OILY ENCOUNTER

KPC at pains to explain Amaco tender award

The risk involved is large and no firm has the capacity to cover KPC 100 per cent, says CS

In Summary

• Co-insurer for KPC's Sh136 billion assets haunts oil firm's bosses.

• Legislators concerned that Amaco was not procedurally awarded the tender

Billy Aseka of Kenya Pipeline Company (right) demonstrates to the KPC managing director Joe Sang’ on how the pipes will transport oil during a tour at the KPC yard in Changamwe, Mombasa.
Billy Aseka of Kenya Pipeline Company (right) demonstrates to the KPC managing director Joe Sang’ on how the pipes will transport oil during a tour at the KPC yard in Changamwe, Mombasa.
Image: JOHN CHESOLI

Kenya Pipeline Company bosses were yesterday at pains to explain how Amaco was introduced as a co-insurer for its Sh136 billion assets.

The officials failed to tell the Senate Energy Committee how the firm was procured. It was introduced by a firm the bosses had tendered as an insurance broker.

At the same time, the officials could not explain how KPC would recover Sh1 billion in oil spillage losses.

On the insurance tender, managing director Hudson Andambi, who accompanied Petroleum CS John Munyes to the meeting with Senators, said Amaco was introduced through email correspondence.

KPC awarded the brokerage tender to Sedgwick Insurance Brokers who later requested to enlist Amaco to cover 30 per cent of the policy awarded to CIC Insurance – the underwriter of the assets.

The cover cost Sh300 million for the three-year contract.  Amaco was to take up 30 per cent. 

The legislators’ concern was that the firm was not procedurally awarded the tender since the same was apportioned after the procurement was closed in contravention of the Public Procurement and Assets Disposal Act.

Andambi told the committee chaired by Nyeri Senator Ephraim Maina that the state oil company had acquired more assets which were exposed to risks. The same was developed after the three-year contract to Sedgwick was in force.

The MD said that no extra funds were expended by KPC in the involvement of Amaco as the entity shared the cover with CIC insurance.

“We did not know whether it was unlawful to enlist Amaco. In the tender, there was no provision for co-insurance. I’m not in a position to define the legality of the same,” he said. 

Munyes backed this position "unless the introduction of the second underwriter amounted to illegality. The risk involved is large and no firm has the capacity to cover KPC 100 per cent. The lead underwriter has room for co-insurance.”

The tender in question is for Industrial All Risks, Terrorism and Sabotage, and Public Liability for Line V, Kisumu Oil Jetty, and additional tanks at the headquarters.

The KPC officials allayed fears that the entire oil pipeline, terminals, pump stations, airports and storage tanks are under-insured by 30 per cent owing to the Amaco standoff.

In November last year, Zachary Otieno - a member of the KPC tender evaluation committee, declined to sign off the variation since Amaco had not been considered in the tender process.

On the Sh1 billion oil spillage, the KPC bosses said their hands were tied after the insurer declined to pay, citing inadmissibility of the claim.

CIC reportedly granted the company Sh100 million as ex-gratia payment owing to its relationship with KPC.

But Senators insisted on knowing how KPC will recover the money as they will not allow the same to be charged on the taxpayers.

“There is no excuse that the underwriter could not pay for the losses. The Sh1 billion cannot be passed to consumers and oil marketing companies,” Narok Senator Ledama ole Kina said.

KPC denied theft of jet fuel and that the Kisumu Oil Jetty is a white elephant.

Questions on the jetty saw Former KPC managing director Joe Sang and top managers Gloria Khafafa, Vincent Korir Cheruiyot, Billy Aseka and Nicholas Gitobu have been prosecuted over the oil jetty has never been used since its completion.

Munyes said the jetty will be put to use after Uganda completes its own for fuel to be transported through Lake Victoria.

KPC is expected to move 4.5 million litres, freeing the roads of 130 trucks. Uganda is reportedly building a 70 million storage facility for distribution of oil to Rwanda and its neighbours.