How firm got Sh600m aircraft fuelling equipment tender

Kenya Airways planes at JKIA in Nairobi. PHOTO | JEFF ANGOTE | NATION MEDIA GROUP

What you need to know:

  • In 2014, new valves had been installed at the airport costing Sh1.5 million each.
  • In the financial year 2014/2015 the management decided that they had to purchase 60 more hydrant pit valves plus their spares at a sum of Sh600 million.
  • KPC says they bought the big number of pit valves to replace 43 non-compliant valves at the airport.

Gill House, an office block on Moi Avenue in Nairobi, is not commonly the address for blue-chip companies doing multi-million international deals. Well, it is now.

Inside this five-floor building, where rent for a single room is Sh20,000, was a 20-month old company — Aero Dispenser Valves — that was awarded a Sh600 million tender to supply aircraft refuelling equipment for Nairobi’s Jomo Kenyatta International Airport.

Inside sources told the Nation that the company is owned by a humble welder but who has extensive and sophisticated connections at the Kenya Pipeline Company (KPC) head office.

Now in his early 60s, the welder is well-known inside KenPipe, the KPC headquarters, where he is the trusted proxy of powerful officials in inflated tenders.

He is wealthy and owns houses in Nairobi and Kisumu, sources said, but he at times lives at the KPC Outer Ring Road premises and drives a battered Mercedes Benz or a Nissan Patrol. Even his name is a misnomer.

Thanks to his longevity at KPC, Mr Bagman, who should have retired by now, is still the king of tenderpreneurs at the company.

“He is immensely powerful. Even his boss cannot order him to do anything. The man is well connected,” a source at KPC said.

This is the man who ran the Sh600 million racket in Gill House, now under investigations by the Ethics and Anti-Corruption Commission.

If the police manage to crack the case, which is highly doubtful, it will blow the lid off a con-game at KPC where insiders hatch schemes to tailor tenders and award them to select briefcase companies. It will also unwrap the manifold conflicts of interest and the clandestine business dealings within the company.

While Mr Bagman hides behind his shabby dressing and age, the face of his two companies — Aero Dispenser Valves and Thermodynamics — is a Mr John Huba Wako, who in the company’s profile is listed as operations manager. His work, as contained in the company’s profile, is to “ensure smooth operation of tendering… keeping track of the stages through which each order is until receipt and payment.”

AVIATION FUEL SUPPLY

If everything had gone to plan, the Sh600 million scandal would never have been known. To kickstart this wanton waste, a “Jig inspection” was conducted at the airport. (A Jig is an acronym for Joint Inspection Group, an internationally recognised forum, where experts drawn from the aviation fuel supply industry come together to establish and improve standards for the safe handling and quality control of aviation fuels).

It was after that inspection that KPC decided to purchase some exaggerated number of hydrant pit valves for the airport plus their spares.

Hydrant pit valves are used in aircraft fuelling and comprise a series of components for fuelling aircraft with sufficient pressure and flow to deliver piped fuel throughout an airport.

“There is nothing complex about them,” said an engineer at KPC.

In 2014, new valves had been installed at the airport costing Sh1.5 million each. But in the desire to make quick cash, in the financial year 2014/2015 the management decided that they had to purchase 60 more hydrant pit valves plus their spares at a sum of Sh600 million.

This week, KPC chairman John Ngumi, told us that these hydrant pit valves are still in the stores as they are subject of investigations by the Ethics and Anti-Corruption Commission.

The KPC MD, Joe Sang, also sent a statement confirming that these are “subject of investigations”.

KPC says they bought the big number of pit valves to replace 43 non-compliant valves at the airport. The 17 extra valves were spares.

This particular tender was awarded to Aero Dispenser Valve Limited to supply “hydrant replacements” during what was recorded inside the KPC boardroom as meeting No 24 of the tender committee of February 18, 2015.

The award letter was simple: “Following detailed evaluation of tenders, KPC is pleased to advice you that you have been awarded the tender… inclusive of all taxes.”
The letter of award was sent to the managing director of Aero Dispenser Valves Limited, and signed by then KPC managing director Charles Tanui.

BASED AT GILL HOUSE
In its letterheads, this “international company” did not reveal its offices. It also had a personalised email address —[email protected] — and had three individuals listed as directors: Jackson Odero, Michael Opundo and Willbard Otieno.

In their tender documents, they said they were based in the nondescript Gill House, but that is not indicated in their letterhead.

On their website the company, whose motto is “If you can’t do it right then don’t” — lists the shareholders as Mrs Beryl Aluoch (700 shares) and Mr Francis Obure (300 shares). Mrs Aluoch is listed as the managing director and her credentials are a master's degree in strategic planning.

They said she is “results-driven, self-motivated and resourceful”. Mr Obure is said to hold a diploma in electrical and electronic engineering and his duties are to make sure that “goods delivered meet technical requirements in the tender documents”.

The other is John Huba Wako, the operations manager.

The way this particular tender was rushed, and the way the payments were made is the story of how tenderpreneurs work within the public procurement system at KPC.

Some 26 days after the tender was awarded, the then KPC managing director, Mr Tanui, signed a Local Purchase Order (LPO) with the terms of payment noted as L/C at sight.

FAST-TRACKED PAYMENTS

That meant that the payments would be fast-tracked as soon as letters of credit and complying documents were released.

In banking terms, a “sight letter of credit” payment is made to the seller immediately after the required documents have been submitted to the authorised bank, provided the conditions in the letter of credit have been met. It is used as a simplified way to squirrel easy cash from parastatals.

The next day, March 17, a Mr Michael Orido, signing as director of Aero Dispenser Valves, wrote to Mr Tanui acknowledging receipt of the LPO plus the terms and conditions.

On the same day that Mr Orido’s letter was received, Aero Dispenser Valves raised a Proforma Invoice of $2,563,796 (Sh257 million) and an Order Confirmation was signed by Mr Tanui and Chief Manager Technical, Elias Karumi.

That Friday, March 20, Mr Orido raised a commercial invoice for the Sh257 million, which he said was the “first milestone” – 40 per cent of Letter of Credit amount $6.410 million. The LPO had no such provision.

Being a relatively young briefcase company, Aero Dispenser Valves did not have capital to finance such a multimillion-shilling tender. Thus, it had to get the money from KPC in the form of a Trust Receipt, also known as TR in banking circles.

IMPORT LOAN

The TR document was signed by both Mr Tanui and Mr Karumi which meant that KPC was giving Aero Dispenser some short-term import loan to enable it to settle payment of goods.

Although the collaborating bank, Citibank of Upper Hill Road Nairobi, had noted some discrepancies in the documents presented by Aero Valves, it asked KPC to sign the Trust Receipt and return it to the bank (perhaps) if it was satisfied.

The KPC indeed wrote back saying the “discrepancies on the letter of credit “may be accepted… any discrepancy charge is to the beneficiary’s account,” a memo signed by Nicholas Gitobu dated March 26, 2015 said.

An insider engineer who knows about this procurement told us that “this particular tender was highly inflated… A simple dust cover for the valve was costing Sh10,000.” The records show that KPC paid $112,426 (about Sh11.2 million) for dust covers alone.

Why KPC paid for goods it had not received is a paradox, but documents show that it paid 70 per cent of the value of the tender just for paperwork.

Apparently, these were the simple conditions and milestones for payments that were outlined in the letter of credit and which were given to Citibank to release the money from KPC account to the Aero Valve accounts.

The first 40 per cent of $6.409 million was to be paid “after confirmation of order” and after the bank received “a letter from KPC signed as per mandate and a copy of the invoice showing the amount payable”.
The second payment of 30 per cent (Sh192 million) was to be paid after the company delivered 2 originals and 2 copies of bill of lading and 2 originals and 2 copies of packing list. It was also to show a certificate of conformity issued by Kenya Bureau of Standards plus an invoice showing the amount payable.
With Mr Tanui and Mr Karumi signing the trust receipt – it meant that they had released the money from their Citibank account to National Bank of Kenya’s Times Tower branch where Aero Dispenser Valves had an account.
What this second milestone meant was that KPC paid Sh450 million to Aero Dispensers with no single delivery! The balance was to be paid “upon acceptance of the materials”.

MANAGER TRANSFERED

In the tender documents, Aero Dispenser Valves had purported to be an agent of CLA-VAL, a global manufacturer with headquarters in Costa, Mesa, California, to provide parts to KPC. They claimed to be the sole agents for CLA-VAL in Kenya.

Last week, CLA-VAL told the Daily Nation: “We do not have specific agents in Kenya. We do work in Kenya with non-exclusive multi-partners,” said Fabrice Jaggi, the market sales manager for Europe and who handles the Kenyan business.

But did the cargo ever arrive at KPC?

KPC chairman, Mr Ngumi, told us that the pit valves and the spares are at their stores and cannot be used since they are subject to police investigations.

We have established that in June 2015, a container arrived at the KPC depot to offload the order that had been procured in March 2015. There was an anomaly in this delivery.

“There was no way any company could deliver within such a short-time. It usually takes up to six months for the order to be manufactured and materials get shipped,” said an insider wondering whether these were genuine shipments.

When the goods arrived, a store manager refused to receive the container and was transferred to Eldoret.

Bizzarely, the value of the equipment was $64,282, the spares purchased were 10 times the value of the equipment.

“It is like buying a car and spares which are 10 times the value of the car. It doesn’t happen,” the insider said.

In some of the documents, Aero Dispenser gave its registered offices as LR NO. 209/8595 in Ongata Rongai. That LR No is officially for the plot on which View Park Towers in downtown Nairobi stands.

Between March 23 and April 2, 2015, Sh235 million was withdrawn over the counter from Account No. 01020014751600 at the National Bank, Wilson Airport branch.
“If the money was to pay the US suppliers, why was it withdrawn over the counter?” asked the source.

Or was it to conveyed to America in gunny bags?

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