Court Case
In papers filed in court on Tuesday, 24 February 2009, KCB explained how on 9 August 2007, it entered into a Structured Oil Import Finance Facility with Triton Petroleum Company for an upper limit of USD25m (KES2bn). The bank and Triton had agreed that any oil imported would only be released on the condition that Triton would enter into a financing agreement with KPC to ensure that KCB’s interest as a financier was secured, and that Triton would forward instructions to KPC, copied to the bank, requesting KPC to undertake to hold the product financed in trust for the bank in a prescribed format adopted by the bank.
KPC, according to the bank, was then to write back to KCB, with a copy to Triton, confirming that they would hold the oil on behalf of the bank until authorised by the bank to release the product via release orders signed by the bank’s authorised signatories and in the bank’s prescribed format. The bank would then pay off the invoice amount as per the arrangement with Triton and thereafter Triton would request KCB to authorise the release of the oil from KPC. KCB was to issue the release orders to KPC which in turn would authorise its respective officers to avail the products to Triton or its clients. “At all material times, KPC had entered into a collateral financing agreement with Triton and in accordance with the said contract, could only release any oil financed by any particular bank after it had been authorised to do so by the bank,” argues KCB in court papers.
KCB gives a detailed chronology of events from 20 November 2007 to 4 December 2008, when the stock summary showed that KPC was holding oil in trust for the bank amounting to USD14m. When Triton was placed in receivership on 19 December 2008, KCB sought reconfirmation of the quantity of oil stocks from KPC to enable the bank issue release orders to identified buyers. However, on 29 December 2008, KPC revealed that it was not holding any oil in respect of the KCB/Triton oil account.
“At no time did the bank issue any release order for the oil stock worth USD13,993,388.70 as set out in KPC’s statement sent on 4 December 2008. KPC in breach of its contractual and fiduciary duty to hold the oil products in trust for the bank has caused the unexplained release of various oil products over which the bank had financed or had a lien,” claims KCB in its court papers. KCB is now asking the court to order KPC make payments of USD14m together with interest at court rates from 4 December 2008 until full payment.
KPC is yet to reply to the allegations of KCB and has not yet filed any response in court. However, lawyers for KCB said they will wait the two weeks asked by KPC in court to allow a forensic report by PriceWaterhouseCoopers (PWC) to be completed.
Former KPC Managing Director George Okungu, who also faces five unrelated counts of abuse of office brought by the Kenya Anti Corruption Authority (KACC), together with Company Secretary, Mary Kiptui, will have to be brought to task since as recognised signatories of KPC, they were preview to the contract between KCB and KPC, and will have to explain the loss of the oil.
Fiscal and Political Implications
Although Energy Minister Kiraitu Murungi has ordered investigations into how oil went missing from the KPC’s Kipevu oil storage facility last Christmas, a court ruling in favour of KCB will mean that the parastatal will be open to similar suits from the other financiers Total Kenya and Shell Kenya have already moved to court: Total Kenya has asked the courts to compel KPC to release petroleum products held in trust on account of Triton worth KES360m. Shell Kenya has asked for the release of KES228m worth of petroleum products, and has requested restraining orders against KPC to prevent them from releasing another 4,725.173 cubic meters of Automotive Gas Oil (AGO) worth KES288m, pending the hearing and determination of the suit. Since KPC have already admitted that these stocks are no longer available, the company would have to purchase equivalent amounts, or offer to reimburse the companies.
Other financiers that are very likely to follow KCB’s move and sue KPC directly include British Glencore, which risks losing KES2.3bn, Fortis of France, KES906m, and Emirates National Oil Company, KES2.5bn.
Should KPC lose this and other suits, the parastatal’s financial position will come under intense pressure as all the financiers’ claims add up to a total of KES7bn at a conservative estimate. – and ultimately any losses to KPC will have to be covered by the tax payers.
On a political level, the suit is likely to give the Public Accounts Committee (PAC) chairman Bonny Khalwale more material to emphasise the direct impact of the oil scam on government finances. Khalwale had stated that he would prepare a censure motion against Murungi, similar to the failed motion against Agriculture Minister Willliam Ruto, although it is doubtful whether this will succeed: Murungi’s political career has not only survived his alleged involvement in the AngloLeasing procurement scam, but also stands to benefit from some political horsetrading: It has been argued that the refusal of PNU MPs to vote out Ruto is expected to be matched by ODM support to safeguard Kiraitu Murungi.
Extradition of Triton CEO?
Critics argue that the current scam was made possible by changes brought to KPC in July 2004 with the introduction of the collateral finance agreement, a device to help small and upcoming oil marketers to obtain credit financing from banks and international suppliers to finance oil imports. This allowed smaller operators like Triton – a company that was barely a decade old in Kenya and only had eleven outlets countrywide to compete with multinationals that had controlled the Kenyan petroleum market for many decades. Small companies were also allowed to import oil directly without having to go through the major players. Triton consistently won rights to import oil which they sold on to Kenyan marketers.
Although the alleged perpetrator of the scam, Triton Chief Executive Officer/Executive Chairman Yagnesh Devani, was being sought by the police, the state withdrew a criminal charge against him under unclear circumstances. Devani is said to be in India. As members of the Commonwealth, India and Kenya have extradition agreements amongst them, so the question arises why the government has not asked the Indian government to extradite Devani. Under the Extradition (Commonwealth Countries) Act, Kenya can request India to extradite Devani to Kenya to face the criminal charges against him.
Share this article with others:
Comments (0)
Subscribe to this comment's feedWrite comment
Show/Hide comment form