The Principal Secretary for Petroleum, Harsama Kello, on Tuesday defended the State Department for Petroleum's handling of key projects and financial matters as lawmakers scrutinised audit queries touching on more than Sh304 billion in recoverable oil exploration costs, delayed upstream approvals, the Government-to-Government (G-to-G) fuel import framework and the stalled Mwananchi Gas Project.
Appearing before the National Assembly Public Accounts Committee chaired by Butere MP Tindi Mwale, Kello responded to issues raised by the Auditor-General in the audit for the financial year ended June 30, 2025.
The audit questioned why four active Production Sharing Contracts (PSCs) had accumulated recoverable exploration costs amounting to USD2.35 billion, equivalent to Sh304.37 billion, without evidence that mandatory cost recovery audits had been undertaken. The Auditor-General warned that failure to carry out the audits could expose the Government to recovery of ineligible petroleum exploration expenses.
In his response, Kello told the committee that responsibility for undertaking the audits had shifted from the State Department to the Energy and Petroleum Regulatory Authority (EPRA) following changes in the law.
"Pursuant to sections 10 (k) and 10(l) of the Energy Act, Cap 314, the statutory mandate to verify the recoverable cost of oil and gas due to the parties to a petroleum agreement as well as to audit contractors for cost recovery vests with the Energy and Petroleum Regulatory Authority (EPRA)," Kello said.
He added that before the transition, the State Department had completed cost recovery audits for Blocks 10BB and 13T covering the period between 2010 and 2020.
The committee also sought an explanation over delays in approving the Field Development Plan for the Lokichar oil project after it was submitted in October 2021, exceeding the 60-day approval period required under the Production Sharing Contracts.
Kello acknowledged the delay but said the matter had since been resolved.
"It is true that during the time of audit, the Field Development Plan had not been approved, however the plan has now been approved and the contractor has started the development phase of the project," he told MPs.
Lawmakers further examined the Government-to-Government fuel import arrangement after the Auditor-General raised concerns over contract extensions, importer nominations, import premiums, escrow accounts, legal fees and demurrage charges.
Defending the arrangement, Kello said the Government had renegotiated freight and premium charges in September 2023 to provide greater operational flexibility while ensuring stable fuel supplies. He added that Uganda's decision to source fuel through its National Oil Company reduced cargo volumes, prompting Cabinet approval in December 2024 to extend the G-to-G framework by two years.
On concerns over escrow accounts, Kello maintained that they were governed under operational agreements and did not constitute public funds.
"It is important to note that every transaction in the G-to-G is off the Government balance sheet," he said.
The committee also questioned the absence of an approved National Petroleum Policy during the audit period. Kello acknowledged the policy had not been in place at the time but said it had since been approved and was now guiding the sector.
Lawmakers also turned their attention to the long-delayed Mwananchi Gas Project after the Auditor-General reported that more than Sh1.28 billion had been spent despite limited implementation. The audit found that over 79,000 LPG cylinders inspected were defective and more than 26,000 cylinders valued at Sh55.3 million had not been replaced by the time of the audit.
Kello attributed the delays to court proceedings initiated in 2018 and later policy changes. He said the Ministry had since replaced 52,864 defective cylinders before shifting to a broader clean cooking strategy adopted in October 2023 to expand LPG access among low-income households.
He added that the project's assets were transferred to the National Oil Corporation of Kenya (NOCK) in November 2024 to support future implementation.
The Public Accounts Committee is reviewing the Auditor-General's findings before submitting its recommendations to the National Assembly on the management of public resources within the State Department for Petroleum.