High-level crime at Pipeline endangers the whole region

The Kenya Pipeline Company is not your ordinary parastatal. This is a strategic national facility whose operations have implications for the cost of doing business in the whole of the East African region.

Indeed, KPC more or less functions as the spinal column of the petroleum industry in the region. If you mess around with it, the reverberations will be felt in the macro-economies of all countries of this region.

Such is the sensitivity of this facility to the economy of the region that any minor problems in its operations will result in crippling shortages, high pump prices, and untold damage to our roads by heavy oil trucks.

In the last five years, and with nearly all the countries of the region now heavily relying on diesel plants to produce electricity, KPC’s importance has become critical.

Kenya, Uganda and Rwanda have all contracted Independent Power Producers (IPPs) – the Agrekkos and the IberAfricas of this world – to provide them with electricity from diesel-powered plants.

The perpetrators of the Triton scandal have committed an economic crime. Their activities have exposed KPC to litigation by international traders. The integrity of this sensitive national asset has been put at risk, while several oil companies risk bankruptcy. It is the ordinary man on the street who will end up paying the price.

If we don’t resolve the problem, no international creditors will want to engage in dealings with upcoming independent petroleum marketing companies.

Which is a pity because the entry of small independent oil players in petroleum marketing in Kenya was just beginning to inject competitive pressure in the oil marketing business.
Under KPC’s “collateral financing system”, oil can’t be released from the pipeline without the authority of financiers.

With the system now facing collapse, none of the independent marketers will be able to operate in the market.

The Triton scandal threatens to reverse the gains we have achieved in opening up the business. Indeed, petroleum marketing in Kenya remains largely oligopolistic, with the majors – Shell, Total, Caltex, Mobil and Kenol/Kobil – controlling more than 80 per cent of the market share. What we have is a structure that makes it easy for market players to collude and engage in cartel-like behaviour.

The perpetrators of the Triton scandal must be made to answer because their activities have undermined the economic interests of the whole region.

The biggest lie in this game of deception is this theory that junior clerks at KPC’s operations department are the only ones responsible for the scandal.

The amounts of money involved and the volumes of oil stolen point to a complex game of deception involving people at the very top of the company.

Yet KPC’s top management still want us to believe that low-ranked operatives – the people they call “schedulers” in their lingo – are the only ones responsible for this scam. They should tell that to the birds. We all know that the proprietor of Triton, Mr Yagnesh Devani, was no ordinary player. The man plays in the very top league.

To suggest that he relied on minnows to clandestinely siphon off a whopping 126 million litres of oil from the KPC system without the knowledge of the top management is to engage in fantasy.

In any event, the top managers are to blame for overseeing a system whose integrity is so easy to compromise.

I gather that KPC has been implementing a very advanced SAP computer system. Is it merely a coincidence that product accounting and stock movement is the last to be brought live on the new transparent system?

At the end of the day, what we are dealing with here is poor governance of critical parastatals. Even after we introduced performance contracts, the appointment of chief executives is still done on the basis of political patronage.

Parastatals operate under a corporate governance regime where permanent secretaries routinely meddle in management.

As a chief executive of a parastatal, you report too many people. First, you are accountable to you parent ministries. There are permanent secretaries who will sit on multiple boards.

Secondly, under the State Corporations Act, you are answerable to Mr Francis Muthaura’s office. Since, Treasury is the actual shareholder of all parastatals, the CEO of a parastatal is also answerable to the Ministry of Finance.

Which brings me to the recent appointments in the Ministry of Energy. The Government has created two new parastatals – one hived off from KenGen and another from the Kenya Power and Lighting Companies.

Why are we fragmenting the electricity sector? So that we can appoint our cronies? Ten years ago, we had KPLC. Today, we have five companies and more directors earning allowances.