The government used Ksh58 billion from the Railway Development Levy Fund (RDLF) to settle arrears due to oil marketing companies.
According to a new report from the auditor general, the government used money set aside for the development and maintenance of the standard gauge railway to pay oil markets in the financial year ending June 2024.
The auditor general has revealed that the RDLF, which is domiciled within the Ministry of Transport, lent the State Department for Petroleum Ksh58 billion to settle debt owed to oil marketers.
An act that, as Auditor General Nancy Gathungu noted in the National Government Funds 2023-2024 report, is against the Petroleum Development Fund Act of 1991.
“The report notes an irregular borrowing of Ksh58,279,451,755 from the Railway Development Levy Fund (RDLF) and State Department for Petroleum to settle arrears due to oil marketing companies, which is contrary to the Petroleum Development Fund Act, 1991,” Gathungu said.
The Railway Development Levy Fund (RDLF) is a funding mechanism established to support the development and maintenance of the railway infrastructure, particularly the SGR. The main source of revenue for the RDF is the Railway Development Levy (RDL), a tax of 2 per cent imposed on imported goods.
Conversely, the Petroleum Development Fund (PDF), established under the Petroleum Development Fund Act of 1991, was created to support the development of common facilities for the distribution or testing of oil products and matters related to the improvement of the oil industry.
The PDF is funded through the Petroleum Development Levy, which is imposed on petroleum fuel.
Under the Petroleum Development Fund Act of 1991, a key restriction is that the fund cannot borrow money to finance its operations. This means it must operate strictly within the funds received from these sources and cannot take loans, issue bonds, or seek external financing to cover its expenditures.
Thus, the use of monies borrowed from the RDLF to assist in the payment of oil marketers contravenes these laws. The report did not indicate any justification for the borrowing from either the Ministry of Transport or the RDLF managers.
While it remains unclear whether the government paid the full amount to the oil marketers, the two parties were involved in a dispute over the mounting debt.
As of June 2023, the government owed oil marketers approximately Ksh45 billion for fuel subsidies, which was later converted into a three-year Treasury bond.
The conversion to Treasury bonds allowed oil marketers to receive periodic interest payments until the bonds matured, effectively settling their outstanding debt. This debt conversion brought the total payout to Ksh169.89 billion.
