A recent audit has disclosed that Kenya is ill-prepared for fuel supply disruptions, with no emergency fuel reserves in place. Auditor General Nancy Gathungu’s review of the National Oil Corporation of Kenya (NOCK) accounts, highlights this significant vulnerability.
The audit reveals that NOCK management failed to maintain the minimum operational stocks of petroleum as mandated by the Energy (Minimum Operational Stock) Regulations, 2008. These regulations require petroleum importers to keep a physical operational stock to ensure a short-term supply in case of disruptions.
“The minimum operational stock shall be maintained to ensure short-term supply of petroleum products in the event of disruption of supply of the products,” Gathungu stated.
According to the 2008 regulations, NOCK should maintain reserves of LPG gas for 15 days, petrol for 20 days, and diesel for 25 days. Additionally, importers must keep kerosene for 20 days, jet fuel for 30 days, and industrial diesel oil for 20 days. Heavy fuel oil for manufacturing plants should last 25 days, and aviation gasoline should be available for 20 days.
However, the audit found that NOCK did not have these required stocks, exacerbated by its dire financial situation. “In the circumstances, management was in breach of the law,” Gathungu added.
The auditor also noted that in the previous year, NOCK had no strategic petroleum stocks, which was particularly concerning given that the corporation lacked a license to import or export petroleum products at the time.
The regulations stipulate that the strategic stock should cover up to 90 days of consumption for various petroleum products. This stock should be procured by NOCK and stored by the Kenya Pipeline Company Limited. Any consumed or drawn-down amounts should be replenished to maintain optimal levels.
NOCK’s financial woes have worsened, with the audit revealing a negative working capital of Sh9.1 billion . “These events or conditions indicate material uncertainty regarding the corporation’s ability to continue as a going concern,” Gathungu said. She highlighted that NOCK’s continued existence relies on financial support from the government, bankers, and creditors.
The audit also noted that NOCK’s management did not disclose how it plans to address the going concern issue in its financial statements, as required by international accounting standards. “This material uncertainty was not disclosed in the notes to the financial statements,” Gathungu pointed out.
At the time of the audit, NOCK owed Sh777 million to vendors and failed to explain why these creditors had not been paid within 60 days. Additionally, the audit flagged inaccuracies in legal expenses amounting to Sh113 million and unaccounted balances of Sh3.7 billion held in various banks and investment trusts.
Management claimed these funds were included in other corporation funds or invested in fixed deposits at commercial banks. Gathungu criticized NOCK for holding funds for unimplemented projects or surplus funds for completed ones, thus denying citizens access to intended services or additional services that could be provided using these idle funds.
“In the circumstances, the accuracy and completeness of the special fund’s projects balance of Sh3,680,249,000 could not be confirmed,” Gathungu concluded, also highlighting an unexplained Sh215 million in exploration grants.
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