The Kenya Pipeline Company (KPC) is on the spot over decisions made by its board and senior management that have resulted in the loss of more than $10 million of public funds.

The agency, which is tasked with providing efficient, reliable and cost-effective means of transporting petroleum products from Mombasa to the hinterland, has been upgrading its pipeline, building new lines, and streamlining its senior management. 

However, documents seen by The EastAfrican show that there has been corruption, manipulation of costs, theft and wanton wastage of public funds at the company.

One of the controversial projects is the Line 1 replacement, whose tender was awarded to Zakhem at a cost of $4.8 million in 2014. The project, which was to upgrade the old pipeline, was to be finished in under a year, but to date is yet to be completed, with the contractor having already asked for two extensions.

“The first tender scope was changed from just constructing a 16-inch pipeline as per the KPC strategic plan, which was to cost up to $180 million, to a 20-inch one, which now required pumps, electrical and control equipment, pushing the cost to $480 million,” The EastAfrican was told.

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The KPC managing director Joe Sang did not take our calls to explain the huge price difference in this and other projects.

Board chairman John Ngumi said the project had undergone challenges as the contractor and the lead consultant had been engaged in bitter disputes.

“I honestly cannot speak about the design and finer details of the original tender because I wasn’t in office at that time. We are currently pushing the contractor to complete the works after they asked for two extensions, which we granted. Our main focus is for this project to come to fruition,” Mr Ngumi told The EastAfrican.

He added that the board’s audit committee was holding bi-weekly meetings to follow up on the progress.

140 board meetings in a year

The documents also point an accusing finger at Mr Ngumi and the board for drawing about $150,000 in allowances in just one year.

According to a source at the company, board members met about 140 times in the past 12 months, yet they are not executive members. On average, they are said to have met three times in a week, with each member drawing a sitting allowance of $200 per sitting.

Mr Ngumi attributed the meetings to the board interviewing candidates for the posts of general managers, and pushing for the completion of the new line.

“We were hiring new general managers and the board’s human resources committee had to sit through the process of elimination, shortlisting and subsequent interviews of eighteen candidates. Also, in November last year, we decided to get involved as a board on the Line 5 works since the contractor had failed to meet the deadlines,” Mr Ngumi said.

“I don’t think we have anything to hide about these sittings, and the allowances drawn are available for anyone to scrutinise,” he added.

The KPC management has also been accused of losing $5 million in tax payers’ funds through entering into an agreement with Aero dispensers Valves Ltd for the supply of hydrant pit valves for the JKIA airport at a cost of $6.4 million. KPC paid 40 per cent upfront before delivery of items was done, against the procurement regulation.

This was seen as an attempt by executives to finance the supplier to meet their own contractual obligations.

'Paid for air'

A week after receiving the downpayment from KPC, Aero Dynamics withdrew $2.35 million from a local bank, leaving a balance of $20,000 in its account.

“From the above, it is clear that no funds were wired to the pit valves manufacturer and this is a clear case of collusion between KPC management and the supplier to defraud the company as money was withdrawn by individuals, part of who were KPC staff,” a report prepared for the Parliamentary Investment Committee states.

In early July, the firm delivered the valves with no documentation showing a pre-shipment order or bill of lading. KPC rejected the valves.

According to our sources, valves take up to six months to be manufactured due to casting process. This means that if the order was placed by Aero Dispensers in mid-March last year, the earliest the valves would be ready would have been towards the end of July. Pre-shipment inspections take up to three weeks, thus the earliest the shipment process would have started was August 2015.

The source questioned how the firm got the valves manufactured and shipped in a record four months.

Mr Ngumi said he was aware that, indeed, the previous management had paid 40 per cent upfront to the firm.

“This basically means we paid for air. We also have 60 valves sitting in our yard, which we can’t take possession of because this has been subjected to a court process as the prices are said to have been inflated. As a board, we decided that as long as we don’t have any directions from either the Ethics and Anti-Corruption Commission or the courts, we will not touch those valves. The pressure to pay these funds has been immense, but I don’t think we will budge.”

He said the challenge has been that the manufacturer has refused to divulge how much the valves were sold to Aero Dynamics at, citing client confidentiality. This makes it difficult to know how much KPC lost.

Documents seen by The EastAfrican show theft of fuel at the firm of more than $1 million as late as June this year, in a racket involving several oil companies. Statements from the accounts department captured the loss in their reports.

“The theft of oil has been happening in the company with the bulk of it at the Nairobi depot. This has been a systemic issue, which we have now brought under control. We have added specific details on the meter capturing, which is now tamper proof. By the end of the first quarter next year, this theft should be a thing of the past,” Mr Ngumi said.