Kenya Pipeline Company depot
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How Sh554m was irregularly paid to oil marketing firms

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A Kenya Pipeline Company depot in Nairobi. 

Photo credit: File | Nation Media Group

MPs are investigating the questionable payment of at least Sh554 million to 12 Oil Marketing Companies (OMCs) as compensation to cushion Kenyans from high petroleum pump prices.

The Public Accounts Committee (PAC) of the National Assembly, chaired by nominated MP John Mbadi, says the revelations contained in a special audit carried out by Auditor-General Nancy Gathungu between April 1, 2021 and June 30, 2022, “are extremely worrying” and touch on “the prudent use of public funds.”

“This is huge. We cannot just sit back as public funds, largely financed by debts, are abused,” said Mr Mbadi adding; “we will dig deeper and those found liable will be prosecuted.”

The irregular payment puts the National Treasury and State Department for Petroleum in a spot.

The auditor-general’s report says that the OMCs were allowed to determine the compensation framework that was used and that “they could vary the conditions without legal standing on fuel pump prices.”

Stabilisation mechanism

It further emerged that no documented compensation mechanism was put in place to ascertain the specific components of petroleum products to be stabilised and the respective amounts to be paid to the OMCs.

“The stabilisation was not anchored on any law, directive or circular and the committee formed to develop the stabilisation mechanism was never gazetted, formalised or legalised,” the special audit reveals.

The OMCs that were overpaid include Mt Rong Lin Wan (Sh182.02 million), Kencor (Sh156.63 million), Asharami Synergy Limited (Sh66.03 million), E3 Energy (Sh41.3 million), Mt Al Bateen Vtti (Sh36.77 million), Texas Energy Limited (Sh25.49 million) and Gulf Energy Limited (Sh20.5 million).

Others are Mt Al Bateen Kosf (Sh13.17 million), Mt Avanti (Sh7.99 million), Texas (Sh2.83 million), Galana Oil Kenya Limited (Sh2.6 million) and Texas (Sh365,703). The audit further noted that there was no petroleum pump prices stabilisation guidance in existence before the stabilisation was commissioned or effected. 

According to the audit, the Ministry of Petroleum admitted that the advance sales were compensated at the price differential between effective pump prices for the period and that of the preceding period for volumes sold between the tenth day of previous pricing cycle and the tenth day of the next pricing cycle. 

Petroleum pump prices

The move was to cushion the marketers who had already sold the volumes since the increase in prices in the next cycle, from the 15th to 14th of every month, as they would have had no means of recovering the difference.

However, the audit noted that a review of the advance sales compensation revealed that the entire local volumes imported between April and June were already compensated in full and any change in prices would not have justified additional compensation.

During the meeting of April 15, 2021, involving the Ministry of Petroleum, the Energy Regulatory Authority (Epra) and the OMCs, “it was resolved that cargo importers would charge an administrative fee of Sh0.50 per litre to cater for disbursement, documentation and processing of stabilisation funds received from the ministry.”

The amount was to be factored into the petroleum pump prices from July 2021.

“The rationale of including the stabilisation administration costs in the pump price build up was not justified considering that the actual charges commercial banks charge for funds transfer. Further, the OMCs have current accounts for settling amounts owing to each other when it is their turn to import,” the audit said.

Stabilisation of petroleum prices

The audit revealed that the then-Petroleum and Mining principal secretary wrote to the National Treasury requesting for an additional Sh139.5 billion from the Petroleum Development Levy Funds (PDLF) for the stabilisation of petroleum prices for the financial years 2020-2021 and 2021-2022.

This included compensation of the OMCs that were awarded tenders to import petroleum products during the pricing cycles of April 15, 2021 to July 14, 2022. Epra sets the petroleum pump prices every 14th day of the month.

The National Treasury approved Sh82.6 billion for the stabilisation with the Ministry of Petroleum and Mining receiving Sh79.8 billion for the period April 2021 to June 30, 2022.

The OMCs were compensated Sh79.75 to help in price stabilisation for the 5,820,790.41 cubic metres of imported petroleum.

However, outrun reports containing verified volumes by independent surveyors indicated that 5,797,643.35 cubic metres were imported for the local market during the period, resulting in an unexplained variance of 23,147.06 cubic metres.