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Audit: Nock leased petrol stations without contracts, lost money
A signpost at a petrol station branded by the National Oil Corporation.
What you need to know:
- Petrol station dealers used expired contracts to do business with the National Oil Corporation of Kenya.
Petrol station dealers used expired contracts to do business with the National Oil Corporation of Kenya (Nock), exposing the corporation to loss of revenue, risk of non-compliance and potential lawsuits.
The state-owned fuel marketer entered into agreements with several dealers to operate the corporation's service stations nationwide.
An audit review of a sample of the agreements in the year to June 2023 revealed that three of the agreements had expired.
“However, the corporation continued to transact with the three parties without a valid lease contract,” Auditor-General Nancy Gathungu said in an audit of Nock’s accounts for the year to June 2023.
Auditor-General Nancy Gathungu during a past event.
“It is not clear under what terms the corporation and the three entities engaged with each other in the absence of the leases. In the circumstances, the corporation was in breach of law.”
In 2019, Nock invited dealers to lease its petrol stations and also invited business entities to lease vacant spaces in petrol stations to run non-fuel businesses, including shops, car washes, tyre centres, service centres and restaurants.
The agreement to lease vacant space in service stations to potential business entities restricts the partners from running fuel-related businesses.
Nock operated approximately 160 fuel outlets across Kenya as of 2019 and planned to increase the number to 200 by the end of 2020.
Gathungu has raised the red flag over poor monitoring and inspection of dealer-operated service stations.
She said the corporation entered into agreements with several dealers to operate its service stations across the country, and the dealers were expected to purchase fuel products from the Nock and compensate the corporation where they purchased products from other oil marketing companies (OMCs) for what is referred to as dumping.
“According to the volume sales for Company Owned Dealer Operated service stations, the corporation did not have product from March 2023 to June 2023,” Gathungu said.
Meter reading
“However, during the year under review, management did not carry out monitoring, inspections and meter reading of the Company Owned Service stations, which are operated by the dealers, to ensure that instances of product dumping are detected and fees charged.”
She said a review of the records and reports provided for the audit revealed that the last inspections and meter readings were carried out in November 2022.
The audit also uncovered cases of encroachment on a piece of land valued at Sh126,697,274 where Nock on September 15, 2017, granted a six-month lease to an individual to operate a car wash and garage at a monthly rent of Sh60,000 excluding value added tax (VAT).
Gathungu said the lease was extended for a further six months from April 1, 2018, to September 30, 2018.
“However, upon expiry of the agreement, management continued to receive rents without renewing the agreement or giving notice of intention not to renew the lease,” she said.
“Management later issued a notice of intention not to renew the licence, but the tenant took the corporation to court and obtained a temporary order restraining and prohibiting the corporation from trespassing on, entering into, taking possession of, harassing, intimidating and/or evicting the claimant from the plot.”
Gathungu said the company issued a new notice of termination on December 22, 2023, which required the tenant to notify the company in writing within one month of receipt of the notice as to whether or not he agreed to comply with the notice.
She said that at the time of the audit, the tenant had not complied with the notice.
“Therefore, the tenant continues to operate business on the corporation land without paying any rent,” Gathungu said.
She said documents reviewed showed that the Nock incurred an expenditure of Sh5,604,000 for the construction of a liquefied petroleum gas (LPG) skid at Kipkaren Service Station, which included the cost of civil works, two LPG mini skids and associated works.
Gathungu noted that only the foundation had been completed and the contractor had abandoned the site.
“Management did not assess the stalled project for impairment. In addition, no clear road map was provided on how the management intends to address the matter, neither was a plausible explanation provided on why the project has been abandoned before completion.”
Gathungu said the Sh5,604,000 spent on the construction of the Kipkaren Service Station had not yielded value for money and that the objective of the project had not been achieved.
