Kenya Pipeline Company on the spot over Sh500 million ‘illegal’ penalty waivers for oil firms
Oil storage tanks at the Kenya Pipeline Company in Nairobi.
The Kenya Pipeline Company (KPC) is on the spot for unlawfully waiving nearly Sh500 million in penalties for four oil marketing companies that stored products in its facilities for longer than agreed upon timelines.
According to a report by the Auditor-General, the KPC board waived the penalties, totalling Sh495.9 million, between 2018 and 2021 without following proper procedures or seeking Cabinet approval as required by law.
Revenue streams
In its report on the company for the period 2020/21, Auditor-General Nancy Gathungu said the KPC board improperly waived the penalties.
Ms Gathungu noted that the Transport and Storage Agreement (TSA) between KPC and the oil marketing companies (OMCs) provides for penalty charges when products overstay in the company facilities. The penalty charge is one of the recognised revenue streams for KPC.
“The waivers were not accompanied by requisite approval from the Cabinet Secretary for The National Treasury or the Cabinet as provided for under Regulation 148(6) and (8) of the Public Finance Management (National Government) Regulations, 2015, which requires any write off above Sh100,000 to be approved by the Cabinet Secretary and any write off above one per cent of the entity’s budget to be approved by the Cabinet,” the Auditor-General noted in the report signed on September 2.
The report further noted discrepancies in the amount stated on the financial statements, which showed that a total of Sh529.6 million was waived. This resulted in an unexplained variance of Sh36.7 million.
“In the circumstances, management was in breach of the law,” Ms Gathungu stated.
The report also faults the company’s lease agreement with respect to the use of pipeline networks, storage tanks and other infrastructure by the Kenya Petroleum Refineries Limited (KPRL), after it made losses totalling Sh565 million during the year.
Efficiency review
The report recommends that the company may need to be reviewed for efficiency.
The company reported having spent Sh2.9 billion as direct costs for pipeline maintenance, part of which Sh1.2 billion was paid to KPRL for use of its pipeline network, storage tanks and associated infrastructure in 2020/21.
“A comparison of total lease costs against total lease income for the year revealed that the company realised income amounting to Sh644,256,318 thereby resulting to a net loss on the lease of Sh565,000,001,” the Auditor-General stated.
