The Kenya Revenue Authority has spent months untangling what to do with Sh5.1 billion in taxes oil marketing companies paid on a fuel cargo aboard the MV Paloma, after the consignment was rejected and ordered out of the Kenyan market.

One Petroleum imported the fuel under an emergency tender, discharging it into Kenya Pipeline Company storage between March 28 and 30.

The Energy and Petroleum Ministry then directed its withdrawal, finding it fell short of local standards and had been sourced outside the Government-to-Government framework.

The 37 marketers who had expected to uplift and distribute the fuel were told not to lift it, and not to pay for it — but the OMCs had already remitted the Sh5.1 billion after self-assessing what KRA would demand once the fuel sold locally.

With the cargo pulled and customs declarations cancelled, KRA told the Senate Committee on Energy it has been reallocating the money to subsequent cargoes rather than refunding it.

As of June 9, Sh2.8 billion — over half the total — had been applied to new customs declarations from vessels imported since the MV Paloma recall, with the balance being administered under standard customs procedure.

The episode traces back to a supply scare: the Vessel Alignment Committee found in March that super petrol stocks were low after the vessel MV Elka Apollon failed to transit the Strait of Hormuz amid the Iran war, delaying the next scheduled cargo. Facing a projected shortfall, the ministry invited emergency bids, and One Petroleum and Oryx Energies were picked to import 60,000 tonnes of super petrol each.

KRA's reallocation is a pragmatic workaround, not a resolved accounting position.

Tax paid on a self-assessed sale that never happened is not properly owed; carrying it forward as a credit against unrelated future importers' declarations, rather than refunding the affected OMCs directly, blurs individual tax liability into a pooled industry fund — a precedent worth regulatory scrutiny. It also raises fairness questions: OMCs uninvolved in the rejected cargo effectively financed the Treasury's cash flow on a collapsed transaction.

The deeper story is procurement governance: an emergency tender bypassing the G-to-G framework produced fuel that failed Kenyan standards, exposing a gap between crisis-driven sourcing speed and quality assurance Kenya's next supply scare will test again.