Company that won Kenya gas cylinder deal under probe

Wednesday December 05 2018

A bodaboda operator ferries cylinders of cooking gas to his customers in Olkalou town in Nyandarua County on February 21 2016. Kenyan government’s cheaper gas project for the poor has taken an unexpected twist after one of the firms contracted to supply the gas cylinders was put under administration. PHOTO | JOHN GITHINJI | NMG


The Kenyan government’s cheaper gas project for the poor has taken an unexpected twist after one of the firms contracted to supply the gas cylinders was put under administration, raising questions on the government’s level of due diligence on projects funded by the taxpayer.

The EastAfrican has learnt that Allied East Africa Ltd, the lead supplier in a consortium of four firms that won the gas cylinder supply tender, has been put under administration for insolvency.

In Kenya Gazette Notice No 12191 dated November 19, 2018 consulting firm Ernst & Young was appointed administrator for the financially distressed firm effective November 16, 2018.

Any party with a claim against the firm is expected to submit their claim in writing with supporting documentation to the administrators on or before December 11.

“Following the appointment, all the affairs and business of the company are being conducted by the administrators. The powers of the administrators extend to all assets and undertakings of the company. The powers of the directors in terms of dealing with the company’s assets ceased,” according to the gazette Notice.

The government had given Allied East Africa Ltd a contract to supply 148,750 gas cylinders valued at Ksh327 million ($3.27 million) but it only delivered 61,380 cylinders of which 47,534 were rejected for being faulty.


Contractual obligations

As a result, the government cancelled the firm’s contract and ordered it to pay over Ksh40 million ($400,000) in compensation for failing its contractual obligations.

An internal report prepared by the National Oil Corporation, the project’s implementing agency shows that other members of the consortium Surge Energy, Metalmate and Accurate Power also failed on their obligations by supplying defective gas cylinders and also failing to meet the quota of their tender awards.

The four firms supplied only 185,217 gas cylinders of which 67,251 cylinders were defective, against a contract size of 357,000 cylinders.

This contract was valued at Ksh778 million ($7.78 million).

As a result, the High Court suspended the government’s cheaper gas project and directed the government not to use public funds to repair the faulty cylinders until the matter is heard and determined on March 19 next year.

The Director of Criminal Investigations also ordered a probe into how fraudulent suppliers delivered faulty gas cylinders to a government flagship project designed to provide poor homes with cheaper cooking gas.

Petroleum Principal Secretary Andrew Kamau, however, said the project has suffered a cash crisis and that the government did not have money to supply cheap cooking gas to the poor and has instead surrendered the project to the private sector.

“Yes, we cancelled the Mwananchi gas cylinder tenders because of budget issues. The private sector has taken over on its own. The private sector has identified it as a splendid commercial opportunity,” said Mr Kamau.

Pilot programme

However, this paper has learnt that allegations of corruption, lack of funds and supply of defective cylinders stifled Kenya’s grand plan to provide poor households with cheap cooking gas.

The much-hyped Mwananchi Gas Project would have seen millions of households receive subsidised cooking gas cylinders at a cost of $20.

It was meant to equip close to four million households with six-kilogramme gas cylinders dubbed Gas Yetu fitted with burners and grills to reduce reliance on charcoal and kerosene.

Under this programme, consumers were to refill their depleted gas cylinders at a cost of Ksh840 ($8.4) per cylinder.

Kenya’s poor households have not been able to afford cooking gas cylinders at current market rates of about $50 each and the government’s plan to provide subsidised cylinders was a ray of hope for struggling families.

About 80 per cent of Kenya’s households rely on charcoal and kerosene for cooking and the government had planned to enhance liquefied petroleum gas penetration from approximately 10 per cent currently to 70 per cent within the next three years.

Kenya had initially planned to procure 1.2 million mwananchi gas cylinders every year for three years and distribute them to the poor.

The pilot programme was carried out in Kajiado and Machakos counties last year and the full implementation was expected to be rolled out earlier this year.

According to the National Oil Corporation, only 35,418 gas cylinders that passed basic visual checks and leakage detection were released into the market.