Auditor General raises red flag over GDC project funds
By Noel Wandera, March 22, 2021The Auditor General Nancy Gathungu has raised a red flag om the Geothermal Development Corporation (GDC) Sh31.5 billion Menengai Geothermal Project saying its funds were banked against the Public Finance Management Regulations 2015.
In an audit report for the year ended June 30, 2020 which was tabled in National Assembly on February 20, 2021, the auditor said the project’s funds were mixed with those of the company, contrary to regulations which on disbursement of projects funds.
According to regulation 76 (1) all government entities must open and maintain project accounts with the Central Bank of Kenya- unless exempted by the Cabinet Secretary. Funds are kept in the account whose name must reflect the project’s name.
“However, the projects funds were commingled with funds for the company’s general operations,” said Gathungu, adding that GDC’s promise to separate the accounts is still pending.
Overdrawn account
The account has also been overdrawn, which is also in breach of section 82 (7) of the public finance management regulations that prevents official government accounts from being overdrawn.
The Act not only prohibits overdrawing of government accounts, it also prevents the account from being used to obtain advance or loans for purposes beyond the limit authorised by the National Treasury in line with section 28(4).
“In the circumstance, the project management was in breach of the law,” Gathungu said in relation to the statement of the firm’s financial assets that reflects a balance of Sh562.4 million as borrowings, in an account held in the Co-operative Bank of Kenya.
Gathungu said the project is sagging under a huge pending bill of Sh418.6 million out of which suppliers of goods and services are owed Sh389.6 million while staff have not been paid Sh29 million, a situation the AG says, will adversely affect budgetary provisions for the subsequent years as they form a first charge.
Budegtary deficit
The auditor said that the statement of comparative budget and actual amounts reflects total budget receipts of Sh2.47 billion against actual receipts on a comparable basis of Sh1.68 billion resulting in a budgetary deficit of Sh784.6 million.
Management attributed the receipts deficit to contractual issues and delayed payments from the Kenya Electricity Generating Company (Kengen), adding that measures in place to avoid recurrence of the deficit have not been explained.
Similarly, they said statement’s total expenditure of Sh2.75 billion against an approved budget of Sh2.37 billion resulted in an over expenditure of Sh286.9 million. Gathungu explained the expenditure mainly occurred as a result of acquisition of non-financial assets.
The red flag raised by Gathungu comes even as GDC recently won a Sh500 million Geothermal Risk Mitigation Facility (GRMF) grant for geothermal exploration from African Union Commission (AUC).
GDC Managing Director and chief executive Jared Othieno said the funds will go towards facilitation of the cost of the exploration programme for the Paka Geothermal Project in Baringo.
“The Paka Geothermal Project is an integral component of GDC’s strategic plan, where the company envisions the development of 1,065MW from geothermal sources by 2030.
Of this, approximately 100MW will be sourced from the Paka Geothermal Project,” said Othieno
GDC became the first public developer to sign the grant contract with AUC . Under the agreement, GDC will drill two deep geothermal wells and upgrade the existing infrastructure to allow further development of the geothermal resource in the Project area.