National Oil is broke and can’t pay its debts, says AG Nancy Gathungu
The National Oil Corporation of Kenya (Nock) risks losing strategic assets for defaulting on a Sh3.6 billion loan from KCB Bank and refusing to take the lender’s restructuring offer.
The Auditor-General’s report on Nock for the 2019/2020 financial year warns that its growing borrowing appetite and inability to pay have pushed its debts past Sh5 billion.
“As a result of the default, one of the lenders, KCB, consolidated its outstanding loans and interests into one term loan of Sh3,664,121,000 reported as current borrowings,” Auditor-General Nancy Gathungu’s report says.
“The implication of the lender’s action to charge interest on the capitalised interest thus (increases) the corporation’s liabilities.”
KCB offered to restructure the loan in July last year, the report says, but Nock managers have not accepted the offer, indicating that they are comfortable with KCB’s terms.
“The impasse may lead to the corporation losing strategic assets which were used as collateral to secure the loans to the financiers through repossession,” she warns.
Sh494.5 million loss
In the year to June 2020, Nock incurred a Sh142 million loss (40 percent) compared with Sh352 million it lost in 2018/19. The Sh494.5 million loss in 2019/20 pushed Nock’s losses to Sh3.05 billion.
“The corporation is, therefore, technically insolvent and its continued existence as a going concern is dependent upon the financial support of the government, bankers and its creditors unless management puts in place measures to improve the performance of the corporation and to reduce reliance on financial support from the shareholders,” the report says.
Ms Gathungu also notes Nock continues to lose products worth millions yearly.
An estimated 390,000 litres of diesel destined for the Geothermal Development Company were lost in the custody of a transporter, she says, and rather than seeking to recover the product, managers cancelled the contract with the transporter.
Between July 2017 and December 2018, Nock recorded losses of 4,097,221 litres of diesel and 341,063 litres of super petrol, valued at Sh365.9 million. In June 2019, another loss of 32,000 litres of diesel valued at Sh3.62 million was reported.
“The losses were mainly through non-delivery of transporter’s consignments to Kenya Ports Authority (KPA) sites,” the report says.
If these failures are not rectified, she warns, the company is staring at its own death.
The report also reveals that Nock’s sales declined by 64 percent after it was suspended from participating in the Open Tender System (OTS) for importing petroleum products in May 2020 for failing to meet supplier obligations.
Ms Gathungu also faults Nock for failing to integrate M-Pesa and its Oracle e-Business Suite, which would automatically reflect digital payments made by clients when they purchase products.
She says the failure has led to inconsistencies between M-Pesa statements and revenue received in the Oracle e-Business Suite, suggesting that some of the money is siphoned before hitting the company’s accounts.
Nock, which the auditor-general says lacks a disaster recovery plan, also could not account for a whopping Sh97.5 million alleged to have been paid to senior managers as “other allowances”.
“However, payment of the allowances, Sh97,572,507, and the applicable rates were not provided for in the Corporation’s Human Resources Policies, (and) neither were they approved by the Board of Directors or provided for and authorised by the SRC,” the report says.
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