Audit report reveals lucrative oil import gap in G-to-G deal
Auditor-General Nancy Gathungu during a past event.
A report by the Auditor-General has exposed loopholes in the government-to-government oil deal that could have facilitated the importation of the disputed Sh17 billion diesel consignment.
Auditor-General Nancy Gathungu has also warned that Kenya is disadvantaged by the lopsided agreement it signed with the United Arab Emirates, which stipulates the Dubai Court has exclusive jurisdiction over any dispute arising from the memorandum of understanding.
Even with the fuel deal, the country still has a monthly shortfall of 220,000 metric tonnes, which points to a lucrative opportunity for other players outside the G-to-G deal.
“The aggregate supply qualified for all importers amounted to 730,000 metric tonnes per month while the assessed national requirement was 950,000 metric tonnes. No details of how the supply shortfall of 220,000 metric tonnes would be met,” reads the Auditor-General’s 2022/23 report on the national government.
It would appear that the controversial consignment of 100,000 metric tonnes of diesel—claimed by Ann’s Import and Export Enterprises Ltd and Galana Energies Ltd—was to cash in on this monthly deficit in October last year.
In a subsequent court battle, Galana Energies Ltd acknowledged that the consignment was meant to plug the fuel deficit.
According to Ms Gathungu’s report, Article 3 of the MoU gives the responsibility of identifying and nominating the importers of bulk petroleum products to the Kenyan government. “However, review of documents indicated that this was not adhered to,” states the auditor’s report.
“Based on the evaluation of documents provided during the audit, an in-depth audit will be carried out on importation of petroleum products for the local and transit markets under the G-to-G arrangement. In the circumstances, the lawfulness, and effectiveness of the Government-to-Government oil importation scheme could not be confirmed,” the report concludes.
A vessel that had docked with 100,000 metric tonnes of diesel had been in the Indian Ocean since October 11, 2023 until early November when the controversy became public. Businesswoman Anne Njeri insisted she had imported the consignment and moved to court to block other parties from offloading the cargo at the Mombasa port.
But Galana Energies Ltd Chief Executive Officer Anthony Munyasya explained that the consignment was part of the supply required to meet the country’s fuel requirements, apparently alluding to the shortfall that has since been detailed by the Auditor-General.
“No person can import petroleum into the country without a licence or transport and storage agreement,” Mr Munyasya told the court.
Energy Cabinet Secretary Davis Chirchir explained Ann’s Import and Export Enterprises had not signed the transport and storage agreement with Kenya Pipeline Corporation as stipulated by regulations and, therefore, could not qualify to be an oil importer.
Mr Chirchir said Aramco Trading Fujairah FZE had supplied the consignment through Galana Energies. He said that the vessel was loaded with 93,460.46 metric tonnes of diesel from the Port of Yanbu Samref TMNL in Saudi Arabia.
In March 2023, the Kenya Kwanza government made a policy shift on importation of petroleum products for the local and transit markets from the open tender system (OTS), in which local companies bid to import oil every month, to the G-to-G framework.
According to Ms Gathungu, the change was meant to stem the decline in value of the Kenyan currency that was attributed to oil marketing companies’ operations, and reduce pressure on foreign currency liquidity in the economy.
Kenya, through the Ministry of Energy and Petroleum, entered into agreements to purchase petroleum products from three firms, but the Auditor-General said her office was not furnished with the documents.
“Bilateral agreements governing purchase of refined petroleum products between the Government of Kenya and that of the United Arab Emirates (UAE) were not provided for audit review. In addition, the Supply Purchase Agreements (SPAs) with three oil companies supplying the products were not provided for review,” the report states.
“Article 11 of the MoU provides that the MoU was non-binding. In addition, articles 15 and 16 of the memorandum provides that disputes will be referred to Dubai Court, which has exclusive jurisdiction over any dispute, and that the MoU will be governed by and constructed according to the laws of United Arab Emirates. This may disadvantage the Republic of Kenya in cases of disputes arising from the MoU,” the report adds.
The Auditor-General also stated that the government had blocked access to the money trail from an escrow account that holds funds from importers.
“Clause 5.3 of the Master Framework Agreement provides for maintenance of an escrow account for receipt of funds from importers under the Open Tender System (OTS) terms and conditions. However, documents supporting existence of the account and amounts deposited and withdrawn from the account were not provided for audit review.
“In addition, the Letter of Support to importers provided for operation of a collection account and investment account. However, no documents were provided to indicate existence, ownership, signatories and particulars of the accounts,” the report observes.
In March 2023, President William Ruto’s government sealed the oil supply deal with Saudi Aramco Trading Fujairah, Abu Dhabi National Oil Company and Emirates National Oil Company. And last September, Kenya extended the deal with the three Gulf-based companies.
