Kenya Pipeline Company writes off Sh4.3b KenolKobil debt

Thursday, October 3rd, 2019 00:00 |
Power grid. Photo/Courtesy

The Kenya Pipeline Company (KPC) has written off a Sh4.3 billion debt owed by an oil marketing firm on the basis that court cases on the matter had taken too long and were eating into the corporation’s profits.

The Auditor General had questioned the unrecognised contingent liability, which the KPC management could not explain.

According to the auditor’s report, oil marketer KenolKobil, which was for a long time been associated with the late former Cabinet minister Nicholas Biwott, had disputed the Sh4.3 billion debt and moved to court.

The company is owned by French firm Rubis Energie, which purchased 100 per cent ordinary share capital of KenolKobil Plc this year.

An arbitrator appointed to resolve the dispute ruled against KPC in 2016 and awarded KenolKobil $19.7 million (Sh1.9 billion) in a ruling made on June 30, 2018.

“In December 2005, KenolKobil sought and obtained an injunction against KPC when the company threatened to suspend services due to the oil marketer’s persistent non-payment of charges for services rendered,” the company’s acting managing director  Hudson Andambi told a parliamentary committee yesterday.

The corporation, thereafter lodged an appeal in court against the arbitrator’s decision.

Corruption charges

The corporation has been a major conduit of siphoning of taxpayers’ money which has seen many former top managers end up in court on corruption-related charges. 

The latest managing director to be hauled to court is Joe Sang, who is charged in relation to missing fuel worth Sh2 billion.

Other former heads of the corporation, who left in disgrace, include Charles Tanui (corruption accusations), Selest Kilinda (alleged nepotism), George Okungu (Sh68 million fraud charges), Dr Shem Ochuodho (Sh827 million fraud case). Others are Dr Linus Cheruiyot (Sh339 million fraud accusation), and Ezekiah Komen (alleged Sh65.2 million fraud).

Revelations of the intended write-off comes a day after the corporation’s management disclosed that some unscrupulous engineers had compromised its Sh48 billion pipeline by fixing a siphoning mechanism at Mlolongo area. This is suspected to have happened during the construction of the new Mombasa-Nairobi pipeline.

During yesterday’s parliamentary committee meeting, MPs questioned the  high turnover of top managers at the corporation with members asking why most of the current managers were in acting capacity. The committee heard that the top managers were suspended after they appeared in court over corruption-related charges.

Members said it was clear the corporation’s management and legal teams were colluding with lawyers representing debtors to delay cases only to withdraw them and have the debts written off.

Andambi told members of the Public Investment Committee that the dispute between the corporation and KenolKobil came up as a result of a government authorised increase in transport and storage tariff from $2 to $3 in 2005.

“KenolKobil refused to pay the revised tariff and withheld monies on regular basis on alleged claims of demurrage. The parties referred the dispute for arbitration and subsequently escalated the matter to the High Court,” Andambi told the Abdulswamad Nassir-led committee.

In a judgment delivered on January 26, 2012, the High Court referred the matter back to the arbitrator for re-assessment of damages.

The MD said the matter has since dragged in court and numerous rulings have been made, most of which KPC lost and asked to pay billions of shillings. 

It was on this understanding that the case was taking a toll on the company that they decided to write off the Sh4.3 billion claim against the oil marketer.

The most recent scandal to hit KPC has been the siphoning of petroleum products from the new pipeline which the management has blamed on “expert” job, putting its staff and contractor on the spot.

Mlolongo siphoning

The KPC management has insisted that the Mlolongo siphoning was well planned, with valves used in the siphoning suspected to have been fixed during construction.

The Energy and Petroleum Regulatory Authority wants KPC managers punished for omitting a critical leak detector on the altered design of the pipeline.

This has placed the contractor, Zakhem International Construction Limited, on a tight spot even as it emerged that the company hired welders from Nigeria and India as part of its labour force in the construction of the 450km, 14-inch pipeline, which apart from the siphoning incidents, leaked less than a year into operation.

Detectives uncovered the siphoning syndicate on June 26, where a 20-metre long hose pipe had been connected into the new pipeline (Line5) via two valves, a ball valve and a gate valve, which controlled the flow from the main line into a parked truck labelled “Clean Water”.

The other query as stated by the Auditor General is the Kisumu Oil Jetty, where the viability of the Sh1.7 billion project was questioned.

The auditor notes that whereas the project had been completed, construction of two jetties on the Uganda side had not been confirmed therefore putting the viability of the Kisumu Jetty in no use.

The matter has since seen former MD Sang and a number of senior managers charged in court.

Suppliers compliance

Another scandal which has been flagged by the Auditor General is contract for the supply of Hydrant pit valves and spare parts for two years. The contract was awarded through direct procurement, contrary to the requirement of the law.

The AG therefore says he is not able to confirm the supplier’s compliance with the procurement procedures, and whether it obtained value for money on the contract sum of Sh 655.8 million paid for the supply of the hydrant valves.

In response, Andambi told the committee that the EACC undertook to investigate the procurement of the valves and subsequently assumed inspection of the items.

The anti-graft agency, he said gave approval for KPC to utilise the items. The corporation has since utilised 100 per cent of the valves and about 30 per cent of the spares.

Payment for the balance for supply of Cla-Val (the firm contracted to supply the hydrant valves and spares is pending until after the completion of investigations.

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