The Rural Electrification and Renewable Energy Corporation (REREC) spent Sh1.3 billion, which the Treasury diverted from the Petroleum Development Fund, on 245 rural electrification projects.
Auditor-General Nancy Gathungu has flagged the irregular usage of the Petroleum Development Fund by REREC, saying the money is meant for the development of common facilities for the distribution or testing of oil products and matters relating to the development of the oil industry.
She said utilisation of the Petroleum Development Fund was contrary to Section 4(4) of the Petroleum Development Fund Act 2012, and the State agency breached the law.
The Treasury last year diverted Sh2.074 billion from the Petroleum Development Fund to other State agencies, draining cash meant to cushion consumers against high fuel prices.
The Treasury had, in 2020, diverted another Sh18.1 billion from the Petroleum Development Fund to fund the operating costs of the standard gauge railway.
“Note 8 to the financial statements indicates that the corporation received an amount of Sh1,359,000,000 from the Petroleum Development Fund, which was utilised on implementation of 245 rural electrification projects,” said Ms Gathungu in the latest audit on REREC books of accounts for the year to June 2021.
Ms Gathungu said this was contrary to Section 4(4) of the Petroleum Development Fund Act 2012, which states that there shall be paid out of the Petroleum Development Funds such monies as are necessary for the development of common facilities for distribution or testing of oil products and matters relating to the development of the oil industry.
“In the circumstances, management was in breach of the law,” said Ms Gathungu in a report dated September 26, 2022, tabled in Parliament.
An audit report on the Petroleum Development Fund released last February revealed that REREC, the Ministry of Energy, the Nuclear Power and Energy Agency, the Kenya Energy Sector-Environment and Social Responsibility Programme and some undisclosed private firms were the beneficiaries of the Sh1.359 billion in the latest diversion.
Ms Gathungu said no documents were tabled to show how the funds were used by the agencies and the private company.
REREC was the biggest beneficiary of the latest diversion at Sh1.359 billion followed by the Ministry of Energy at Sh500 million.
The Nuclear Power and Energy Agency received Sh130 million, the Kenya Energy Sector-Environment and Social Responsibility Programme got Sh50 million, and the unnamed company pocketed Sh35 million.
The Petroleum Development Fund Act 1991 requires that the fund be used to support a subsidy when fuel prices skyrocket and infrastructure upgrades in the petroleum sectors, making the transfers to REREC illegal.
The fund is a special scheme created to shield consumers against the high costs of fuel and is supported by the petroleum development levy, which was increased to Sh5.40 a litre in July 2020 from Sh0.40.
The diversion piled more pressure on the fuel subsidy scheme as the government has since 2021 grappled with a lack of funds to fully compensate oil marketers for keeping pump prices unchanged.
The subsidy was meant to cushion motorists from rising global fuel prices on the back of a speedier-than-expected economic recovery following the Covid-19-induced economic fallout.
Kenya started stabilising fuel prices in the monthly review that ended April last year but the subsidy scheme has faced cash-flow hitches attributed to illegal diversions of cash meant to compensate the oil marketers.
The Treasury manages the Petroleum Development Fund but lawmakers have proposed changes to laws governing the petroleum industry that will, among others, establish an independent body to manage the fund.
MPs last year directed the Treasury to compensate motorists for the Sh18.1 billion that had been diverted to fund the operating costs of the SGR.
The Treasury told Parliament that the diversion of the funds depleted the fund, leading to the discontinuation of the fuel subsidy scheme in the monthly review to October 14 last year.