Oil companies have demanded to be allowed to bring in investigators to carry out a forensic audit on their stocks in the custody of the state-owned Kenya Pipeline Company (KPC), in a move that amounts to a damning vote of no-confidence in the firm by its most important stakeholders.
I think the government should direct that the audit be conducted urgently. The KPC’s most important asset is not just the integrity of its tanks and pipelines, but the confidence oil firms have in its operations.
Confidence may be an intangible factor. But the trust in the integrity of KPC’s systems is what keeps our oil marketing systems running efficiently.
In the relationship between KPC and oil companies, it more or less plays the role of a banker for oil marketing firms.
As an oil marketing company, you can keep your stuff in KPC tanks and pipelines in custody for a long time all for a fee.
In the majority of cases, oil marketing companies sign what is known as a collateral financing arrangement that brings together KPC, the banks that finance the oil trading business and each oil marketing firm in complex contractual relationships.
As things stand, the level of trust and confidence between KPC and the oil companies is at its lowest. And the evidence is in the tone of the terms of reference of the forensic audit the oil companies are demanding. Indeed, what they want reveals a mind-set of a party that already believes that oil has been stolen from KPC.
Here is a brief summary of the contents of the terms of reference as drafted by the oil companies.
First, they want a comprehensive forensic audit on the stock management at the KPC. Secondly, they want forensic auditors to validate the controls around physical stock movement with KPC’s facilities and a forensic audit to confirm the current stock balances for each company.
Other elements of the terms of reference are as follows: A comparison between physical stocks and book stocks to determine the accuracy of stock statements issued by KPC - a forensic audit on how losses and gains are computed- and finally, determine whether it abides by international standards in computing the numbers for gains and losses.
Clearly, something has gone very wrong in the relationship between KPC and its most important customers. Indeed, the last time we saw mutual suspicions between the parties soaring this high was during the Triton scandal.
Yet this not just an ordinary quarrel between an ordinary parastatal and its customers, but a matter with major implications to the broader macro-economy.
I say so because KPC is not your ordinary parastatal, but a strategic national facility whose fortunes carry major implications to the cost of doing business in the whole of the East African region. It is the spinal column of the oil industry in the region.
If you mess around with it, expect to see reverberations in the macro-economies of Kenya, Uganda, Rwanda, Burundi and eastern Congo.
Such is the sensitivity of KPC to the economy of the region that any sustained instability in its operations can cause crippling shortages, high pump prices, and untold damage to roads by oil trucks.
FIGHT FOR POWER
Compounding the climate of mistrust are the heavy political undercurrents in the saga. Away from the public limelight is a vicious fight for power and control by the two communities that form the power base of the Jubilee administration.
The structure of the Jubilee administration is based an ethnic calculus where ministerial portfolios and parastatal jobs are shared between the elites from the two main ethnic groups in the coalition.
Even though we don’t talk about it publicly, we all know that the board and top management are riven with factionalism.
Self-absorbed elites from both sides are busy playing politics and plotting how to cover-up, fudge responsibility and spin conspiracy theories, trying to explain away legitimate corruption allegations surrounding the operations of this critical state corporation.
I support the idea of an audit by an independent party. It is how we will see whether things have improved since the days of the infamous Triton scandal.
Remember that Triton CEO Yognesh Devani managed to siphon a whopping 126 million litres of oil from the KPC without paying for it.
And, according to an audit conducted then, the unauthorised release of cargo by Triton went on for nearly nine months without being noticed.
Auditors revealed cases where Energy ministry officials were calling the KPC scheduling office to instruct low cadre staff to release fuel to favoured firms.
By all means, let us audit the operations of this vital parastatal. It is what will restore the trust between KPC and the oil companies.