The State illegally withdrew Sh58 billion from the Railway Development Fund (RDLF) to subsidise pump prices in the year to June 2024, marking the latest breach of public finance management.
Auditor-General Nancy Gathungu made the revelations in a review of the period when the government on several occasions subsidised pump prices to cushion consumers from costly fuel.
Legally, the State is only allowed to use a combination of the Petroleum Development Levy (PDL) that motorists pay and budget allocations by the National Treasury to subsidise fuel prices.
RDLF is charged as a percentage and results in effective collection of between Sh1 and Sh1.50 per litre of petrol, diesel and kerosene currently while PDL is a flat charge of Sh5.40 per litre of petrol and diesel and Sh0.40 for similar quantity of kerosene.
The illegal spending of the RDLF kitty raises concerns that the government could have depleted the PDL kitty, largely due to diversion of funds to other items, contrary to the law.
“Management indicated that receipts from the RDLF were borrowed to settle arrears due to oil marketing companies contrary to Section 4(1) contrary to the Petroleum Development Act, 1991,” Ms Gathungu says.
“The section restricts receipts to the fund to monies appropriated by Parliament and receipts from the PDL with no room for borrowing to finance operations of the fund. In this case, management was in breach of the law."
RDLF is primarily used to fund operations of the Standard Gauge Railway (SGR), finance construction of its network and pay pending bills.
Official data from the National Treasury shows that the government spent more than Sh47.26 billion on the fuel subsidy scheme between April 2023 and June the following year.
Diversion of the railway development levy funds came in the year when the PDL collections missed the target of Sh32.08 billion by Sh7.74 billion.
The government was between July 2023 and June 2024 forced to reinstate the fuel subsidy in a bid to cushion consumers from costly fuel largely due to high shipping (landed) costs. President William Ruto had in 2022 declared that the government would scrap off the fuel subsidy scheme amid budgetary disruptions.
For example, in the monthly pricing cycle to November 14, 2023, the subsidy prevented a litre of petrol and diesel from shooting to Sh220.43 and Sh217.11 respectively. A litre of petrol retailed at Sh217.36 while that of diesel went for Sh205.47 in that cycle.
“The under-collection and under-performance may have affected the planned activities and impacted negatively on service delivery to the public,” Ms Gathungu says in the same report but a separate review of the PDL kitty.
Diverting money from RDLF to the PDL kitty went against a trend where the government was instead channeling PDL collections to support the fund the financial obligations of the RDLF.
The SGR has since inception in 2017 been grappling with below-par revenues from the passenger and freight trains, leaving the trains unable to fully support their day to day operations besides paying the multi-billion-shilling Chinese loan that funded the building of the rail and purchase of the trains.
For example, in August 2021, the government illegally channeled Sh18.1 billion from the PDL kitty to pay the Chinese firm operating the SGR, a move that depleted the kitty and saw the State struggle to fund the fuel subsidy scheme.
