National Oil Corporation is insolvent with its debts exceeding its assets by Sh9.1 billon, according to the Auditor-General.
Nancy Gathugu says in her report that short of a cash injection and restructuring of its operations, the state owned oil firm faces bankruptcy and closure.
The government is currently seeking a strategic investor to run the parastatal.
The corporation's latest audited results for June 2023 shows that it is running on negative working capital with liabilities outstripping its assets. Liabilities currently stand at Sh11.46 billion agains an asset base of Sh2.34 billion.
The corporation reported a loss of Sh2.34 billion fin 2023, up from Sh1.50 billion in 2023. This increased its accumulated losses to Sh6.84 billion from Sh5.17 billion in 2022
According to the Auditor General, these factors raise significant doubts about the corporation's ability to continue operating without financial support from the government, banks, and creditors.
The auditor says that her review of records revealed that NOCK management also failed to meet the minimum operational stocks of petroleum.
“The corporation is technically insolvent, and its survival depends on improved performance and reduced reliance on financial support,” Gathungu said.
The corporation’s strategic plan expired in the year 2020 and management is yet to develop another strategic plan to cover the current period.
Among the issues the audit is raising is an unsupported decline in value of freehold land held by the corporation, that puts the value at Sh5.41 billion.
According to the auditor, the decline was not supported or justified since it did not result from change in sizes from alienation of the parcels or any other adverse conditions.
The corporation attributed the decline to premiums paid on acquisition of the parcels.
However, the reason could not be justified by the prevailing market conditions and differences in land measurements cited in the valuation reports and those in the title deeds.
“In the circumstances, the accuracy and valuation of property, plant and equipment balance of Sh5.41 billion could not be confirmed,” said Gathungu.
The auditor also questioned the accuracy of deferred income balance of Sh3.1 billion.
Gathungu said that over the years, the corporation spent Sh2.2 billion on capital expenditures for Exploration Expenditure-Block 14T.
However, this amount was not deducted from the deferred income, causing the reported deferred income of Sh3.13 billion to be overstated by Sh2,209,278,000.
If deferred income is overstated, it means that the company has reported more deferred income than it should have.
Deferred income, also known as unearned revenue, represents money received by the company for goods or services not yet delivered or performed.