A report from the Auditor-General has revealed potential flaws in the government-to-government (G-to-G) oil deal that could have allowed the importation of a contested Sh17 billion diesel consignment. Auditor-General Nancy Gathungu cautioned that Kenya is at a disadvantage due to the imbalanced agreement signed with the United Arab Emirates, which grants exclusive jurisdiction to the Dubai Court for any disputes arising from the memorandum of understanding (MoU). The country faces a monthly shortfall of 220,000 metric tonnes of fuel, creating an opportunity for non-G-to-G players.
The Auditor-General’s report highlighted that the aggregate supply for all importers was 730,000 metric tonnes per month, falling short of the assessed national requirement of 950,000 metric tonnes. The controversial consignment of 100,000 metric tonnes of diesel, claimed by Ann’s Import and Export Enterprises Ltd and Galana Energies Ltd, appears to have aimed to capitalize on this monthly deficit in October last year.
According to the report, Article 3 of the MoU assigns the responsibility of identifying and nominating bulk petroleum product importers to the Kenyan government. However, the audit revealed non-adherence to this provision, prompting a call for an in-depth audit on the G-to-G oil importation scheme’s legality and effectiveness.
The report also questioned the MoU’s provision giving exclusive jurisdiction to the Dubai Court, stating that it may disadvantage Kenya in cases of disputes. Additionally, it noted that the government had obstructed access to the money trail from an escrow account holding funds from importers, with insufficient documentation provided for audit review.
The controversial diesel consignment, embroiled in a court battle, was intended to address the country’s fuel deficit, as confirmed by Galana Energies Ltd during the legal proceedings. The government’s oil supply deal with Saudi Aramco Trading Fujairah, Abu Dhabi National Oil Company, and Emirates National Oil Company, initiated in March 2023, has faced scrutiny over its impact on Kenya’s currency and foreign currency liquidity. The G-to-G framework replaced the open tender system (OTS) in March 2023, aiming to stabilize the Kenyan currency and ease pressure on foreign currency reserves. The agreements with the three oil companies and the bilateral agreements with the UAE were not provided for audit review, adding to the concerns raised by the Auditor-General.
