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{
"id": 269452,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/269452/?format=api",
"text_counter": 263,
"type": "speech",
"speaker_name": "Dr. Oburu",
"speaker_title": "The Assistant Minister for Finance",
"speaker": {
"id": 194,
"legal_name": "Oburu Ngona Odinga",
"slug": "oburu-odinga"
},
"content": " Mr. Speaker, Sir, the rights issue was intended to help KPLC achieve the following objectives:- 1. To raise Kshs9 billion in additional equity to finance capital development without increasing the gearing and financial risks of KPLC. 2. To improve the KPLC’s credit worthiness with a resultant ability to access cost effective finance. 3. To improve its debt servicing capacity, for example, to ensure adequacy of future free cash flows to service the borrowing. Mr. Speaker, Sir, I am aware that on 27th July, 2011, the Budget Committee of Parliament recommended that Treasury allocates Kshs2 billion to the Rural Electrification Authority (REA) as compensation for the non-refund of VAT amounting to Kshs1.891 billion. The Committee resolved that this compensation should be made from the proceeds of the Government’s 7.85 per cent redeemed preference shares realized from the KPLC’s rights issue undertaken in December, 2010. Mr. Speaker, Sir, from the explanation above, it is very clear that the principle objective of capital based restructuring of the balance sheet of KPLC was not to raise money for the Government, but to convert the non-cumulative redeemable preference shares debt with a bank value of 15.9 billion into ordinary shares or rather equity. The main benefit was that KPLC would hence forth have the capacity to borrow from the market for its own balance sheet. Mr. Speaker, Sir, with respect to the rights issue, the GoK was entitled to a total of 340,786,884 rights. Out of this, however, the Government was only able to trade 161,606,812 rights by the end of the rights issue trading period. The sale of the rights at an average price margin of Kshs0.75 per right resulted in revenue amounting to Kshs123 million. The proceeds were treated as ordinary GoK revenue. Mr. Speaker, Sir, it is important to note that a right issue involves sale of new shares by the company in order to raise additional capital. This is normally on the offer to the existing shareholders and is made on a pro-rata basis. The shareholders who chose not to take up their rights are free to sale the rights, and benefits from the margin between the offer price and prevailing market price as the offer price is normally discounted. It would, therefore, appear that there was a misunderstanding on the intended source of the Kshs2 billion that the Committee sought to have allocated to REA. As indicated above, one of the terms of the preference shares was divided payment at 7.85 percent effective from 1st July, 2009. It is, therefore, likely that this was the intended source of the Kshs2 billion for the funding of REA. It is true that there are Kshs2.496 billion owing to the Kenya Government from the KPLC on account of dividends declared and payable for Financial Year 2008/2009 and Financial Year 2009/2010. In keeping with the existing financial regulations, Treasury has requested KPLC to remit these outstanding dividends to Treasury, so that the money can be accounted for as investment income, and subsequently, voted by Parliament under the Budget process as appropriate. Mr. Speaker, Sir, the Government has consistently funded REA programme as a priority project to accelerate the development of rural based enterprises where the majority of Kenyans live and work. Indeed, REA was created as a specialized agency to undertake this important function on behalf of the Government. The cumulative allocation to the Rural Electrification Project in the last five years is in excess of Kshs33 billion, including Kshs1.4 billion, for operational expenses of REA since its formation. Mr. Speaker, Sir, that is all I wish to say."
}