Taxpayers have likely lost Sh40 billion in a project to build a new 450-kilometre fuel pipeline between Mombasa and Nairobi, the Nation can reveal.
In contracting riddled with ruthless, old-school corruption, Kenya Pipeline Corporation (KPC), has embarked on a project which renders useless equipment, some of it new, on which the public has already spent hundreds of millions of shillings.
They are throwing away perfectly good infrastructure and buying capacity the country has no use for because procurement offers an opportunity to eat, according to whistle-blowers.
It’s all a matter of inches. Kenya planned to upgrade its pipeline to 16 inches which would give it — and the region — enough capacity for the foreseeable future. So between 2008 and 2013, it bought pumps and other auxiliary equipment for a 16-inch pipeline.
But in what whistle blowers describe as a perplexing, kick-back driven decision, the company decided to throw everything away and buy a 20-inch pipeline.
If the numbers are confirmed, that decision will cost the public a loss that easily dwarf’s Anglo Leasing’s Sh18 billion, and make the Sh1.8 billion stolen from the National Youth Service look like pocket change.
The 16-inch pipeline was to cost Sh16 billion, while the so-called 20-inch Line 5 will cost Sh53 billion.
The pipeline case demonstrates how mega-corruption has burrowed into the parastatals and counties, away from the mainline ministries where anti-corruption activities are concentrated.
The pipeline tender for the behind-schedule project was given to the Lebanese firm Zakhem, which has a long and largely opaque history with Kenya’s pipeline and which has been blacklisted in some West Africa nations where it was doing similar projects.
For the last few months, KPC has been running PR social media campaigns about Line 5 under the hashtag #BeyondFuel saying it will create more than 1000 jobs and “transform lives for this and future generations”
Underneath this campaign is the story of a company which wants to cleanse the image of the delayed pipeline and of a company that was historically cash-cow for the politically correct – thanks to the multimillion-shilling tenders it awards; and the story of a pipeline that has turned controversial.
On Tuesday, KPC chairman John Ngumi, who was appointed in 2015, could not comment on why KPC decided to forgo the 16 inch pipeline.
“I really don’t know. I was not in the board when the decision was made. A board has limited powers and that is a question better answered by the management.”
Reached for comment, KPC Managing Director Joe Sang asked for more time to answer the questions. “If you can’t wait, then go ahead,” he said.
When the pipeline project was first mooted, it was known as Line 1 since it was a simple expansion of the current pipeline, while the pumping infrastructure was to remain in place.
Then one day at Morendat — a recreational facility in Naivasha for KPC employees with sauna, swimming pool and conference rooms — a former managing director surprised his technical team with an assertion: “Make it 20 inches!”
The additional 4-inch change has now seen the biggest wastage of public funds recorded by a parastatal – and after the completion of the delayed pipeline some Sh40 billion will have gone to the drain and infrastructure worth hundreds of millions of shilling rendered obsolete.
Mr Ngumi told us that a decision has yet to be made on what to do with the old pipeline. “Line 1 can still be converted into an LPG line. But a decision on what we shall do with it has not been made,” he said.
KPC old-hands told the Nation that when the upgrading of Line 1 started in 2008 up to 2013, the idea was to upgrade Line 1 to be a 16 inch and new pumps were installed as part of the strategic plan.
“By 2010, we had done a lot of upgrades to meet this strategic plan. All this time, we were to build a 16 inch line,” says an insider. “We have (today) gone for a very expensive pipeline that will render the current infrastructure redundant (and) nobody told the MD the consequences of such an ill-informed decision.”
For a company where dismissals, resignations and intimidation of personnel is a norm – some cases are already in court – senior managers did not raise any alarm.
The replacement of the ageing 38-year-old pipeline was delayed during President Daniel arap Moi's rule as the company went into financial crisis.
But four years after the NARC government came to power, KPC was turned around and the upgrading of the infrastructure started in earnest, albeit with a string of scandals.
In order to upgrade to the 16 inch line, KPC bought four new pumps at a cost of Sh4 billion.
This upgrade turned KPC into a citadel of fraud and kickbacks; a place where the wheeler-dealers, and politically correct tap into the oil money.
On its website, KPC has a “Stop Corruption” page where individuals can anonymously report “corruption or fraud related” activities.
It says it aims to eliminate “corruption, wastefulness, negligence and inefficiency in order to improve integrity and productivity”.
Here, one can send an anonymous email address created to “enable staff, stakeholders, suppliers and members of the public report corruption or fraud related activities”.
But corruption at KPC is usually at the top and several key officials have been shown the door as a result – but none has ever been prosecuted successfully.
The first to be nailed was Kanu regime’s KPC managing director Dr Linus Cheruiyot who was charged in 2004 together with former finance manager Ms Hellen Njue and projects manager Mr Paul Gituku with conspiracy to defraud the corporation of Sh339 million. Dr Cheruiyot would later deposit a Sh10 million bond and flee the country to Texas together with his family.
Hellen Njue featured in the case in which then agriculture minister, William Ruto (now deputy President) had been accused of attempting to defraud KPC of Sh96 million by pretending that he could sell some land in Ngong Forest. Although court documents indicated that Ms Njue paid the money, she was never called as a witness – and Nairobi Magistrate William Mutembei lamented that led to the collapse of the case since “Hellen Njue was the missing link”.
CHARGED WITH FRAUD
Dr Cheruiyot’s successor Ezekiel Komen was also charged with fraud, abuse of office and corruption and was succeeded by Dr Shem Ochuodho, who hardly settled before he was kicked out together with board chairman Maurice Dantas.
They were accused of attempting to defraud the company of Sh827 million but the case was thrown out in May 28, 2014, when High Court judge Weldon Korir cleared Dr Ochuodho and his co-accused and restrained the magistrate’s court from proceeding with the criminal case.
In came George Okungu, who became the KPC managing director in 2005 but was sacked in 2010 and charged together with a former senior manager, Ms Mary Kiptui, for allegedly defrauding the company Sh68 million through illegal sale of KPC houses to employees. The case was terminated by High Court judges Weldon Korir and George Odunga on February 7, 2014, when they restrained the anti-corruption commission from prosecuting the case.
It was that February 2014, when the tender scope for the pipeline was changed from 16 inch to 20 inch. Money was to be borrowed from a consortium of banks and with that, what was to initially cost Sh16 billion went up to Sh53 billion. The loss to KPC, according to insiders, could go as high as Sh48 billion.
“It was pure wastage. By 2010, we had done various upgrades to enable us meet the KPC strategic plan,” said an inside source.
In 2013, some 8 new pumps were installed for Pump Station 4, Pump Station 2, Pump Station 8, Samburu, Talu, Manyani, Makindi and Konza – an upgrade that cost about Sh10 billion for the old pipeline.
“What then remained was the building of a 16 inch pipeline which would have fitted within the upgraded network,” said an engineer who was privy to the discussions.
When the first tender was floated, it was actually for Line 1 replacement. “We had agreed internally that this would meet the needs of the East African region. We had lots of technical documents on the viability of the 16 inch pipeline,” he said.
The arrival of Jubilee led to various changes within KPC and a new team of wheeler dealers. A new Managing Director, Charles Kiprotich Tanui had been brought on board after he was elevated in January 2014 from the position of Chief Manager, Finance and Strategy. He had also been acting as MD since May 2013 when he replaced Selest Kilinda, who was sacked after an internal audit revealed that he had hired relatives.
Mr Tanui, an appointee of then Energy Cabinet Secretary, Davis Chirchir, came on board when the company had advertised for an “Expression of Interest” for the construction of a pipeline in January 2013. Some 40 companies responded and 13 were shortlisted to participate in the “request for proposal” a few days before Mr Kilinda was shown the door.
During Kilinda’s tenure, an insider told us, most of the sections had substantive managers and the board had minimal role in running the KPC.
It was this tender which was won by Zakhem who quoted $484.5 million compared to China Wuyii’s $456.8 million. The tender award documents indicate that Zakhem won in the combined technical and financial scores – a rather rigged system of awarding points, according to insiders.
Those familiar with this tender say though the Public Procurement Review Board gave it a greenlight, such a technical tender would have required several days to evaluate and not the single day it took the KPC tender committee.
With the new civil works, new stations, new pumps and instrumentation, it was clear that Zakhem had undervalued its tender in order to clinch the job.
The company is demanding an additional Sh11 billion to complete the job, a variation which it is claimed the board has already granted.
However, Mr Ngumi said this was not the case.
“We do not discuss tendering at the board since it does not procure,” he said.
In 2014, a year before Mr Ngumi joined the board, KPC changed the original strategic plan to read 20-inch pipeline to justify the spending.
Interestingly, insiders claim that members of Mr Ngumi’s board have had direct dealings with contractors.
“The directors would go for a site visit which is not properly codified and they do variations on the site. This has brought a lot of problems,” said an insider. “After this a contractor would write a letter to confirm the variation.”
Mr Ngumi denied this and said that in November 2016, the board directed the board technical committee to be taking project visits to check the progress.
As to whether taxpayers got value for their money, that will be known in the coming months when the new line is completed.