In a press statement dubbed as 'No more FAKE news' KPC explains the alleged corruption and inefficiencies that has been raised by corrupt media media outlets and paid blogs. Here is the press release by KPC
KPC-SETTING THE RECORD
STRAIGHT
NEW
MOMBASA-NAIROBI PIPELINE (Line 5)
Rationale
for Line 5
1. In 2013, KPC carried out a petroleum
demand survey for the country with a view to project demands for Kenya and the
region up to year 2044 to enable the Company compute the size of replacement
for Line 1 between Mombasa and Nairobi. The February 2013 Petroleum Products
Demand Projections Report by an independent consultant Shengli
Engineering & Consulting Co. Ltd established that the annual petroleum demand for Kenya in 2013 was 4 billion litres with
projected demands of 5.7 billion litres in 2016 and 6.8 billion litres in 2020.
This rise in demand was largely due to the country’s economic growth and that
of the region.
On the other hand, the demand for the
export market of Uganda, Rwanda and eastern Democratic Republic of
Congo stood at 2.4 billion litres in 2010 but has since risen
to 3.5 billion litres in 2016.
The choice of sizing (20 inch pipeline)
was therefore informed by a study carried out by an independent expert
consultant (Shengli
Engineering & Consulting Co. Ltd)
on the projected demand for petroleum products in Kenya and the region served
by KPC.
At no time did KPC conceive laying a
16-inch pipeline between Mombasa and Nairobi.
2.
The
Current Line 1 (Built in 1978) is 39 years old, and 14 years beyond its design
life span.
3.
An
in-line inspection carried out by NDT Middle East Co Ltd in 2010 indicated that
it was not operationally and economically feasible to carry out repairs to the
aging pipeline beyond 2014. This meant that Line 1 had to be replaced.
4.
It
was not possible to replace the current line because that would require total
shutdown of operations and this would have jeopardised fuel supply in the
country and region. Replacement of Line 1 can only be done once line 5 is up
and running.
5.
KPC
already has parallel pipelines operating simultaneously on its other routes (Nairobi-Eldoret
- Line 2 and Line 4; Kisumu-Sinendet,-Line 3 and 6) therefore the decision to
build a parallel pipeline was not unusual, but informed by the Company’s
operational requirements.
The
Line 5 Procurement Process
The procurement process was
carried out in accordance with the provisions of Section 78-82 of the Public
Procurement and Disposal Act 2005, between 1st January 2013 when the
Expression of Interest (EOI) was first advertised, and 1st July 2014
when the contract was signed between KPC and Zakhem Ltd. This was a period of
over one year, and NOT one day as alleged. During that period, the procurement
process was investigated and cleared by the Public Procurement Oversight
Authority.
The procurement process was unsuccessfully
contested by 4 different parties. The courts consistently upheld the award to
Zakhem. In particular, China Wu Yi unsuccessfully contested the award to Zakhem
and Public Procurement Appeals Review Board (PPARB) directed that an investigation by the relevant arms of
government be carried out on the conduct
of China Wu Yi for tender malpractices.
In her ruling in High Court Petition No 173 of 2014; Rich
Productions (K) Ltd –vs- KPC Ltd & PPOA delivered on 19th
June 2014, Lady Justice Mumbi Ngugi held that there was no merit in the
challenge to the award of the Line 5 tender to Zakhem Ltd as KPC had complied
with the provisions of the Public Procurement and Disposal Act, 2005.
Cost
of Line 5
The contract sum is
Kshs 48 Billion and NOT 53 Billion. The total cost of a new 20-inch, 450-km
ultra-modern petroleum products pipeline (‘Line V’) from Mombasa to Nairobi is
US$ 484 million, being partially funded with a US$ 350 million (70%) loan. The
balance 30% of US$ 134 million of the project cost is being financed from KPC’s
own financial resources. The funding was secured because the project is viable
and met the ledors threshold requirements for funding.
The US$
350 million facility given to KPC by a consortium of banks comprising CfC Stanbic Bank Limited, Citibank, N.A., [Kenya Branch],
Commercial Bank of Africa Limited, Co-operative Bank Limited, FirstRand Bank
Limited (London Branch), and Standard Chartered Bank is one of
the largest commercial bank financings ever entered into by a Kenyan parastatal
on a stand-alone basis and confirms KPC’s solid financial standing and reputation; and to the
ability of Kenyan-based banks to arrange complex financing deals.
The loan
carries highly competitive terms: it is for 10 years, and bears a margin of
5.38% over LIBOR, comparable, at present LIBOR rates, to the financing costs on the recent Kenya
Government US$ 2 billion Eurobond issue.
KPC contracted in USD and
borrowed funding for the construction and is thus insulated from currency
fluctuations. For the record, KPC previously borrowed Kshs 8.2 Billion for the Nairobi
– Eldoret (Line 4) capacity enhancement project, which sum was repaid within 2
years after the project was completed, and 5 years earlier than the contracted
loan tenure.
Money
Paid out to Zakhem International Limited
No money has been lost. As at
28th March 2017, KPC has paid 75.6% of the contract sum amounting to
Kshs 34 billion against certified completed work of 82%.
KPC ‘s financiers release the
funds directly to the contractor upon receipt of documents certifying work
done.
The project is now 82% complete.
The
Future of Line 1
In view of the demand for
petroleum products in the region which
grows by 8% per annum, and in
line with KPC’s strategy of devolving the pipeline to move the product closer
to Wanjiku, KPC shall continue rehabilitating
the existing Line 1 and run it as a parallel
line as with the other sections of the pipeline network such as
Nairobi-Eldoret; and Sinendet-Kisumu.
Capacity
Enhancement Pumps
The capacity enhancement
project of 2009-2010 that saw new pumps fitted in Samburu (PS 2), Manyani (PS 4),
Makindu (PS, 6), and Konza (PS 8), was intended to increase pumping capacity
and flow rate for Line 1 from 440m3 per hour to 880m3 per
hour, and reduce product stock-outs which had become rampant in the country.
This was achieved and the pumps are currently in use and have served the
country since 2010.
These pumps will not be
discarded but will be synchronised and used as alternatives to the installed
pumps on the new pipeline.
Claim
for Shs 11 Billion by Zakhem
There is no variation for Shs
11 Billion to the contract between KPC and Zakhem.
Line
5 Expected Benefits
This Vision 2030 project will have the
following impact once complete:
1.
Due
to the country’s economic growth and expansion of the economy, the current
annual demand for petroleum stands at 5.7 billion litres in
2016 up from 4 billion litres in 2013. The new line
will therefore adequately serve the country’s demand which is projected to be 6.8
billion litres in 2020.
2.
The
line will enhance KPC’s pipeline devolution plan into the counties by
increasing product availability in Nairobi that will feed into spur lines into
Western Kenya, Central Kenya, Rift Valley and South Nyanza
regions.
3.
The
new pipeline will also enhance and improve the reliability of fuel supply to
the export market of Uganda, Rwanda and eastern Democratic Republic of
Congo which in 2010 stood at
2.4 billion litres but has since risen to 3.5 billion
litres in 2016.
4.
The
new line is also expected to improve the safety, reliability and efficient
delivery of product to KPC’s customers and reduce the constraint
on Ullage on current 14” Mombasa to Nairobi pipeline.
5.
With
a one million litres per hour flow rate, the line will remove an
average of about 700 trucks from the road daily at maximum
utilization. This will enhance safety because pipeline transportation of fuel
is the safest and most cost effective way of transporting petroleum products
the world over. There will therefore be no tanker accidents, fuel
fires, siphonings on our roads hence saving lives and conserving our
environment.
6.
Reduced
pump price – the current price build up compensates truck transporters at the
rate of one shilling per litre. Elimination of road transport will save the
economy approximately Kshs 4.2 billion per year.
OTHER LEGACY CONCERNS:
1)
Aero
Dispenser Company Limited
Some recent media
reports have raised concerns about the current state of Hydrant Pit Valves
(HPVs) which were supplied by Aero Dispenser Company. HPVs are instruments that
enable the refuelling of aircraft at Jomo Kenyatta International Airport
(JKIA), and which are owned and maintained by Kenya Pipeline Company Limited
(KPC). Specifically, it has been reported that of the 130 valves installed, 60
have malfunctioned, thereby leading to speculation that JKIA may have to close
due to a lack of refuelling capabilities.
Currently, JKIA’s apron has a total of 128 HPVs. Out of these, 122 are
operational, while 6 are currently not in service, and need replacement.
A related and relevant fact is that 43 of the 128 HPVs are earlier
generation models. In 2014, KPC decided to replace these with current versions
in order to comply with the requirements of the Joint Inspection Group, the
global organisation that certifies jet fuel quality. KPC set out to
procure 60 HPVs for JKIA, to replace the 43 non-compliant valves with the
balance 17 being spares. The HPVs were duly delivered but could not be released
for use because the procurement process for the valves became a subject of
investigation by the Ethics and Anti-corruption Commission (EACC). These
investigations are yet to be concluded. We
await EACC’s and the Public Procurement Regulatory Authority’s advice on the
way forward.
2)
Sinendet-Kisumu
Pipeline (Line 6)
This was a Kshs 5.7 billion
122km 10-inch diameter pipeline parallel to an existing 6-inch diameter
pipeline from Sinendet to Kisumu (Line 3) designed to enhance petroleum product
availability in the Western Kenya and the export market of Uganda, Eastern DRC,
Rwanda, Burundi, and Northern Tanzania.
During the procurement process, Petroject failed to
comply with the tender requirements on provision of a Performance Bond
resulting in cancellation of the tender.
The subsequent contractor (China
Petroleum Pipeline Bureau) was
selected following a new open tender, and he delivered the project on time and
within budget. The project was commissioned in May 2016 and currently serves
the Western Kenya regional market, which previously suffered frequent product
shortages.
3)
Eldoret
Truck Bottom Loading
The upgrade of Eldoret Depot (PS27)
loading facilities was necessitated by the increased West Kenya Pipeline
Extension (WKPE) capacity from 220 cubic meters per hour to the current
combined capacity of 578 cubic meters per hour. The number of trucks that queue
to pick products from west Kenya depots has risen over time and this has led to
congestion within the depots. KPC has lost business as a result of dealers
preferring the Southern corridor (Tanzania) that does not experience the level
of delays that are common in KPC West Kenya depots.
The main objective of the project is
therefore to enhance the existing facilities to meet the anticipated increase
in product uplifts by up to 2000 cubic meters per day.
The initial EMPRO contract lapsed in 2015, and a new
tender for the remaining works was issued in accordance with the provisions of
the Public Procurement and Asset Disposal Act 2015.
Currently, the project is 92% complete is expected to
be completed in April 2017.
Conclusion
KPC assures the nation that the Company remains committed
to deliver on its mandate. The company
is open and willing to avail all necessary information required.
KPC would like to inform its stakeholders and Kenyans
at large that it remains focused on delivery of its mandate by ensuring safe,
efficient delivery of petroleum products from source to customer not only in
Kenya but within the region.
JOE SANG
MANAGING DIRECTOR
