Interview: Kenya Pipeline’s John Ngumi on his controversial stint as chair

KPC chairman John Ngumi. He was re-appointed the Chair of Kenya Pipeline Company . [File, Standard]

On Friday, KPC chairman John Ngumi was re-appointed the Kenya Pipeline Company Chair for another three years scoring a major feat for a company with a high turn-over of top management. In this interview with Sunday Standard's Nzau Musau, Ngumi talks of his controversial three-year stint at the helm.

You have been at the helm of the KPC Board for 3 years now. How was it and what did you achieve?

It’s been an incredible ride!! Nothing in private sector prepares one for the unique experience of being involved at Board level in a company like KPC, with a multiplicity of intensely interested stakeholders.

Remember that KPC is a very big company, a key enabler to the rest of the economy, and to regional economies. We have 1,700 employees. We deploy an asset base of KES 106 billion, including 1,342km of pipeline, soon to be 1,792km once our new Mombasa-Nairobi pipeline (Line 5) is up and running; our asset size will increase appreciably once Line 5 and other key projects are complete. 

We transport and store more than 6 billion litres annually. For the year ending June 30 2017 we generated revenues of KES 25 billion, and profit before tax of KES 11.5 billion. Quite an operation, and one of only a handful in Sub Saharan Africa.

It’s no wonder that Government and others, media to the fore, are always interested in what we do, which makes for a uniquely pressurised operating environment.

I can pick on any number of achievements: strategic, financial, operational.  I’ll touch on these in more detail later on.

But if I were to pick one overarching achievement to summarise my tenure at KPC, it would have to be stakeholder management, meaning our internal relationships within KPC, and our relationships with external constituencies: our customers, communities living on KPC’s Right of Way across the country, National & County governments, government agencies, Parliament, and the media.

We have put a lot of effort into stakeholder management, in recognition of the reality that KPC does not have a right to exist, that we earn our license to operate from Kenyans, and must continually win their trust.

Internally, this achievement is evidenced by a culture of more openness, transparency and fairness. We are not there yet, and I am sure you will find staff who believe we aren’t anywhere near where we should be in terms of the internal culture, but remember - to coin a cliché - this is not a sprint, but a marathon.

KPC has been undertaking over Sh60 billion worth of projects and attracting all attention. Could you bring us up to speed the status of these projects?

KPC’s mandate is to deliver petroleum products safely and efficiently to Kenyans and beyond. Our key projects reflect this mandate:

1. Mombasa–Nairobi Pipeline (Line 5): This 20-inch diameter pipeline will replace the 40-year old existing 14-inch diameter pipeline, and is almost complete, with pre-commissioning activities currently underway.

Line 5 will increase the flow rate of petroleum products from a current 750,000 litres per hour to 1,000,000 litres per hour. On current growth projections, this new pipeline should meet projected demand through to 2044. Line 5 is Kenya’s second largest single project behind the SGR, costing KES 48 billion, of which KPC contributed KES 13 billion and the balance KES 35 billion was borrowed from a consortium of local and international banks.

2. Kisumu Oil Jetty (KOJ): KPC has already completed constructing an oil jetty on the shores of Lake Victoria next to KPC’s Kisumu depot. Once KOJ is operational, we expect it will quickly become the main export hub into Uganda and the Great Lakes region. We are also confident that KOJ will lead the way to revitalising Lake Victoria-based trade, with Kisumu as the hub. We really are proud of this project, which was constructed by a Kenyan company, at a cost of KES 1.7 billion, the entire amount funded internally from KPC’s cash flow. I encourage media to visit this transport & logistics game changer.

3. Additional Storage Tanks at Nairobi Terminal: This project involves construction of tanks to provide an additional 132 million litres storage capacity, and complements Line 5. The Sh 5.3 billion cost was financed entirely from KPC’s internal cash.

4. Additional Loading Arms in Eldoret: We have recently completed the installation of bottom loading facilities at Eldoret. Bottom loading is a safer and quicker method of loading tankers, as opposed to the top loading system that KPC has traditionally used. Since the facility went operational in July 2017, we have increased load uptake at Eldoret depot from 4 million litres per day to 6 million litres per day. We will gradually roll out more top loading facilities across our network. KPC met the full KES 335 million cost of putting up this project.

We are also undertaking other projects designed to increase operational efficiency, the main one being integrating the operations of Kenya Petroleum Refineries Limited (KPRL) into KPC.  On the horizon is LPG infrastructure, which will assist Kenyan households switch from charcoal, firewood, kerosene and paraffin as base fuels, and make major positive contributions to environmental and health issues. This is the most exciting prospect for the next phase of KPC’s growth. 

What impact will these projects have on the cost of fuel in this country?

There will be a positive impact in terms of reduced transport costs, which make up part of the ERC formula for setting fuel prices.

By quite how much will depend on just how well we optimise operations, and will also depend on how well we integrate these projects with the greater storage capacity we are about to access through the modernisation of the fuel tanks at KPRL in Mombasa.

Last year KPC took up a three year lease to operate KPRL’s facilities, with a major rationale being to increase storage capacity and reduce demurrage (demurrage is the cost that ships incur through delayed discharges as we await storage space to be released, which cost is passed on to consumers via the ERC price formula).

During this period, multiple claims of corruption rent the air with regard to award of tenders or execution of projects. Comment.

Yes, the inevitable question whenever I speak to the media about matters KPC. And, as always, I will not duck the issue.

It is a rare large public project that will escape accusations of corruption at tendering, procurement or execution stages, that is, through the entire Supply Chain cycle. KPC’s projects are large by Kenyan standards, and even by international standards in instances, for example Line 5, so it is inevitable that KPC will suffer more than most from such accusations.

Are these accusations valid? We’ll leave the determination of that to the various oversight and enforcement agencies that are looking into current accusations, and to the Courts.

What the KPC Board has focused on is preemptive action, endeavouring to embed good practices into the whole Supply Chain cycle by hiring expert personnel, pushing the adoption of good practices, responding to any allegations of wrongdoing with alacrity, and tirelessly spreading the “please do the right thing” message.

Are we succeeding? It’s too early to judge. And one cannot avoid the essential truth that we live in Kenya and, therefore, cannot expect to escape the appearance or reality of corruption, to the extent that such appearances and realities permeate Kenyan life.

Notwithstanding this environment, the Board will not cease trying to create an oasis of good practices. On that note, one interesting statistic: since 2010, we have faced 15 procurement cases in Court, and have lost none.

Therefore, notwithstanding all the noise around procurement, and notwithstanding that, as the saying goes, “there can’t be smoke without a fire somewhere in the vicinity”, we must be and are doing something right. We just have to stop issues getting to the controversial and litigation stages by doing things right, first time and every time.

Recently, the new Cabinet Secretary for Petroleum & Mining John Munyes was quoted in the media asking KPC to complete its projects on time. Why have you taken long to complete these projects especially Line 5 and the additional storage tanks in Nairobi? 

I could give you detailed chapter and verse on each project. The simple answer is that we have been badly affected by the aforementioned procurement controversies, which have meant prolonged administrative (through procurement appeals bodies) or court action before we can commence.

But the Board’s close involvement in getting Line 5 back on track in terms of construction has made us aware that we need enhanced project management capabilities at all stages of the Supply Chain.

A key initiative currently under way is to develop a muscular project management office. We have learnt, and we are applying these lessons.

The question of contract variation with regard to Line 5 project won't go away, what is the truth? Did you agree to pay?

Short, succinct answer: No, we have not paid, nor have we agreed to pay. Line 5 was contracted under FIDIC (Federation Internationale Des Ingenieurs-Conseils - the French version for “International Federation of Consulting Engineers”) terms.

FIDIC contracts have explicit provisions for addressing claims, and we are currently in the midst of this claim process.

Quite why anyone would assume we would go outside FIDIC beats me. There is a long way to go, and many authorities to give their go ahead, before we agree to a claim amount, if any, and before we agree to pay.

We are conscious this is an issue of great public interest, and we are also aware of the injunctions we have from Parliament, and from the Executive, to handle this matter with extreme professionalism, transparency and accountability. We will.

A report by the project committee reviewing the application for one of the many extension suggests massive failures/delays on the part of Zakhem. What did you do to ensure value for money and completion of works on schedule?

Now, that is a leading question, and I am stumped about quite what you want me to say. For starters, I don’t know the report you refer to, so cannot even start discussing value for money in that particular context.

In any case, ensuring value for money is core to all that management undertakes at every project stage, and Line 5 is no exception.

As for completion of works on schedule, we have readily acknowledged delays in completing Line 5.

During your tenure, the company experienced one of the worst oil spills in the country in Thange. Who eventually took responsibility and how did the compensation/rehabilitation go?

Wow, another dangerously phrased question, “during your tenure….”; makes it sound as though I went out there planning to have a spillage!!

Fact: it was a bad spillage, coming at the start of my term as Chair. Its cause? All signs point to corrosion of the ageing Line 1 pipeline.

Remember that we have since had other spillages, all attributed to the same age factor.

Which is why we are constructing a new pipeline, to replace the existing one that was built with an expectation that it would last 25 years; 40 years later on Line 1 is still working, testimony to the skills of our engineers in keeping it going.

While unfortunate, we also take pride in our response.

Although we have had spillages before and since, this was the first one that had such complexities, happening as it did alongside water resources used by the community, and affecting agricultural land that is the main source of the community’s livelihood.

From a standing start, we managed to stop the leakage; isolate the affected and adjacent lands and lease them from their owners to enable removal of product and remediation of the lands; and set up liaison committees and task forces, made up of KPC, the local community, and the National and County Governments, all under NEMA’s watchful eye.

We also energetically pursued insurance compensation for the affected community members, and in the meantime took upon ourselves expenses such as emergency relief food, water provisioning and education in order to assist this suddenly bereft community cope with the consequences of the spillage. 

Top KPC management and the Board have been fully involved, and I have been to Thange severally, met and addressed the community, and endured my share of scepticism and blame from the community, and from their political leaders.

Money wise, we have incurred the following: KES 11 million for relief food, KES 14 million for water provision; KES 2 million in education bursaries; KES 164 million in direct clean up; KES 1 million for school fencing; and KES 4 million on community engagement.

So far our insurers have paid out KES 25 million to several families, and are currently reviewing hundreds of other claims. That makes for a total of KES 221 million. 

All in all, not a bad job, not at all. It would have been better for the spillage not to have occurred. It happened.

I am confident we have successfully navigated a steep learning curve in double quick time, and come out with an outcome of which we are very proud, and from which other organisations can learn.

Find time to go out there and witness what we have achieved in land reclamation and restoration of soil fertility.

Thange rehabilitation has been set with a number of challenges among them constant demonstrations by locals, what is the state of things and what are the issues?

I believe I have addressed what we have done earlier. Were some people unhappy? Of course. Not all will be happy at the pace or size of the compensation on offer, or at the pace of land renewal. Compensation matters are fraught with controversy all over the country.

We will soon be out of Thange, heads proudly held high that we rose to the occasion.

Some years back, KPC was planning to extend her pipeline network to selected counties. What became of this?

Devolving our pipeline network to counties remains key to achieving KPC’s Vision 2025, our 10-year transformational strategic plan. A feasibility study is ready, and will inform our investment decisions.

When and how do we start? It will be a matter of prioritising, and also of ensuring our plans are aligned to our parent Ministry’s master plan, and to the President’s Big4Agenda.

KPC has a catalogue of legacy issues to deal with such as tribalism and corruption. How have you confronted these challenges in the last 3 years?

Over the last 3 years, the Board has worked hard to have KPC reflect the Face of Kenya: gender, ethnic/regional, youth and those less physically able.  Have we attained an ideal balance in this regard? Answer, not yet. But the Board remains conscious that we must meet our collective national aspiration that a company owned by Kenyans through the Government must reflect the Face of Kenya in all its beauty and grandeur.

We will get there. But for those at KPC and outside who chafe that progress is too slow, to those who continually mutter and whisper that this ideal must be achieved instantaneously, thereby feeding a never-ending sense of grievance, victimhood and anxiety within KPC, I have a simple message: we are where we are today.

When I joined as Chair I started from the assumption that everyone I found in KPC was there by right, and I gave a pledge to staff at the start of my term that no one would be removed or in any way picked upon for reasons other than non-performance or other activities harmful to the company. I stand by this.

We will get the balance right because we are a growing company that is creating new opportunities for all Kenyans, within and outside KPC.

On corruption, yes, it is true there have been allegations levelled against KPC staff and top management; some of these cases are still under investigation, or going through court processes, so I will not dwell on these. 

The Board appreciates that the anti-corruption fight is critical, and must be fought. KPC knows more than most parastatals the damage corruption can inflict on the fabric of a company. As I said earlier, we have focused on preventive actions, and I am confident these will eventually achieve our aim of a productive and corruption-free company.

During your term, the board hit a record high in terms of frequency of board meetings. What was all that if there is a management team?

Your question contains a fundamental misunderstanding of the Board’s role. The Board exists to provide oversight and direction, thereby ensuring that KPC meets its targets and fulfils its mandate.

Management operates under broad guidelines issued by the Board, and executes plans and decisions approved by the Board. In delegating its powers to management, the Board does not abdicate its responsibility for the company’s well-being, for KPC meeting its short term and strategic goals.

When the current Board came into office, we found a litany of challenges. We needed to finalise, approve and get going a new strategy, Vision 2025.

We had a major project, Line 5, already late, only 20% complete with four months to go to completion date. We had a depleted management team, and a management structure unsuited to drive KPC into becoming the nimble, customer focused, national goal oriented and aligned company the Board demanded it become. 

We found a whole list of staff grievances about promotions, unfulfilled bonus promises, unpaid allowances, job role & pay inconsistencies, blocked up communication channels and so on. It wasn’t a crisis situation, but it was one that could easily become one. So after a suitable period of reflection, study and deliberation, the Board decided we had a duty to take on these challenges and act.

Which we did, working mainly through the four Board Committees but on occasion as a Full Board. Our various charters call for a minimum 4 Board meetings annually, and monthly meetings for each of the four Board Committees i.e. a planned 52 meetings annually.

Did we exceed this number? Yes.  And with good reason; during this period, we were engaged simultaneously in:

•         Finalising Vision 2025 and cascading this throughout the company.

•         Recruiting a Chief Executive Officer after a long hiatus without a substantive CEO, and helping him settle down in his role.

•         Restructuring the executive team, and recruiting seven General Managers to fill this new structure.

•         Overseeing a companywide job analysis process whose implementation is now underway.

•         Rapidly sorting out issues that were causing staff grievances.

•         Overseeing the implementation of three major troubled projects, for quite some time without a substantive top management team.

•         Dealing with emergencies, the Thange River spillage being the most serious.

•         All the while, ensuring the company remained focused on its mandate, notwithstanding all these issues. 

Given these challenges, the Board, as a responsible and accountable body, had no option but to intensify its oversight and guidance roles as it sought to ensure that we had appropriate responses to all these hurdles.

I have said before and I will repeat: the Board owes no apology for taking its various roles seriously; on the contrary we are enormously proud that we helped guide the company through a very difficult period.

Is there any single big tender that goes down without a fight or controversy at KPC?

Short, sharp and I suspect surprising answer: yes. The tender for the construction of the just completed Kisumu Oil Jetty was controversy free, end-to-end.

In January 2017, KPC placed a notice in the dailies inviting companies to tender for construction of the jetty. After a competitive process that involved six local and foreign bidders, the contract was awarded to a long established marine engineering local firm, Southern Engineering Co. Ltd.

The procurement process was open and transparent, and was not contested by any party. This KES 1.7 billion project was completed recently, on budget and, had it not been for unforeseen occurrences that interrupted construction (a prolonged election period, and Hurricane Harvey in Texas, which affected the production of critical material), KOJ would have been completed in time, in November 2017.

So where do you go from KPC? The impression out there is that you leave filthy rich?           

Ha, please tell me that was asked with a light touch!! Let me tell you my friend: if you want to make money, the last place to do it in is as a Board Chair at a parastatal.

My pay (which is not called an “honorarium” for nothing, it really is an honorary recognition of service done, not a true compensation for that service) is KES 80,000 per month, and this is before tax. I get KES 20,000 per meeting, also taxed. I don’t know whether you’ve encountered many other real live top-of-the-tree investment bankers, but most would confess to you that KES 80,000 is, truly, well, not conceivable as compensation for anything.

And people think I have got rich on that? The sad truth is that being KPC Board Chair has been a very fast route to potential pauperisation. My work truly has been a Labour of Love for Nation.

Let me make another point. The media are fond of describing the KPC Chair position as lucrative. Given the figures I have just set out the media must have a unique definition of lucrative.

Either that, or they are subtly encouraging theft and corruption, because that is the only way that position could ever become lucrative (ergo: filthy lucre, lucre being the word from which lucrative is derived).

So where will I go to when eventually I leave KPC? Out to make some money, and repair the very large hole in my personal balance sheet!!!

What were your high and lows at KPC and would you go back if reappointed?

I think I have already set out these highs and lows, so will not repeat them; however, there is one specific initiative I must single out.  Beginning 2017, KPC has had the Inuka scholarship programme for children from poor backgrounds who are living with disabilities.

This programme enables such children to enrol in high schools. So far 94 children, 2 per county, have benefited.

Let me make one last point. Anyone who wants to come into Kenya’s public service to make a difference had better be prepared for a very rough ride. Our social media, and indeed even our mainstream media (though the latter in more decorous language) are brutal. 

You will be slammed, accused of fantastical things, traduced, savagely so. So one had better develop a very, very thick skin, very quickly. Get used to being depicted as someone you never have been. Or stay away from these jobs.

To paraphrase Machiavelli: if you come into this kind of role wanting to make a positive difference, then remember that those who stand to benefit from these changes will be at best lukewarm, will stand by critically, assume you will fail, and will be armed with a multitude of ex post facto reasons why you failed, and were indeed doomed to fail right from the start.

And as for those who stand to lose: they will fight you ferociously, with everything they have got.  I should know, I have the metaphorical scars to prove it.

The Kenyan public sector, especially one involving a major, cash rich entity like KPC, is no place for innocents.

Mind you, as I said at the start of this interview, it is an exhilarating ride, and one is kept optimistic by knowing that one’s work is worthwhile,

Would I go back if reappointed? Another leading question, and that invites me to presume the prerogative of the appointing authority for this position, President Uhuru Kenyatta.

Sorry to disappoint you Bwana, but that’s an invitation I will not take up!   

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