Detectives engage on Nairobi-Mombasa oil pipeline scam

Detectives have started investigations into tender variation claims for the construction of the Sh48 billion Mombasa-Nairobi pipeline, and are looking into reports that insiders attempted to collude with the contractor and earn Sh4.4 billion by delaying the project.

The Sh4.4 billion bounty had become a hotly contested issue inside the Kenya Pipeline Company as interests, both within and without, started to push for the payments using proxies.

Finally, the matter reached State House and President Uhuru Kenyatta was forced to personally stop the payments, insiders say.

The Nation has learnt that Director of Criminal Investigations George Kinoti has written to the acting managing director of KPC, Mr Hudson Adambi, requesting for documents pertaining to “extension of time claims” made by Zakhem International Company, the contractor, in a bid to unmask the ghosts behind the Sh4.4 billion claim.

Mr Kinoti has also asked KPC to stop any further dealings with Zakhem on the Sh48 billion contract until the criminal investigations are concluded.

The investigation will throw former MD Joe Sang under the spotlight, once again, since he was at the heart of KPC’s determination to settle the Sh4.4 billion fee.

Records show that the KPC management was pushing for a speedy settlement of the claim, arguing that it had enough cash to pay the money — after all, it had a Sh9.2 billion budget for the year ending June 2018.

While Zakhem was supposed to complete the project by February 9, 2016, after 18 months from August 2014, construction of the kickback-driven project was delayed by two years.

Mr Kinoti, in his letter dated July 26, is demanding to see the construction contract between KPC and Zakhem International, a Lebanese firm that was picked to work on the controversial 450-kilometre Mombasa-Nairobi pipeline.

The DCI has also asked for a schedule of all payments, copies of payment certificates and documentation to back up the amounts approved and paid.


While the total contract was for Sh48 billion, Zakhem had initially asked for an extra Sh11 billion, but later adjusted the figure to Sh18.9 billion.

This was worked down to Sh4.4 billion through the mediation of an expert scheduler.

It was further negotiated to Sh2.8 billion. This final figure was brought to the attention of the board by then-managing director Joe Sang, who has since been charged with abuse of office together with the then company secretary Gloria Khafafa and procurement manager Vincent Cheruiyot.

Minutes of the 79th sitting of the board indicate that the management was directed to seek “further guidance” from the Cabinet Secretary, Ministry of Petroleum and Mining, Mr John Munyes, before it made any payments.

Records indicate that Mr Sang on April 19 sought Mr Munyes’ approval for the payment in a notice that was copied to then-Treasury Cabinet Secretary Henry Rotich, Petroleum Principal Secretary Andrew Kamau, and the Attorney-General.

Detectives now want to see all extension-of-time claims, including backing correspondence, KPC’s responses, and the current status of each claim.


The DCI says in the letter that he is investigating “allegations of possible fraud, malpractice and attempted theft of public funds in relation to extension of time claims”.

“This matter is of great public interest, given Line 5’s strategic importance to Kenya and the region, and also given the colossal sums involved — for the project amount and the claims,” says Mr Kinoti in his letter in which he also asks the acting MD to deliver any legal advice, whether internal or external, received on account of the claims from the AG and from Ogetto Otachi and Company Advocates.

Also sought is the special audit carried by the Auditor-General and his opinion on the procurement of the expert scheduler.

Though a firm can legally vary its tender by 25 per cent — an avenue many companies use to get more money from State corporations, Zakhem’s demands raised eyebrows, even in Parliament.

Zakhem had won the KPC tender despite the management’s knowledge that the firm had been blacklisted in west Africa.


Although the other short-listed firms cried foul that the tender committee had not scrutinised their technical reports, the Public Procurement Administrative Review Board (PPARB) gave the project a clean bill of health.

Zakhem’s competitors had accused the firm of submitting two figures: $591 million and a discounted $485 million. The PPARB said this was not the case.

The pipeline’s financing was a major undertaking and a $350 million loan facility was arranged by KPC with a banking consortium that included CFC Stanbic Bank, Citibank Kenya (Citi), Co-operative Bank of Kenya, Rand Merchant Bank and Standard Chartered Bank.

In July last year, President Kenyatta directed KPC to seek a second opinion on payments of Sh4.4 billion that the Lebanese contractor was demanding for operational delays of the pipeline.

Head of Public Service Joseph Kinyua had asked KPC to seek a second opinion on the amount and to validate the Sh4.4 billion bill.


Mr Munyes had told a parliamentary committee that an inter-ministerial committee comprising the Presidency, Treasury, KPC and Zakhem had been put together by Mr Kinyua to look into the pending claims.

“Given the rise of claims from the initial Sh11 billion to Sh18 billion and suddenly down to Sh4.4 billion, it requires a cross-check given the corruption climate in the country.

“It is in my interest to ensure that these claims are cross-checked before payments are made,” Mr Munyes told the Public Investment Committee chaired by Mvita MP Abdulswamad Nassir.

The Sh4.4 bill had divided the board chaired by Mr John Ngumi, with some members siding with the management that a speedy settlement was necessary as others asked for a wider approval, including from Treasury CS, Mr Munyes, and State House.

Finally, Mr Ngumi had the directors pass a resolution requiring additional approvals before payment of the claim.

The matter comes at a time when the brand new pipeline has twice been hit by leakages, which is the excuse KPC used to build another line.

Why a new pipeline is leaking has baffled engineers and cast doubts on the integrity of the contractor.

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