MPs probe possible conflict of interest in Sh35 billion pipeline loan

Kenya Pipeline Company Chairman John Ngumi during an interview last April. [David Njaaga,Standard]

National Assembly’s Energy Committee is now probing the manner in which Kenya Pipeline Company (KPC) secured a Sh35 billion loan for the new Mombasa-Nairobi pipeline expected to cost in excess of Sh50 billion.

The pipeline, which is now a subject of investigation by multiple agencies, is the country’s second largest project in cost after the Standard Gauge Railway.

Conflict of interests

The parliamentary committee is keen to establish whether there was conflict of interests on the part of the Board chairman John Ngumi in securing the Sh35 million deal from a consortium of local and international banks to fund the project.

The firm contributed Sh13 billion and borrowed the extra Sh35 billion from banks, bringing the cost to Sh48 billion.

Mr Ngumi was the Investment Banking Director in charge of East Africa of CFC Stanbic Bank Limited, one of the banks that granted KPC the loan.

He also formerly worked with Citi Bank in various senior capacities. Citi Bank, coincidentally, is another bank that granted the loan, whose repayment is equally of interest to the committee.

Energy Committee Chairman and Nakuru Town East MP David Gikaria yesterday disclosed that possible conflict of interest was among the issues they expected to grill Ngumi on when he appears before them on Tuesday.

Point of interest

“These are matters that are of great concern to us and a point if interest. We have done our research and we will be demanding answers on all these questions. There are so many areas of concern to us, and we felt that it was only fair that the board chairman appears in person to respond to them,” said Mr Gikaria.

Ngumi was scheduled to appear before the committee last week but failed.

“He sent a message saying he was out of the country on a mission that had been arranged before we sent our invite, but we agreed that he should appear on Tuesday,” Gikaria said.

When he appeared before the Senate Committee on Energy, KPC Managing Director Joe Sang revealed that the project contractor Zakhem International, a Lebanese company had slapped them with an extra Sh5 billion claim for delays in completing the project.

The Kenya Pipeline Corporation is paying dearly for the Sh35 billion loan.

The Standard has established that KPC is repaying Sh5.38 billion annually for 10 years for the loan that was meant to modernise the firm’s Mombasa-Nairobi line.

Details of the loan agreement make it mandatory that the money be paid quarterly, meaning that KPC has to part with some Sh1.34 billion after every three months.

After the 10-year loan period, KPC will have paid Sh53.83 billion, some Sh18 billion over and above the borrowed sum.

Since the oil transporter was given a two-year grace period after the deal was signed in 2014, the loan will be financed at least up to 2027.

Local banks

The loan was negotiated from a consortium of four local banks comprising CFC Stanbic, Citibank, Commercial Bank of Africa, Co-operative Bank, Rand Merchant Bank and Standard Merchant Bank.

The borrowing was to constitute 72 per cent of the total project dubbed Line 5, whose total cost was Sh48 billion.

However, the contract price has been adjusted upwards by at least Sh2.7 billion, that has caught the attention of graft detectives.

Meanwhile, the National Assembly’s Public Investment Committee (PIC) has said it will remain steadfast in efforts to unearth any loss of money in upgrading  the Sh48 billion Mombasa-Nairobi pipeline.

Speaking at the weekend when the team paid a visit to one of the KPC stations at Mtito-Andei in Makueni County, committee chair Abdulswamad Shariff Nassir expressed his dissatisfaction in the manner in which the work had been done in a ‘snail-speed’.

He said the Auditor General was in the process of tackling the matter to know the estimated loss that the Government would have incurred.

“We have a special audit the auditor is currently going through to know what loss Kenyans would have suffered. Later we will give our direction and recommendation, with the names of those to be possibly charged,” said Mr Shariff.

He said they would spare no one in their investigation before preparing a report in a period of two weeks.

[Additional reporting by Stephen Nzioka]