Former President Uhuru Kenyatta’s regime is being investigated after it has revealed that the government may have lost Sh34 billion under the fuel pump price subsidy programme. The said period was the 15 months leading up to the August 2022 General Election when the former president was in office.
The likely loss, revealed in a special audit report to Parliament by Auditor-General Nancy Gathungu, comprises Sh554.72 million overpaid to 11 oil marketing companies (OMCs).
The money was supposed to be used to subsidise fuel costs and protect Kenyans against the increased price caused by fluctuations in global oil prices. However, the money may have ended up in the pockets of a few individuals in the former government.
The special audit covered the period from April 1, 2021, to June 30, 2022, which has identified many channels through which public monies may have been stolen, either by commission or omission on the part of government personnel.
Fuel subsidy scandal breakdown
These include improper use of Sh22.68 billion from the Petroleum Development Levy Fund (PDLF), overpayment of OMCs, and Sh5.32 billion in illegal advance sales price stabilisation compensation. Irregular demurrage charges of Sh3.2 billion were passed on to consumers through high pump prices. Also, irregular administrative expenditures of Sh2.21 billion have been identified.
The special audit puts the National Treasury Cabinet Secretary at the time on the spot about the PDLF’s Sh22.68 billion. The PDLF Act of 1991 specifies that funds from the kitty be utilized to build infrastructure for the distribution or testing of oil products. The law, which went into effect on July 15, 2020, further states that the funds would be used to stabilize local petroleum pump prices in the event of increases caused by high landing costs over a level specified by the Energy and Petroleum Regulatory Authority (EPRA).
Funds diversion from intended projects
According to the audit, Sh18.14 billion of the Sh49.68 billion released by the Treasury from the PDLF between July 2020 and June 2020 was transferred to the State Department for Infrastructure to support different road projects in contravention of the law. Kenya National Highways Authority (Sh531.78 million), Kenya Rural Roads Authority (Sh17.16 billion), and Kenya Urban Roads Authority worked on the projects (Sh373 million). The ministry received Sh75 million for operations. Another Sh4.54 billion was moved out of the PDLF to the Ministry of Energy to fund other initiatives not linked to petroleum.
“The use of the PDLF to pay road building projects and transfers to the Ministry of Energy violated the PDLF Act, the Petroleum Development Levy Order of 2020, and the PFM (Public Financial Management) Act,” the audit report reads.
It further states that the Sh5.32 billion in unlawful advance sales price stabilisation compensation violated the PFM Act. The then-Principal Secretary in charge of the Energy Ministry and Director-General of EPRA will be held accountable.
As per the document, the money was given as a settlement for early sales of local volumes in April, May, and June 2022. Yet, there was no legal foundation for upfront payment, and “no evidence of recovery of this advance” was provided.
“There is no documented compensation system in place to determine the exact components of petroleum products that should be subsidized and the appropriate sums to be paid to the OMCs,”
Protection of oil marketing companies(OMCs)
Also, the report says that the OMCs were authorized to define the compensation framework that was utilized “and they might modify the criteria without legal standing or fuel pump pricing”. “The stability mechanism was never gazetted, formalised, or legalised, and the committee appointed to design it was never gazetted, formalised, or legalised.”
During the audit, the Ministry of Petroleum informed the auditors that advance sales were compensated at the price differential between the period’s effective pump prices and the preceding period’s effective pump prices for volumes sold between the 10th day of the previous pricing cycle and the 10th day of the next pricing cycle. This was done to protect marketers who had already sold the quantities since the price rise in the next cycle, from the 15th to the 14th of each month, because they would have no way of recuperating the difference.
Nevertheless, the paper states that a study of the advance sales compensation indicated that the whole local amount imported between April and June had already been covered in full, and any change in pricing would not have warranted extra compensation.
KES 2.21bn wasted on irregular administration charges
The Sh2.21 billion in irregular administrative charges for pump price stabilization violated Regulation 4 of the Energy (Petroleum Pricing) Regulations of 2010, putting the Petroleum and Mining PS and EPRA DG in the moment on spot. The sum was paid as administration charges from the April-May-August 2021 and June 2021-July 2022 price periods.
During a meeting of April 15, 2021, between the Ministry of Petroleum, Epra, and the OMCs, it was determined that cargo importers will levy an administrative fee of Sh0.50 per litre to provide for distribution, paperwork, and processing of subsidy funds received from the ministry. The sum was to be included in fuel pump pricing beginning in July 2021.
“The justification of incorporating the stabilisation administrative expenses in the pump price build-up was not warranted considering that the real charges commercial banks charge for money transfer. Furthermore, when it is their turn to import, the OMCs have current accounts to settle sums owed to each other,” the special audit noted.
Oil marketing companies (OMCs) in question
For the fiscal year April 2021 to June 30, 2022, the Ministry of Petroleum and Mining got Sh79.8 billion. The OMCs were reimbursed to aid in price stabilization for the imported petroleum of 5,820,790.41 cubic meters. Outrun reports with confirmed volumes by independent surveyors, on the other hand, revealed an inexplicable difference of 23,147.06 cubic meters. Gulf Energy, Asharami Synergy, Mt Rong Lin Wan, Mt Al Bateen Vtti, Texas Energy, Kencor, and E3 Energy are among the OMCs that have been overpaid. Additionally, Galana, Mt Al Bateen Kosf, and Mt Avanti are among the others.
Of the Sh3.2 billion in irregular demurrage costs, Sh37.32 million did not fulfil the conditions set forth in the Transport and Storage Agreement (for collection through the pump as the vessels offloaded within the allowed three days)
According to the audit, the major sources of the costs included scheduling problems, ullage restrictions at Kenya Pipeline Company receiving facilities, and importers changing vessel arrival dates.