Tender wars expose KPC insurance losses

An open tank containing a mixture of water and oil extracted from trenches at Kiboko oil spill site. [Standard]

A fight to clinch a multi-million-shilling tender has exposed how insurance firms get away without paying for spillage at Kenya Pipeline Company (KPC) facilities.

Tender documents seen by The Standard show how insurers hide behind faceless brokers to clinch the deal and then shift the goalposts when asked to pay. This is despite the pipeline company meeting its end of the contract including prompt payment of premiums.

KPC has been unable to get the insurers to pay Sh471 million claims from oil spillage at Konza, Mariakani, Koru and Ngong Forest that have taken place between 2015 and 2018, which the insurers have brushed aside using the excess clauses.

The excess provision protects insurers should a claim be below certain amounts, with the asset owner having to cater for the damage.

According to insiders, the tendering process allows for the same insurers to get the deals through affiliated brokers.

The financial proposals from different brokers successful in the technical phase of the process were opened Wednesday last week and are currently being evaluated, with KPC expected to select the winner this week.

"As at end of 2018, KPC had unpaid claims of up to $4 million (Sh400 million) by the underwriters,” a source privy to the tendering process said.

Stakeholders have blamed KPC for failure to do due diligence on some of the shortlisted firms, which are said to be employing underhand tactics while others have failed to honour claims by KPC.

With each firm looking to secure the contract that would guarantee healthy returns, the insurers are now pointing at each other’s inadequacies and the flaws contained in their tender documents.

Some of the firms have bid to offer the insurance services at a much lower cost than the current premium at KPC, which is obligated by procurement law to give the job to the lowest bidder.

Our source said low premiums might not necessarily mean value for the company, as they are largely to blame for the past claims that remain unsettled.

Whoever gets the job will cover all operations and installations of KPC, including pipeline, terminals, pump stations, storage tanks and other ancillary facilities. The firm that will be selected will get the job for three years through to 2022.

In the tender documents, KPC estimates its network of pipelines to be worth $1.07 billion (Sh100 billion), which is in addition to other assets.

The source said premium for All Risks Industrial Policy in 2016 was $1.08 million (Sh100.8 million), which is currently held by CIC and Sedgewick Insurance Brokers.

"The sum insured has nearly doubled to about $1.8 million (Sh180 million) and brokers continue to undercut premiums to win business. This will be at the expense of KPC and taxpayers because as experience shows, these brokers end up not paying claims when they arise and instead hide behind excess clauses."