Two days before Triton Petroleum Limited was placed under receivership, revealing to the whole world how Kenyan taxpayers had lost more than Sh9 billion in dubious oil deals , Benedict Mutua, the chief scheduler at Kenya Pipeline Company (KPC), wrote a memo to the operations manager.
Mr Mutua, a veteran in petroleum operations with 13 years’ management experience, was the link between oil marketing companies (OMCs) and KPC. He was to verify documentation for petroleum products, which had been paid for but were being stored at the 326-million-litre Kipevu Oil Storage Facility (KOSF) before their release.
However, since the signing of the collateral financing agreement (CFA) between KPC and OMCs in July 2005, Mr Mutua got an additional role: Verifying documentation between the banks that had agreed to finance OMCs, who had won contracts to purchase petroleum products through the Open Tender System (OTS).
The Kibaki administration created the OTS to enable local oil marketers to compete with multinational companies on the international market for petroleum products. The local firms, however, found themselves lacking the financial might to compete with multinationals during tendering, leading to the creation of CFAs in 2004.
Four years had since passed and KPC, which was supposed to hold the petroleum products bought through the CFAs, had failed spectacularly. Some 126 million litres of petroleum products bought by Triton, according to an audit at the time, had gone missing and banks were on the neck of KPC, demanding that taxpayers pay for the losses they had incurred.
In particular, KCB and the Eastern and Southern African Trade and Development Bank had gone to court, seeking to place Triton under receivership. In the midst of the crisis, eight days before Christmas in 2008, Mr Mutua wrote a memo to Peter Mecha, the KPC operations manager.
From the tone of the letter, whose contents are exclusively being shared by the Nation 13 years later, Mr Mutua knew he had let down KPC, taxpayers, banks and the entire nation. Everyone was owed an explanation.
“I am at pains to explain this matter because nobody believes me, but in my mind, I trusted Triton were telling the truth,” he explained to Mr Mecha. “It is unfortunate that this continued for a long time without your knowledge. I thought I could handle this until it dawned on me that I had been cheated,” he continued.
“At no time in my 13 years in the scheduling office have I ever solicited money from any of the company’s customers in exchange for the services rendered as a result of my position.” Mr Mutua’s letter to his boss, Mr Mecha, was sent on December 17, 2008, when it was already too late.
Triton was placed under receivership two days later. By then, Yagnesh Devani, the main suspect of the scam, had escaped to India under pretence of attending a religious festival, never to be seen again.
Tycoon Yagnesh Devani. He is the architect of the Sh7.6 billion Triton oil scandal.
Photo credit: File | Nation Media Group
The latest of the over half-a-dozen attempts by the Kenyan government to extradite Devani to Nairobi from the United Kingdom to face justice backfired on January 16.
It is not known when or if Devani will ever face a Kenyan judge as he has filed a fresh case seeking to stop his extradition. What is, however, clear from this Nation investigation is that the government is in this situation because KPC’s management in 2004 failed to take time to fine-tune details of a CFA between Triton and the petroleum company.
Among the first things that investigators found out was that, while the CFA was a brilliant idea, which would have enabled Kenyans to get petroleum products at good prices if more OMCs were brought on board, KPC had no implementation plan.
“After the initial CFA’s were drawn and made operational, no one at KPC appears to have taken responsibility to ensure that the arrangements were effectively implemented with the necessary accounting and control procedures and records being established,” noted investigators in their forensic audit.
Ms Anne Osiilingi, who was the acting Chief Accountant Product (CAP) at KPC when the CFAs began being implemented in July 2004, told investigators that she was never advised on how such a huge undertaking was supposed to be implemented.
“The agreement was dropped at my desk and I was told to implement it. I sought assistance from the operations manager, finance manager and the legal department but I did not get any,” she told investigators.
During the implementation of the CFA, the finance manager was Caleb Mangaga, while the Managing Director was George Okungu. He had just taken over from Shem Ochuodho, who midwifed and signed the first CFA, but was fired on suspicion of engaging in graft in another matter.
However, in the absence of a clear structure or plan on how the CFAs signed between KPC and local OMCs would be implemented, the responsibility of making sure there were no hitches was given to Mr Mutua, the scheduling manager. Mr Phanuel Okwengu, a scheduler was to help him.
Shockingly, the scheduling department was never audited during the entire period.
Biggest petroleum scandal
“This is extraordinary. An analogy would be a situation where a bank’s supervisory department would choose not to audit the loans and advances, or the deposit taking activities of the bank,” the investigators said.
Easily the biggest petroleum scandal in Kenya, everything was put in place for Triton to succeed. Notably, it’s Devani who approached KPC with the idea of coming up with CFAs. Then it took just two weeks for the CFA between Triton and KPC to be negotiated and signed.
Whether this was by design or lack of oversight by those responsible has never been known. And so, when Mr Mutua and Mr Okwengu were given the responsibility of implementing the CFAs, they found themselves with a lot of unchecked power.
Part of their discretional powers included deciding ship offloading priorities, prepare pumping schedules, responding to requests by OMCs, deciding allocations on the batches of petroleum products to be pumped and deciding which adjustments on stock would be done in respect to products that had been sold.
It’s in these circumstances that Triton’s fortunes grew from controlling just one per cent of the retail petroleum market to the behemoth it became before a drop in global oil prices in 2008 consigned it tumbling to its death bed.
According to records in our possession, Triton imported a staggering 2.8 billion litres of petroleum products between 2003, when the idea of CFAs was mooted, and 2008, when the company collapsed.
This huge consignment of imports comprised 1.6 billion litres of diesel, 1.6 billion litres of jet fuel and 165 million litres of unleaded petrol.
Noticeably, during the first year of executing the CFA-Triton-KPC deal in 2004, the company’s petroleum imports increased by 427 per cent from 84 million litres to 448 million litres.
At the time, the OTS was a playing field for large multinationals like Shell, Total, Mobil, Agip, Mobil, BP and Caltex (Chevron).
The only other local OMC that was taking part in the OTS was Kenol/Kobil, which was linked to Kanu era minister Nicholas Biwott.
A Triton filling station in Kisumu.
Photo credit: File | Nation Media Group
Eventually, most of the multinationals quit the Kenyan market before the end of the decade. They cited, among other reasons, an endemic Kenyan culture of non-compliance with basic business ethics and values, coupled with weak business regulatory regimes.
Although the exits of these multinationals were not related to the Triton scandal, we now have information that Triton received preferential treatment in the allocation of storage space at the KOSF.
During questioning, Mr Joel Mburu, who was pipeline coordinator, said complaints about the storage space allocated to Triton by other OMCs began at the end of 2005 and extended to early 2006.
“The issue led to the establishment of an Allocation Committee set up by the OMC’s to regulate the allocation of storage space amongst themselves,” Mr Mburu told investigators.
Mr Devani knew that his company did not have the market appeal and penetration needed to sell all the petroleum he was now able to import.
He started approaching and selling his imported products to other OMC’s through a process known as inter tank transfers. This way, there would be no transport costs as the only thing that changed is the ownership records at KPC.
Interestingly, the open irregularity in allocation of storage space at KOSF, the inter tank transfers and the heat they generated never sprang the management of KPC to action over the scandal that was taking place just below their feet.
But with the unfair advantage his company was getting on storage space at KOSF and petro-dollars flowing in from the London-based Glencore Energy, Mr Devani did two things that would make him one of the most dominant players in the local petroleum industry.
First, Triton made a joint bid with Total to supply KenGen with diesel for its thermal power production plants. The two companies won the tender in 2006. Triton then signed contracts with more banks to finance its imports.
With these two moves, everything that could go wrong about the Triton scandal had been set in place. From here, it would be a quick climb uphill to unimaginable wealth, power and influence and then downhill for Mr Devani.
