half-year loss more than doubles on forex losses

The entire stock of state guaranteed debt closed the quarter ended September at Ksh170.94 billion ($1.1 billion) including Ksh31.45 billion ($205.2 million) in guarantees to KenGen and Ksh52.07 billion ($339.4 million) in guarantees to the Kenya Ports Authority (KPA). The two institutions’ loans constitute 48.9 percent of total State guaranteed loans by the end of September, meaning that KQ’s guaranteed loans alone surpass them combined.

The state also guaranteed a Ksh52 billion loan for Kenya Power.

Guarantees to KPA and KenGen cover loans for key projects including the Sondu Miriu Hydropower Project, the rehabilitation and expansion of the Hydropower Plant Kindaruma, and the Mombasa Port Development Programme.

Both KenGen and KPA are however currently servicing their guaranteed debts with the only exchequer payments on the arrears covering loan facilities by KQ.

KenGen’s guaranteed loans by the end of September were Ksh31.49 billion, having grown slightly from Ksh31.1 billion by the end of June 2023.

On the other hand, Kenya Power’s guaranteed loans hit Ksh52 billion from Ksh50.5 billion by the end of June 2023, marking a three percent growth during the three months.

Across the 2023/24 fiscal year, the National Treasury has allocated Ksh18.79 billion ($122.6 million) towards the payment of guaranteed debt.