Sharp divisions in the top management are threatening to paralyse the troubled Kenya Pipeline Company.
Yesterday, a make-or-break board meeting aborted over a quorum hitch amid claims that the fuel loss “scandal” was being engineered by a section of disgruntled board members to force management changes.
Internal documents show the company has declined to pay oil marketers for the loss of 11 million liters of fuel, which has accentuated boardroom wars at the critical corporation.
The botched meeting convened by KPC board chairman John Ngumi was to to seal the fate of managing director Joe Sang and some senior managers at the corporation.
“The purpose of the aborted board meeting was simple, to send the entire management packing. If they think the MD has not performed, why don’t they decline to renew his contract instead or come up with tangible areas of poor performance and table them during performance appraisal instead of resorting to unorthodox means,” a source within KPC told the Star.
Insiders who spoke to the Star in confidence for fear of reprisal blamed Ngumi for the series of “manufactured” scandals.
“It’s unbelievable and unheard of that a board chairman would be behind scandalizing an organization he is meant to steer to greater heights,” said one source.
Ngumi was not available for a comment as his phones were off most of yesterday. Unconfirmed reports indicated he was airborne to Mauritius.
He has previously said he was not against anyone at the company but vowed never to tolerate incompetence.
Turf wars pitting Ngumi against Managing Director Sang have persisted for some time, spilling to Parliament two weeks ago where they were forced by MPs to clarify allegations of dirty wars.
To avert bitter exchanges in public, the National Assembly Energy committee chaired by Naivasha Town East MP David Gikaria was forced to conduct different sessions with Ngumi and Sang's team.
While Ngumi accused the management of incompetence and inefficiency, Sang downplayed the frosty relationship and insisted all was well and the board was working in harmony with his team.
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The anticipated expiry of Sang's term in March 2019, although he is eligible for extension of one more term of three years, is said to be at the centre of the standoff. It has triggered a vicious succession battle at the lucrative oil transporting firm.
The list of directors who attended or were absconded from the meeting exposes the alignment and behind-the-scenes intrigues at the firm.
As a signal of the seriousness of the crisis at KPC, Petroleum PS Andrew Kamau yesterday turned up for the meeting where he would ordinarily be represented by Huson Andambi.
Also present were Ngumi — who is serving a second term as board chairman — and directors Rita Okuthe and Winnie Mukami.
Those who did not turn up were alternate director (Treasury) Erick Korir, directors Jinaro Kibet and Felicity Biriri.
The terms of two other directors, Iltasayon Neepe and Wahome Gitonga, have expired.
The nine-member board requires at least 6 directors to form a quorum.
COMPENSATION
The contract with oil marketers seen by the Star protects the corporation from compensating for losses below 0.25 per cent of the total amount of fuel pumped through the pipeline within a period of six months.
It states: “KPC shall be liable to and undertakes to indemnify the OMC for all losses of Products while such Products are in KPC's custody, including but not limited to, mal-operation of the pipelines, the terminals or appurtenant facilities, including pump stations, pipeline breaks, leaks and pilfering where such losses exceed 0.25% of products calculated by volume at 20 0 C within a period of six monthly moving average,”
Oil marketing companies importing the product into the country are themselves compensated for ocean loss of up to 0.5% of the cost, insurance and freight (CIF).
According to Kenya Pipeline, the firm only lost 0.15 per cent in the 2017/2018 financial year, which is much lower than the compensation threshold set out in the agreement.
According to gain/loss provision, KPC had a loss of 0.17 per cent in 2014/2015, 0.2 per cent in 2015/2016 and 0.13 per cent in 2016/2017.
The latest loss means that KPC’s insurer will not come in to compensate for the lost fuel as the insurance firms can only compensate for loss above 0.25 per cent.
According to the documents, Kenya Pipeline lost 11.646 million litres — 5.956 million in spillage and 5.69 million to theft.
KPC moved in excess of 12 billion litres during that period on behalf of the oil marketers and the loss was recorded between March 2017 and May 2018 in nine separate incidences.
Five spillages occurred at Konza between KM391 and 395KM resulting in a loss of 3.805 million litres in what the management attributed to corrosion of the 40-year-old pipeline.
“The corporation says the line is 15 years beyond its replacement date.
In what is perhaps the greatest challenge for KPC, fuel within the pipeline travels at a speed of 13,000 liters per minute or 800,000 litres per hour when in live operation and pressures up 40 bars.
This means that in case of a burst, KPC risks losing millions of fuel in split seconds.
“We have seen arguments that there is no convincing evidence of spillage. But we must always remember that fuel is volatile and will easily evaporate,” a source at KPC said.
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The company established that it lost 4.49 million liters through theft at Koru near Kisumu where illegal connections were expertly done by the perpetrators.
KPC said there was an underground network of pipes connecting to an above-ground tank as well as fuel station underground tanks.
“The operation was difficult to detect because the trucks loaded at the fuel service station in the neighborhood,” the company concluded.
Two suspects in the Koru pilferage were nabbed and charged on 15 November 2017.
In May this year, KPC says it lost 1.2 million liters of fuel at Ngong Forest in another illegal connection but no suspect has been arrested so far.
KPC also lost 1.151 million liters at KM40 and KM 27 which they attributer to corrosiveness of the pipes due to high soil salinity.
KPC moves in excess of 13billion litres during the two-year period on behalf of the oil marketers.
KPC documents indicate that there was a book balance and physical stock differential of approximately 23 Million litres which, at Sh100 per litre including taxes, would make the 2.3 billion litres loss quoted by a local daily.
“If you add all the operational costs, line product theft plus the oil spillage you will get to the 23 million litres,” a source claimed, disputing the alleged scandal.
Absolving the management, the report states: “The spillages mainly due to old age of the pipeline were not entirely unexpected bearing in mind the age of the pipeline, wear and tear, and topography of some sections through which the pipeline traverses, whose soil accelerates corrosion thus causing pipeline burst and spillages.”
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