Auditor General questions State's hefty funding of KNSL

Southern Engineering Company engineers watch as the first Kenyan built barge Alpha 2500 is towed into the ocean from the dry dock in Mombasa.[File, Standard]

Auditor-General Nancy Gathungu has identified a series of irregular expenses, unexplained loans, and blatant disregard of the law by Kenya National Shipping Line's (KNSL) management.

She reveals that the firm also received funds from the Exchequer despite the 2018 changes in shareholding structure that greatly reduced Kenya Ports Authority (KPA) equity ownership in it.

The latest report by the Auditor-General shows that in the 2023-24 financial year, the National Treasury pumped a Sh118 million grant into the firm, Sh65 million in the previous year, and Sh68 million in the 2021-2022 financial year.

"It is not clear why grants are sent directly to the company, whose government shareholding is through Kenya Ports Authority," says Ms Gathungu in her report tabled in Parliament recently.

It says KNSL failed to disclose the grant in the statement of profit and loss and other comprehensive income, yet it was intended for operational support for recurrent expenditure.

"This is contrary to the requirements on treatment of government grants and the matching principle," says the report, also questioning the write-back of capital grants from the government.

The Auditor-General says the changes in equity reflect a write-back for capital grants from the government to the accumulated deficit of Sh450m, meaning the grants were to cover operational expenditure.

"It is not clear why the company continues to receive significant budgetary allocations from the National Treasury despite generating its own revenue through commercial activity," she says in the report.

In the 2018 shareholding structure of KNSL, KPA equity ownership dropped from 75 per cent to 53 per cent, while that of Mediterranean Shipping Company (MSC) increased to 33 per cent.

According to the Memorandum of Understanding, KNSL was to operate from the port of Mombasa. An agreement was signed to manage the Container Terminal 2 (CTS).

However, a case was filed to stop the transfer of the operation and management of CT2 to KNSL.

The Auditor-General now questions the deal, saying no evidence was provided on how MSC was selected as an equity holder in KNSL, and it was not provided for audit review.

The company received government grants of Sh118 million during the period under review... in the circumstances, the company (KNSL) equity shareholding could not be confirmed," says the Auditor-General.