Kenya Pipeline assets have been partially uninsured by 30 per cent since 2016 following a dispute over the inclusion of Amaco Insurance. The contract expires on June 30, 2019.
The under-insured items include the entire oil pipeline, terminals, pump stations, airports and storage tanks.
On August 12, 2016 the KPC tender evaluation committee awarded a US$4,023,006 three year insurance contract for Industrial All Risks, Terrorism and Sabotage, and Public Liability for Line V, Kisumu Oil Jetty and Additional Tanks. The contract went to Sedgwick Kenya Insurance Brokers as the broker and CIC as the underwriter.
Sedgwick and CIC were the lowest responsive bidders for that part of KPC’s insurance requirements.
However, on September 9, 2016, Sedgwick wrote to KPC requesting that “20 per cent of the business will be co-insured with Africa Merchant Assurance Company (Amaco).” On September 14, Sedgwick wrote and requested that Amaco be allowed to co-insure 30 per cent with Amaco.
The KPC MD Joe Sang on September 16, 2016, gave a no-objection to Sedgwick’s request.
Deputy President William Ruto had an interest in Amaco insurance until around 2012.
However on November 19, 2018, Zachary Otieno, a member of the evaluation committee, wrote to the committee chair, KPC company secretary Gloria Khafafa, saying that he was unable to sign off on the variation since Amaco had not been considered in the tender process for those portions as either a broker or an underwriter.
Due to the above observations, I’m unable to sign the variations of insurance tender on additional assets and group life policies as it contradicts the June 2016 evaluation report.
On 28 November Khafafa then wrote to the GM Supply Chain seeking direct procurement for the insurance.
A confidential internal report was then prepared to examine the matter. As a result, direct procurement has not yet been approved.
It was found that the 30 per cent premium has not been paid to Amaco and insurance coverage for Line V, KOJ and tanks “were on good faith” since no insurer has to assume risk if their premiums are not paid, according to an internal KPC audit report.
The risk is that KPC might not be fully compensated in case of a claim or that the insurance companies could sue KPC to secure the premiums, according to the audit report.
The under-insurance became even worse on November 12, 2018 when CIC cancelled its 70 per cent cover for fuel stocks at KOJ, Line V and additional tanks due to non-payment of premiums.
The audit report said that management should provide clarification as to why Amaco became involved when they were not mentioned in the bid documents for those items.
The Energy committee chaired by Nyeri Senator Ephraim Maina has invited Petroleum PS John Munyes to shed more light on the status of insurance cover of KPC assets.
The senators also want to investigate the purchase of six hydrant pit valves for JKIA and the huge quantities of jet fuel that vanished from the KPC pipeline.
Former KPC managing director Joe Sang is in court over a Sh1.9 billion fraud in the company.
Top managers Gloria Khafafa, Vincent Korir Cheruiyot, Billy Aseka and Nicholas Gitobu were also arrested and are out on Sh2 million bail each.
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