Detectives probe Amaco over KPC insurance contract

Detectives are investigating how an insurance company associated with Deputy President William Ruto was brought on board by Kenya Pipeline Company (KPC) midway through an ongoing multi-million-shilling contract.

Africa Merchant Assurance Company (Amaco) Ltd had not participated in the tender number KPC/PU/001-OT/16 for KPC’s “All Risk Industrial and Terrorism & Sabotage Cover”, a three-year contract that was won by CIC Insurance.

TENDER COMMITTEE

However, Amaco somehow eventually got 30 per cent of the business while CIC holds 70 per cent as the lead underwriter. AIG Kenya Insurance Company Ltd holds the Public Liability Policy.

How the troubled Amaco, which has been facing threats from auctioneers, managed to get the lucrative insurance contract is now the subject of investigation by the Directorate of Criminal Investigation (DCI) that suspects fraud. The investigators are also looking into how AIG won the public liability policy despite having not been recommended for award.

DCI boss George Kinoti confirmed the latest investigation, saying he was “going after all those who stole at KPC and other public institutions”.

DCI detectives have asked for documents related to the tender. Top officials of the corporation have been to the Kiambu Road headquarters of the DCI for interrogation and statement taking.

KPC Board chairman John Ngumi was at the DCI headquarters on January 31, and was asked to explain the insurance irregularities to the investigating officers who are keen on unravelling the Amaco puzzle.

Mr Ngumi, who was briefly interrogated, left DCI after promising to deliver all documents related to KPC’s insurance. On Saturday, he told the Sunday Nation he had only had a “conversation” with detectives but was not required to record a statement.

Several other senior KPC managers, including from the procurement department and the tender committee, are scheduled to appear before detectives as the probe continues.

Both Amaco and CIC did not respond to our e-mails seeking their reactions to this development.

The cover is for KPC’s large capital assets including the Kisumu oil jetty, tanks (identified as PS10) and Mombasa-Nairobi pipeline (Line V) against terrorism, sabotage, political violence, industrial risks and commercial and general liability.

CONTRACT AUDIT

The contract period runs from June 1, 2016 to June 30, 2019.

However, three months after CIC Insurance signed the contract, the broker for KPC assets, Sedgwick Kenya Insurance Brokers, approached KPC on September 9, 2016 “to confirm if it is in order” to co-insure 20 per cent of the business “awarded to us” to Amaco.

With no response yet from KPC, Sedgwick on September 14 again wrote to KPC referring to their September 9 letter and requesting KPC “to confirm if it is in order to co-insure 30 per cent (the figure having been reviewed from initial 20 per cent) of the business awarded to us specifically the Industrial All Risk and Terrorism Sabotage covers to Africa Merchant Assurance Company Ltd.”

On September 16, 2016, then KPC managing director Joe Sang granted a no objection to co-insure to Amaco, according to an audit of the contract, now in possession of the DCI.

With the stroke of the pen, Amaco got the lucrative contract. On August 9, 2018, Amaco billed KPC through six different debit notes some Sh7.6 million in premiums. Then a week later on August 16, there were two additional debit notes, with cumulative value of Sh2.2 million.

The cover against political violence and sabotage for Line V and Kisumu Oil Jetty has a limit of liability of about Sh50 billion, same as the cover against Industrial All Risk, both of which are being undertaken by Amaco.

The audit warns that KPC risks ‘exposure of 30 per cent of the assets being provided by Amaco.’

UNPAID PREMIUMS

“Management to provide a clarification of Amaco’s involvement into this arrangement given that there was no instruction to co-insure in the bid documents in section X of conditions to be met by the underwriters,” the audit states.

Also, KPC management are required “to provide confirmation whether Amaco was evaluated for capacity to provide these classes of insurance risk.”

The latest probe brings to 13 the number of suspicious tenders being investigated by DCI at KPC since late 2018. The cases are part of a total of almost 30 suspected corruption cases involving senior managers and board members at State corporations and ministries being investigated by detectives.

Following the investigations, a number of officials have been arraigned in court and relieved of their duties.

Among those who have been charged with other corruption-related contracts at KPC are Mr Sang, suspended company secretary Gloria Khafafa, head of procurement Vincent Cheruiyot, former managing director Charles Tanui, general manager Finance Samuel Odoyo, among others.

Amid investigations into the insurance tender, KPC’s report on the current state of insurance cover has revealed that as at January 28, insurance cover for Line V, Kisumu oil jetty and tanks (PS10) has been on good faith since July 1, 2018, with the situation expected to remain the same until June 30 when the current insurance cover contract runs out. This is due to unpaid premiums.

“This resulted from a dissenting opinion on the variation by one member of the evaluation team,” the report states.

Section 156 of the Insurance Act provides that no insurer shall assume a risk in Kenya in respect of insurance business unless the premium payable is received by him or is guaranteed to be paid.

LITIGATION

The report from the company on the status of the insurance cover also reveals that there is a probability of litigation if the organisation does not pay premiums to the underwriters.

Meanwhile, the Public Liability Policy, which is held by AIG Ltd, is also being looked into after investigations found that the tender evaluation committee, in a letter dated August 22, 2016 to the managing director, had found CIC General Insurance’s bid as the most responsive and recommended they be awarded the contract. However, KPC seems to have ignored the professional opinion and awarded the tender to AIG.

KPC board chairman John Ngumi, while maintaining that he is not privy to the precise line of the investigation being undertaken by the DCI, however confirmed ‘that investigative agencies are interested in our insurance arrangements’.

“What I can state with certainty in regard to our insurance arrangements is that recent internal inquiries initiated and overseen by the acting managing director did uncover concerns about our insurance arrangements. Management immediately brought these concerns to my attention. Given the urgency of the issues, on behalf of the Board (and keeping the Board informed) I requested management to effect immediate remedial action. I am pleased to say that the management has addressed these concerns swiftly, decisively and conclusively, and these concerns have been resolved,” said Mr Ngumi.

REMEDIAL ACTION

KPC board and management, he said, will co-operate fully with any investigation. “We have a full board meeting next week during which the concerns, and remedial action taken, will be tabled. We will also update stakeholders as and when the need arises,” he added.

Though reports from the DCI had stated that Mr Ngumi was at the DCI headquarters on January 31 to record a statement, the KPC chairman, however, denied having recorded a statement.

He confirmed having been to the DCI but for ‘a conversation’.

“I have not recorded any statement with the DCI, and I am not aware of any board member, past or present, having done so. As I told you earlier, I am not privy to any investigation, other than being aware there is an enquiry afoot by investigative agencies. If and when these agencies request I will, of course, let them know precisely and comprehensively what I knew, when I knew, and what action I have been involved in initiating and/or overseeing. I am confident that sentiment goes for all my fellow board members, as well as any KPC staff requested to provide information,” he said.