- Among the reasons KPC got into engagements with KPRL was to handle the oil from Turkana fields
- She said the arrangement, where KPC meets expenses incurred by KPRL in the operations of the leased infrastructure, was untenable
Image: FILE
Kenya Pipeline Company managers have come under sharp scrutiny over controversial investment of Sh1.3 billion only to get Sh12 million out of it.
Auditor general Nancy Gathungu flagged the deal between the pipeline company and Kenya Petroleum Refineries saying taxpayers possibly lost Sh1.29 billion in the long run.
In the arrangement, KPC leased the refinery’s pipeline network, storage tanks and associated infrastructure at Sh1,308,851,308 on June 30, 2022.
"Comparison of total lease costs against total lease income for the year revealed that the company realised income amounting to Sh12,491,324 resulting to a net loss on the lease of Sh1,296,359,984,” she said.
Gathungu wants the lease agreement reviewed, saying it affected KPC’s overall performance during the year under review.
She said the arrangement, where KPC meets expenses incurred by KPRL in the operations of the leased infrastructure, was untenable.
“The lease agreement revealed that the lease payments were based on expenses incurred by KPRL during the year covered by the lease agreement.”
“However, the company was not in control of costs incurred by KPRL and therefore could not institute measures that could minimise the costs in line with realisable income,” Gathungu said.
"In the circumstances, the lease affected the overall performance of the Company and may need to be reviewed for efficiency.”
Among the reasons KPC got into engagements with KPRL was to handle the oil from Turkana fields, a project which has since gone cold. The audit, though, hasn’t linked the two.
In its June 2019 report, KPC said it refurbished three tanks at Kenya Petroleum Refineries in Changamwe to receive and store crude oil from Turkana for export.
KPC also modified Kipevu Jetty and installed a steam boiler, adjustments it said were all in readiness for Kenya’s emergence as an oil exporter.
KPC managers are further on the spot over irregularities in the composition of the committees of the company’s board of directors.
It has since emerged that at the time of the review, the board committees had excess members, contrary to the requirements of the Mwongozo Code of Governance for state corporations.
Gathungu said her review established that the Human Resource Committee and the Technical Committee had five members each while the Finance Committee had six.
As per the guiding principles, board committees are required to have a maximum of three members and members can only sit in a maximum of two committees.
But in the case of KPC, the audit found that two of the directors were members of all the four board committees in violation of a presidential directive.
In March 2020, the Office of the President [Uhuru Kenyatta] directed that members of the board could only sit in two committees.
Gathungu further raised concerns that the managing director was also a member of the three board committees – HR, Technical and Finance.
“Section 1.22(1) of the Mwongozo guidelines stipulates that the role of the board should be separated from that of the management. In the circumstances, the board did not adhere to the guidelines,” the auditor said.
KPC has also been castigated over unprocedural implementation of the project where the company was to deliver water to Mombasa from Mzima Springs.
Gathungu also flagged an additional Sh97 million spending in the repair of a storage tank after an expert hired late in the project ordered it replaced.
“The tender was initiated and awarded without undertaking inspection by an expert to determine the scope of work to be done,” the audit reveals.
As a result, the basis and necessity of the initial repair works could not be confirmed.
“It could not be confirmed whether the company received value for money incurred on the tank repair works,” she said.
The auditor further questioned the award of a tender for construction of a security fence at the JKIA pump station to a contractor who was not suitable for the job.
While the tender evaluation committee recommended that the tender be terminated, top managers ignored their advisory and proceeded to award the Sh37.9 million job.
“Under the circumstances, the legality of the award and suitability of the bidder to undertake the works could not be confirmed.”
KPC, she warns further, is at risk of losing prime land to encroachers not only in Nairobi but also in Nakuru among other field stations.
Among the cases cited are in Nakuru where the audit says 47 acres valued at Sh697 million was sold to a private company irregularly.