The Ethics and Anti-Corruption Commission is investigating a Sh404 million procurement at the Kenya Pipeline Company.
The investigation involves KPC’s procurement of composite sleeves in 2013-14 for $4,046,744 (Sh404 million) from a local company, Thermodynamic General Supplies.
The procurement was allegedly inflated, resulting in a loss of at least Sh230 million.
The company address is in Gill House, Nairobi, but the telephone number on its letterhead belongs to a fruit vendor in Ukasi, Mwingi, about 170km from Nairobi. When the Star visited Gill House, the company no longer appeared to be there
The then KPC managing director Charles Tanui signed a letter of award to Thermodynamic on January 24, 2014.
He was replaced by a new managing director, Joel Sang, in April 2016. In July 2015, John Ngumi became KPC chairman as part of a government move to shake up the company.
KPC procured 620 composite sleeves of various sizes at inflated prices.
For instance Wrap Masters USA manufactures and sells the 14inch, 60cm long composite sleeve for $890 (Sh89,000 ) while Thermodynamic sold the same item for $9,839 (Sh984,000 ) a 1,000 per cent markup.
Composite sleeves are used to restore corroded or damaged sections to a safe operating condition without shutting down the pipeline.
The total cost of the sleeves was $559,500, based on the manufacturer’s price, but the amount paid to Thermodynamic was $4,046,745 (Sh361 million at that time) inclusive of VAT of $551,275 (Sh50 million).
This represents a 600 per cent markup, even allowing for shipping costs.
“The justification for the purchase of the composite sleeves was from the inline inspection of line 1 and 2, citing the critical repair areas and the repair schedule spanning a period of time on the aging pipeline that needs constant attention for continued delivery of product. There is only one line from Mombasa to Nairobi that was constructed in 1978, operational for 38 years. This line has exceeded its useful life of 25 years,” Sang told the Star.
“It has to be kept in good state for comfort of supply before an alternative line is in place. Therefore there is need to keep adequate spares for the line repairs as items under stock for ease of maintenance of the lines. The technical department then initiated the process of purchasing the composite sleeves and a Purchase Requisition was initiated and approved as per the company regulations.”
Sang told the Star Sh150 million was budgeted for pipeline rehabilitation in 2013-14.
He admitted the budgeted amount was exceeded but said the procurement was done by the previous management.
In a letter dated January 5, 2014, Thermodynamic MD Huba Waka asked the KPC managing director to provide a letter of credit with 40 per cent to be paid upon drawing up the contract, 30 per cent on raising the bill of lading and 30 per cent upon delivery of the goods.
A search for Huba Waka online found only scant details of a businessman who attended St Paul’s University.It is not known if it is the same Huba Waka. The EACC probe also wants to establish why Thermodynamic did not file any tax returns with the Kenya Revenue Authority or submit VAT returns, especially since KPC paid Sh50 million VAT.
KPC told the Star this week that the overpricing of the composite sleeves was revealed during the normal internal audit and a report was submitted.