NAIROBI, Kenya – Taxpayers have been saddled with nearly Sh3 billion in extra costs at the Kenya Pipeline Company (KPC), largely due to prolonged investigations by the police, a new audit report has revealed.
Auditor General Nancy Gathungu, in a review of KPC’s financial records for the year ending June 30, 2024, found that the state corporation incurred Sh2.8 billion in penalties and interest after delaying payments to a Lebanese firm contracted to construct a key oil pipeline.
The contractor, which built the Mombasa-Nairobi pipeline between 2014 and 2018, had initially agreed with KPC on a Sh6 billion settlement for project delays.
However, a 2019 directive from the then Directorate of Criminal Investigations (DCI) chief George Kinoti halted payments, triggering financial penalties that the Auditor General says could have been avoided.
“The justification and rationale for the stoppage of all payments and delays in the conclusion of the investigations which occasioned the interest and penalties could not be ascertained,” Gathungu stated in her report.
KPC had awarded the Sh48 billion contract to construct the 450-kilometer Line 5 pipeline in 2014.
The project, which was meant to replace the aging Line 1, faced multiple delays due to design modifications and additional works introduced mid-construction.
The project was completed in June 2018, nearly two years behind schedule.
As a result, the contractor filed five claims amounting to Sh26.4 billion for extensions of time.
An independent assessment reduced the amount to Sh5.7 billion, which both KPC and the contractor agreed upon.
But just as KPC was preparing to pay, the DCI launched an investigation into the claims, suspending payments amounting to Sh3.3 billion.
The prolonged probe led to financial penalties that accumulated over the years, and in June 2020, the contractor secured a partial court ruling in its favor.
KPC has since paid Sh2.8 billion in interest and penalties, an expense the Auditor General suggests was an unnecessary burden on taxpayers.
The findings raise concerns over the cost implications of stalled state projects due to investigative delays, with Gathungu’s report questioning the rationale behind the payment suspension.
The police probe ultimately failed to prevent financial losses and instead worsened the burden on public funds.
