‘Nation’ got it right in its coverage of the multi-billion shilling KPC and NYS scams

Basic shoe-leather reporting and following the money trail led the Nation Media Group to break the two biggest corruption scandals of the Jubilee government so far.

In March last year, the Daily Nation carried an exclusive investigative story that exposed how Kenya Pipeline Corporation (KPC) insiders had devised schemes to tailor tenders and award them to selected briefcase companies.

Among the scandals unearthed was a Sh647 million racket hatched by the management to make quick money. In the financial year 2014/2015, the management decided that they had to buy 60 more hydrant pit valves and spare parts for Jomo Kenyatta International Airport at a sum of Sh647 million. Yet in the same year new valves had been installed at the airport costing Sh1.5 million each.

WITHOUT BUDGET

The procurement of hydrant pit valves and spares was done without a budget and purchased through Aero Dispensers, a briefcase company owned by KPC employee Francis Amina Juma, according to a report by the Director of Criminal Investigations (DCI). The report indicates that Mr Juma and KPC procurement staff faked the authorisation letters.

Although identified as an international company, Aero Dispensers offices were located at Gill House, Nairobi, where no activity had been observed since the firm was registered in 2014.

The scandal is one of the issues that resulted in a qualified opinion of the external auditor in the company’s 2014/2015 Annual Report. The auditor observed that the company was awarded the contract through direct procurement, contrary to requirements of the Public Procurement and Asset Disposal Act 2005, according to the annual report.

QUICKLY WITHDRAWN

The DCI report outlines how KPC staff threw out the rule book. The prices were over-inflated, with a wash nut being bought at Sh1,900, and the request by Aero Dispensers for a letter of credit, advance payment of 40 per cent and the local purchase order, all approved within a day. These actions were taken against procurement laws and before anything was delivered.

KPC remitted $2.83 million (Sh283 million) to a National Bank of Kenya account. The money was quickly withdrawn and, in 10 days, the balance was only $20,000 (Sh2,000,000).

On May 24 this year, Ethics and Anti-Corruption Commission (EACC) officials raided the home of former Kenya Pipeline Corporation managing director Charles Tanui in connection with the hydrant pit valves investigation.

Also under investigation is the construction of a multimillion-shilling pipeline to replace the old line from Mombasa to Nairobi, built in 1973.

SH19 BILLION

KPC had invested Sh16 billion in modernising existing systems and new stations, but these will now be wasted investments because of the new pipeline, according to the DCI report that was submitted to the Director of Public Prosecutions on July 2.

Zakhem International Construction (ZIC), a Lebanese company, was awarded the project in 2014 and was expected to complete the work within 18 months. The pipeline reached Nairobi only this month. Zakhem made several extension-of-time claims amounting to about Sh19 billion. KPC managing director Joe Sang told the Senate Committee on Energy that the company had agreed to pay Zakhem Sh4.4 billion because of the delays occasioned by lapses by the project consultant, Shengli Engineering and Consulting Company, changes to designs, and delays by the National Treasury in releasing funds to finance the project. But a project manager at the company who oversaw the construction, Mr Xiang Yang, told Parliament that a scheduler hired to come up with compensation figures did not contact him when it decided the amount payable to Zakhem for costs arising from four extensions of time.

MANIPULATEDPROCUREMENT

President Uhuru Kenyatta directed KPC to seek a second opinion on payments of Sh4.4 billion to determine whether the claims should be paid.

The two scandals, exposed by NMG, were among those listed in the DCI report that included 27 other projects and a land purchase that KPC carried out in the past four years. The projects are riddled with procurement irregularities and corrupt deals.

According to the DCI, several lapses resulted in the company losing more than Sh90 billion through inflated costs and unnecessary projects. The fraud was perpetrated through manipulated procurement procedures, internal and external collusion, and staff intimidation, transfers, suspensions and dismissals.

NO BENEFIT

The report concludes that most of these projects have not benefited the company but served as opportunities for both the board and the top management to enrich themselves at the expense of the company and the country at large.

Three KPC officials were sent on leave to pave the way for investigations into the irregular issuing of multimillion-shilling tenders at the State-owned agency, according to Mr Sang.

Another scandal on the list is the unnecessary buying of land in front of KPC’s head office. The land, valued at Sh235 million by a government evaluation, was bought for Sh670 million through a broker instead of going directly to the owner, a move that cost the company Sh425 million.

NYS SCANDAL

The Nation Investigative Desk got wind of a corruption racket running amok at the National Youth Service (NYS) when many suppliers approached the newspaper months ago complaining that they had not been paid for supplies of goods and services to the agency since 2015, yet payments worth billions were being dished out to ghost businesses, sometimes several times daily.

The frustrated suppliers, some of whom had lost their businesses as a result of defaults on loans, were seeking help from the media as a last-ditch effort to catch the attention of the Minister for Public Service and Youth Affairs.

Follow-ups on the complaints for about two months led Nation journalists to information from multiple, credible inside sources that corroborated the allegations of the disgruntled suppliers. The whistle-blowers also leaked billing records from the Integrated Financial Management Information System (IFMIS), which revealed that NYS may have lost more than Sh9 billion in schemes involving senior government officials and ghost suppliers.

GHOST SUPPLIERS

In a case study, NationNewsplex examined what little-known Firstling Supplies Ltd billed the Ministry of Public Service and Youth Affairs. The records show that from January 2016 to January 2018 the company billed Sh1.14 billion in 24 invoices that had the same purchasing order numbers, billed amounts and items supplied... but different transaction dates. The company also billed the ministry Sh62.1 million in three invoices that had the same purchasing order numbers and billed amounts — but for different items listed. The chaotic nature of the information from IFMIS makes it difficult to figure out exactly what happened.

On perusing the list of companies involved, one thing that immediately stood out was that most of them were unknown entities with minimal internet footprint.

A Nation journalist conducted a search in the official database of the registrar of companies and found that out of a sample of 10 companies, three were properly registered with two directors each, two were registered as business names with one owner each, while three could not be traced at all.

PENDING BILLS

As the saga unfolded, the media house also confirmed that the DCI was investigating over 40 companies and individuals since late last year and its findings laid out how billions of taxpayers’ money were pillaged. The Director of Public Prosecutions, Mr Noordin Haji, and NYS Director-General Richard Ndubai, confirmed that investigations were ongoing and that they involved payment of pending bills.

And the Nation also reported that Public Service Principal Secretary Lillian Mbogo Omollo, in a memo to her boss, Cabinet Secretary Margaret Kobia, on May 12, claimed the amount being investigated was Sh900 million and not Sh8 billion as claimed by the National Intelligence Service director-general.

The NYS scandal may yet cost taxpayers more money. This month, the Public Service ministry stopped further processing and payment of pending bills totalling over Sh5.6 billion until the suppliers’ documents are verified.

Clearly, the verdict is that the NMG got it right in its coverage of the two scandals.