Revealed: What audit unearthed at Portland

By ALEX KIPROTICH

For the past two weeks, the country has been treated to unending circus at the multi-billion East Africa Portland Cement Company (EAPCC), which has stalled operations.

Management, which had been suspended by the Industrialisation Minister Amason Kingi, was reinstated by the High Court, but operations are yet to resume because employees have refused to work with the reinstated staff.

From left, EAPCC chairman Mark ole Karbolo, board member Hamish Keith, and Managing Director Kepha Tande at the Milimani Law Courts during a ruling on the management tussle. [PHOTOS: STANDARD]

The matter has taken a tribal dimension as a few workers sympathetic to the reinstated management and board led by board chairman Mark ole Karbolo and Managing Director Kepha Tande have resumed work, while others have downed their tools.

The reinstated team is determined to remain at the helm of the company despite investigations by the Efficient Monitoring Unit (EMU), which is carrying out a forensic audit on alleged malpractices.

Corruption through flawed procurement and board interference with procurement has cost the company billions of shillings, leading to decline in operational profits for the last two years despite increase in volume of sales.

Board expenses

Documents in our possession show the money was lost through variations of prices, tender manipulation, over-payment of allowances to directors and board members and flawed procurement.

In what looks like a cash cow for individuals, we are in possession of payment vouchers of millions of shillings to directors, who just need to fill in allowance claim forms and pick their cash regardless of the business transacted.

An activity like attending a football match, walking around the plant, or meeting the PS earns a director Sh45,000.

These fishy payments and uncalled for meetings outside work, led to an increase of board expenses by 31 per cent last year, as per the published accounts audited by Government Auditor General.

The board expenses according to the audit report rose from Sh13.3 million in 2010 to Sh17.5 million last year because of the overpayments and unscheduled meetings, which line the pockets of directors.

"The chairman and directors were paid sitting allowances at a taxable rate of Sh64,296.71 and Sh42,857.14, contrary to the Office of the President circular. The circular requires the chairman and directors to be paid a taxable sitting allowance of up to Sh20,000 per sitting. This resulted in an overpayment of Sh7,679,932 as of June last year," reads the audit report.

The report adds: "Further information also indicates the chairman was paid allowances totalling Sh849,000 in respect to unscheduled meetings contrary to Office of the President circular OP.CAB.9/21/2 of November 25, 2004.

In addition, the chairman was paid sitting allowances amounting Sh1,020,000 for attending various functions other than board meetings.

In one of the director’s claim forms, and which the Standard On Saturday has, Mark Karbolo (Chairman of the board) was paid Sh45,000 for attending a Sofapaka Football Kenya Ltd cup presentation on November 1, 2010.

Other payments in the vouchers in our possession include touring the company and meeting the PS. Others just indicated as official meeting without explaining the nature of the meetings.

Noteworthy, however, is that such consultative meetings and functions should be covered by the honoraria payments, which is paid on monthly basis at a rate of Sh80,000 to the chairman.

There were more than 30 board and committee meetings in the year, which averages about three meetings per month against the requirement of one meeting every three months.

The documents also show the company lost more than Sh70 million after board of directors chaired by Karbolo overturned tendering committee decision to reject clinker (cement ingredient) price variation requested by a supplier and which went against Public Procurement Act.

Two shipments

On July 13, 2009, EAPCC entered an agreement with an Indian company – Sanghi Industries Ltd – for the supply of 140,000 metric tonnes of clinker in four shipments within a period of a year at $58.90 a tonne.

However, after two shipments of 67,000 metric tonnes, Sanghi industries wrote to EAPCC seeking to increase the price and which the tendering committee rejected because the justification was not valid and also not in tandem with the public procurement rules.

"The tender committee reviewed the documents tabled at the meeting and rejected the request. The committee noted that the request is not based on changes in consumer price index or variation as per regulation 31 of the Public Procurement and Disposal Regulations Act 2006," reads the tender committee decision in the minutes of the committee

But this decision seemed to have rubbed the board the wrong way and they called a special meeting on June 28, 2010, and overruled the tender committee decision and approved a 10 per cent price increase for the entire four shipment loads.

The board, according to the minutes, further directed retrospective payment of Sh30 million to the supplier for the first two shipments, which were delivered as per the contract terms despite the rejection by the tender committee.

Lowest bidder

"It was resolved to approve 10 per cent increase in clinker price for the entire four shiploads. Sh30m would be paid for the first two shipments and the rest would be paid as it was delivered," reads the minutes of the special board of directors, which overruled the tendering committee decision.

The members were Karbolo, then MD Nyambok, directors Titus Naikuni, David Koros and Jackson Kinyanjui. The current MD, Tande, who was then General Manager, Finance and Ms W Jumba also attended.

And with the board approval, which went against Public Procurement Act, Sanghi industries Ltd was paid Sh771m instead of the agreed Sh700m – an increase of Sh71million despite quality concerns being raised.

Sanghi had quoted the lowest. The second lowest bidder was $59 per tonne. But after the variation of the price upwards, Sanghi became the highest bidder with $64.79 per tonne.

Another deal which has cost the company a loss of Sh1.3 billion and which the current directors are under investigations for by EMU is a contract for coal handling, grinding and dozing facility.

The contract was given to a Chinese company – China National Aero Technology (Catic) at $7.2 million, about Sh580 million, after H Young who were the lowest bidders at Sh440m lost an appeal.

H Young lost because though it was the lowest bidder, it would take them 12 months unlike Catic which said it would take them seven months.

"A cost analysis was undertaken by EAPCC showing the project duration was a key determinant in the overall project cost as the shorter time span of seven months by Catic as opposed to 12 months by H Young would result in estimated cost savings of Sh400million, as a result of using coal as opposed to furnace oil," reads the decision reached by the appeal review board that threw out H Young’s appeal.

Catic signed the deal on July 30, 2009, and were expected to complete and handover after seven months, which should have been February 28, 2010.

However this did not happen. Catic delayed the project for 10 more months and handed over the project on December 24, 2010.

The delay caused actual indirect project cost differential of Sh800m.

Korean company

This procurement malpractice contributed to the poor financial performance of the company in 2010 as per audited accounts, where operating profits declined to Sh90 million as opposed to Sh1.2 billion in the previous year.

As if the delay was not enough, EAPCC is now embroiled in a tussle with the contractor who is demanding a further $2,035,552 for the delays and time extension of 538 days to finish external civil works.

"These issues are yet to be resolved. The board felt that the issue should be resolved amicably for the benefit of both parties," reads a project progress report done by the project engineering manager.

The board is also accused of interfering in the tendering process. Documents in our possession show how some members of the board – Karbolo, John Masonik and David Koros met M/s Posco Plantec’s senior executives in Korea.

They had applied to be awarded tender for clinker manufacturing upgrade.

The meeting, according to the minutes, took place in Korea on September 27, last year, and thereafter the tender was awarded to the Korean company on October 14 to a tune of Sh181.9million.

The Public Procurement Act bars members of the board and directors from participating in procurement process.

The investigations by the Standard On Saturday also found out that one of the directors of the cement company, Hamish Keith, is a managing partner in a law firm contracted to offer legal services.