KPC denies paying Sh40 billion extra in pipeline set up deal

Construction of multi-product oil pipeline at Kokotoni village along the Mombasa-Nairobi highway, July 15, 2015. [File, Standard] 

Kenya Pipeline has denied claims that Kenyans may have spent nearly double the initial cost of building the Sh48.4 billion oil pipeline connecting the port of Mombasa to its Nairobi depot.

In response to a story that appeared in The Standard yesterday, the state corporation said it had in March 2014 advertised for tenders for the construction of the Mombasa/Nairobi petroleum products pipeline and subsequently awarded the contract to Zakhem International Construction Limited. Zakhem later subcontracted Oilfields Engineering and Supplies Limited through a contract dated November 17, 2015, which KPC was not a party to.

According to the state firm, Zakhem procured credit facilities with Ecobank to finance the project and enable the execution of the contract. However, matters went awry after a dispute arose between the two entities regarding the credit facility arrangements.

KPC explained that on November 29, 2018, High Court Judge Mary Kasango issued permanent orders barring it from paying proceeds from the contract to any other party besides Ecobank Nigeria Limited and Ecobank Kenya Limited. The suit was ultimately resolved by consent between Zakhem and Ecobank, resulting in a partial decree.

“After the financial audit and ascertainment of the disputed sums, the earlier partial decree of June 26, 2019, was consolidated, resulting in a final decree issued on February 16, 2024, in favor of Ecobank Nigeria Limited and Ecobank Kenya Limited. This effectively settled the matter, with the undisputed and disputed sums due and owing to the two Ecobanks being USD 25,960,083.85 and USD 6,018,612.00, respectively,” the statement read.

KPC maintained that out of the contract sums due to Zakhem from KPC, the only funds being held by KPC was $31,308,249.80.

“Subsequently, a company called Oilfields Engineering Limited filed an application dated February 16, 2024, seeking joinder to the primary suit and a stay of execution of the final decree dated February 16, 2024, pending the hearing and determination of the case,” the statement read.

According to KPC, this led to a temporary stay of execution being granted on February 16, 2024.

However, upon hearing and determining Oilfields’ joinder and stay applications, the Court dismissed the applications in a ruling dated June 21, 2024, in the primary suit, thereby reinstating KPC’s obligation to comply with the final decree dated February 16, 2024.

The statement further noted that in dismissing Oilfields’ claim, the court observed that their causes of action had yet to crystallise and were still under consideration by the court handling the consolidated suits. The ruling recalled the final decree dated February 16, 2024, for the limited purpose of adding a qualification that “this does not exonerate any of the parties from its obligations under the law or any order in force against it.”

“Worthy of note is that at the time of Justice Mabeya’s June 21, 2024 ruling, the only subsisting orders on the funds were the orders of Lady Justice Mary Kasango dated November 29, 2018,” they say.

KPC said the preservation orders in the consolidated suits are dated August 31, 2023, while Justice Kasango’s orders are dated November 29, 2018, maintaining Justice Kasango’s orders came first in time and therefore had to be complied with.