Auditor censures Kenya Petroleum Refi nery after CEO acts for four years

A new audit has flagged the tenure of the Kenya Petroleum Refineries Limited (KPRL) chief executive after it emerged that he has acted for more than four years.

Auditor General Nancy Gathungu has cited the infraction in a review of the refinery’s books for the period covering June 30.

Records indicated that the CEO was appointed in acting capacity on October 4, 2019, and was to serve for 12 months, which is also outside the threshold set in law.

It emerged that the officer has held the position to date, past the six months set in the law, public service human resource policy manuals and Mwongozo Code of Governance for state corporations.

The auditor also established that the board of directors has since been extending the top boss's tenure for 12 12-month rolling period.

“Management was in breach of the public service policies and guidelines,” Gathungu said in the report tabled in Parliament.

Besides the CEO, five other employees were appointed in an acting capacity for more than six months contrary to directives.

In March 2020, the government, through the Head of Public Service, directed state agencies to strictly enforce the rule requiring positions of acting capacity held for six months.

But the audit reveals that some KPRL staff had been serving in an acting capacity for periods exceeding 30 months.

Prolonged acting appointments can undermine organisational performance, create uncertainty and hinder long-term strategic planning.

Gathungu further took issue with the irregular secondment of the chief operating officer to the Petroleum department.

The officer was seconded in July 2017, and the same was renewed in April 2023 despite the officer having exhausted the set maximum of six years.

Management went ahead and released the officer, knowing well that it violated the regulations. The Public Service Commission approval was not provided for audit review, the auditor says.

The Auditor General also identified financial and operational challenges, including insolvency risks and non-compliance with procurement regulations.

KPRL is broke, with the audit concluding it faces an uncertain future. It reported a Sh91 million loss during the period under review and has a negative working capital of Sh2.5 billion.

Gathungu took issue with management after it failed to disclose the material uncertainty.

The company's survival is dependent on government support and creditors, the auditor said.

The auditor also raised concerns about questionable asset values at the petroleum refiner.

Assets with a net book value of Sh1.7 billion include fully depreciated assets still in use, worth over Sh2.3 billion. Their accurate valuation could not be confirmed.

A variance of Sh160 million was found in lease recoveries from the Kenya Pipeline Company, indicating potential misstatement of income.

The auditor has also flagged doubtful debts with over Sh165 million, including debts from inactive companies and costs for a failed project, raising doubts about their recoverability.

Further on governance failures, the board of directors was found to be non-compliant with governance codes.

The board was understaffed, lacked a member with financial expertise and included directors who had served beyond the legal term limit of six years, one for a decade.

Gathungu also highlighted operational inefficiencies after it emerged that the company held six prime residential properties that were approved for commercialisation in 2016 but remained unutilised.

No explanation was provided for why the six houses had not been leased out despite their prime location.

Further, the company continued to incur recurrent utility costs relating to the facility like water, electricity, and security charges, further increasing the losses.

“The effectiveness in use of the assets and value for money incurred in maintaining these assets could not be ascertained,” the auditor general said.

The report has also cited the agency for failing to implement the e-procurement requirements.

It was established that the procurements were not conducted through an e-procurement platform, as required by the Public Procurement and Asset Disposal Regulations, 2020, and the National Treasury circular.

“The company was in breach of the law,” the report reads in part, also citing the firm for lacking a strategic plan, a functional audit department, and a board of directors not properly constituted.

“Further, weak corporate governance may impact negatively on the reputation and financial performance of the company,” the auditor general said.

INSTANT ANALYSIS:

The acting CEO’s prolonged tenure at KPRL exemplifies systemic governance failures and disregard for public service regulations. It underscores the need for stricter adherence to tenure limits and accountability mechanisms in state corporations to ensure effective leadership and operational efficiency. The National Treasury and the board of KPRL are expected to take corrective actions. This situation mirrors broader concerns in Kenya’s public sector, where acting appointments often circumvent regulatory safeguards.