Auditor General exposes govt for illegally diverting Sh58 billion from Railway Development Levy Fund

Auditor-General Nancy Gathungu whose new audit exposes the grim picture of unfinished developments in counties, some dating back a decade, despite substantial payments already made. (Photo: Auditor-General Kenya)

By Lucy Mumbi
Wednesday, February 26, 2025

According to the Auditor General's report, the funds were redirected to settle outstanding payments owed to oil marketing companies.

The government unlawfully withdrew Sh58 billion from the Railway Development Levy Fund (RDLF) to finance fuel subsidies between July 2023 and June 2024, a move that contravened public finance management laws, Auditor-General Nancy Gathungu has revealed.

According to the report, the funds were redirected to settle outstanding payments owed to oil marketing companies, bypassing legal provisions that restrict fuel subsidies to the Petroleum Development Levy (PDL) and budgetary allocations by the National Treasury.

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"Management indicated that receipts from the RDLF were borrowed to settle arrears due to oil marketing companies, contrary to Section 4(1) of the Petroleum Development Act, 1991," Gathungu noted in her report.

The law stipulates that only monies appropriated by Parliament and collections from the PDL can be used to subsidise fuel prices. The PDL, which motorists pay on fuel purchases, is set at Sh5.40 per litre of petrol and diesel and Sh0.40 for kerosene, while RDLF is collected as a percentage levy, translating to between Sh1 and Sh1.50 per litre of fuel.

The illegal reallocation raises fears that the PDL kitty may have been depleted due to fund diversions, affecting its intended purpose of stabilising fuel prices.

Data from the National Treasury indicates that the government spent over Sh47.26 billion on the fuel subsidy scheme between April 2023 and June 2024. The period saw PDL collections fall short of the Sh32.08 billion target by Sh7.74 billion, forcing the government to reinstate subsidies to cushion consumers against soaring fuel prices.

Reintroduction

Despite President William Ruto’s 2022 declaration to scrap the fuel subsidy due to budgetary constraints, the scheme was reintroduced as global fuel prices surged.

In the pricing cycle leading to November 14, 2023, the subsidy prevented a litre of petrol from hitting Sh220.43 and diesel from reaching Sh217.11. Instead, petrol retailed at Sh217.36 and diesel at Sh205.47 during that period.

Gathungu also highlighted that the underperformance in PDL collections negatively impacted service delivery.

"The under-collection and under-performance may have affected the planned activities and impacted negatively on service delivery to the public," she said in a separate review of the PDL kitty.

The diversion of funds marked a departure from previous government practice, where PDL collections were used to support the financial obligations of the RDLF rather than the other way around.

The Standard Gauge Railway (SGR), which has struggled to generate adequate revenues from passenger and freight operations since its inception in 2017, relies on the RDLF for its operations and to service the multi-billion-shilling Chinese loan used to construct the railway.

This is not the first instance of financial mismanagement involving the RDLF. In August 2021, the government illegally redirected Sh18.1 billion from the PDL kitty to pay a Chinese firm operating the SGR. The move drained the PDL fund, leaving the government struggling to sustain the fuel subsidy scheme at the time.

The latest audit findings raise questions about financial accountability and the government’s commitment to proper fund management, particularly at a time when Kenya is grappling with economic challenges and a growing public debt burden.