KPC blunder allowed oil-siphoning racket to thrive

Kenya Pipeline Company Managing Director Joe Sang inspects the Mombasa-Nairobi pipeline on October 11, 2017. A leak-detection system was not installed for the pipeline. PHOTO | FILE | NATION MEDIA GROUP

What you need to know:

  • Mr Kinoti is leading a separate scrutiny of the project, and is investigating KPC and Zakhem officials over alleged malpractice in the implementation of the project.
  • The pipeline was intended to solve Kenya’s transportation of refined oil from Mombasa to Nairobi by replacing a nearly 50-year-old line.

Senior Kenya Pipeline Company (KPC) officials refused to instal a leak-detection system for the 450-kilometre oil pipeline despite warnings from contractors who laid the Sh48 billion infrastructure, a blunder that has now cost dealers billions of shillings in an oil-siphoning racket now under investigation.

After KPC contracted Lebanese firm Zakhem Construction to lay the line, the firm pointed out, according to fresh court filings, flaws with designs that had been done by a consortium of China’s Shengli Engineering & Consulting and local firm Kurrent Technologies Ltd.

Though KPC officials were told that the lack of a leak-detection system could lead to operations failure and open the infrastructure to abuse, they looked the other way and pushed on with the project.

The absence of such a system allowed crooked KPC employees to orchestrate an oil-siphoning racket that involves the digging of tunnels parallel to the pipeline before puncturing the infrastructure and illegally tapping oil in transit.

The Mombasa-Nairobi pipeline has been riddled with controversy, with the project being delayed by nearly two years.

INVESTIGATION

Recent attention to the project, mostly drawn by investigations by the Directorate of Criminal Investigations (DCI), has now revealed more details about the delays.

The DCI is looking into the interference at the Konza pump station in Machakos County where millions of litres of oil are believed to have been lost in the siphoning racket.

DCI boss George Kinoti last month led a team of detectives to Konza as the investigations started with the aim of unravelling the faces behind the cartel and getting them prosecuted.

Mr Kinoti is also leading a separate scrutiny of the project, and is investigating KPC and Zakhem officials over alleged malpractice in the implementation of the project.

The pipeline was intended to solve Kenya’s transportation of refined oil from Mombasa to Nairobi by replacing a nearly 50-year-old line.

Instead, it has now become the subject of complaints by oil marketers who claim to have lost an undisclosed amount of oil estimated to be worth billions of shillings, all in the space of just one year.

Under former boss Joe Sang, the State corporation would log oil stolen through the siphoning scheme — even from the old pipeline — as spillage. The racket cost taxpayers more than Sh1.2 billion.

DEBT CLAIM

Zakhem last week filed a Sh13.2 billion claim against KPC at the Milimani High Court, claiming that the company has refused to settle the amount despite advice from the Attorney-General and a private consultant hired to evaluate invoices related to the project.

“On several occasions, we warmed KPC of possible operations failure in the event KPC failed and/or neglected to instal recommended material to maintain safe operation. We also warned KPC of operational dangers if the pipeline was not equipped with a leak detection system which KPC failed to instal at the base appropriate line,” Zakhem director Adnan Annous says in an affidavit filed in court.

The suit has now revealed that following delays that led to inflation of the initial project cost, KPC hired Schedules Consultancy Ltd to look into extension-of-time claims raised by Zakhem, which totalled Sh13.2 billion.

Schedules Consultancy eventually advised KPC to pay up, as Zakhem’s debt claim was valid, and it submitted a report detailing the verdict to the company.

The KPC has already paid Zakhem Sh49.1 billion, and the latter now wants the High Court to order the company to pay the additional Sh13.2 billion claim despite an order from President Uhuru Kenyatta freezing the release of any more money to the project.

DEFECTS

The amount paid, according to court documents, went to settling installation, testing and commissioning costs and supply of materials. Zakhem is also claiming Sh265 million in interest.

But the court documents indicate that there are four defects with the 450-kilometre line that were not remedied.

The defects liability period — the window within which any faults were to be rectified — expired on December 29, 2018.

Zakhem was issued with a takeover certificate indicating that works had been done satisfactorily.

The Lebanese firm argues that despite delays by KPC in procuring project equipment and releasing payments, Zakhem did not down its tools and dug into its own pocket for some incidents related to the project.

PROSECUTION

On Wednesday, a police officer and two KPC employees were jailed for 12 years after being found guilty of stealing 33,000 litres of oil worth Sh3.4 million.

Police sergeant Antony Wekesa, who was attached to KPC’s Substation 6 in Makindu, and KPC workers Antony Kiiru Maina and Michael Mutisya, were found guilty of stealing the oil on the night of October 17, 2017.

A witness saw Mr Maina loosen a nut on the pipeline and divert oil to a waiting tanker. Mr Mutisya forced the substation’s gate open and assaulted a KPC worker in the process.

Mr Wekesa’s conduct after the incident points to the involvement of senior government officials in the siphoning scheme, as the police officer ordered the release of four other suspects who had been arrested that night, claiming to have received “orders from above”.