A Kenol/Kobil fuel station along Koinange street in Nairobi. Kenya Pipeline Company has been ordered to pay KenolKobil Sh4.6 billion for contravening a transportation and storage agreement. File
Kenya Pipeline Company has been ordered to pay KenolKobil Sh4.6 billion for contravening a transportation and storage agreement.
An arbitrator, Mr Ahmednasir Abdullahi, explained that the award was damages for loss of consumer goodwill, cost of public relations, marketing campaign and loss of financial goodwill. Mr Abdullahi, a lawyer and former Law Society of Kenya (LSK) chairman, accused KPC of allowing the fallen Triton Petroleum Company to use its facilities to store oil products “in the process reducing the ullage available in the industry.”
According to the contract, KPC was not permitted to extend to any other party the usage of its systems in the transportation, storage and delivery of the oil products apart from KenolKobil. The arbitrator said in his ruling that KPC breached some fundamental provisions of the contract signed between the State corporation and KenolKobil.
The oil marketer moved to court in 2006 accusing KPC of failing to facilitate the berthing of various ships carrying its petroleum products worth Sh9 billion occasioned by the failure to allocate it storage space.
Allocation of storage space at the main storage facility at Kipevu Oil Storage Facility (KOSF) has been marred by irregularities leading to mismanagement of the fuel storage system. A number of oil companies in the industry have moved to court accusing KPC of similar contractual breach in the Triton oil scandal. Total Kenya and Kenya Shell are fighting for various awards in the arbitration court against KPC.
Kenol/Kobil complained that Triton, amongst other companies, occupied more than its allocation, forcing ships to queue offshore before discharging their products. The Kipevu facility is normally used for short-term storage before pumping upcountry, and failure of ships to evacuate on time leads to delays in pumping.
The arbitrator allowed a counterclaim of Sh1.6 billion filed by KPC but which was offset with the lump sum awarded to KenolKobil. The three-year-old arbitration proceedings were initially handled by Mr Nzamba Kitonga who quit recently following his appointment as chairman of the Committee of Experts on the constitution review.
During the earlier court proceedings KenolKobil had sought court orders to attach KPC’s three terminal depots in Nakuru, Kisumu and Eldoret to realise the Sh1 billion security awarded by the arbitrator. The dealer had asked the court to grant them orders to sell KPC’s assets to satisfy the interim court decree.
But KPC through Ochieng’, Onyango, Kibet and Ohaga Advocates, objected saying the marketer had neither sought nor obtained approval of the tribunal to move to court as required by provisions of Section 18(2) of the Arbitration Act, 1995.
KenolKobil managing director, Jacob Segman, in a sworn statement, had alleged that KPC was likely to suffer huge losses following claims in excess of Sh7 billion made by various creditors against them and which they were unable to enforce. While demanding that KPC produce the guarantee, Mr Segman claimed the government would undertake to pay on its behalf any decree made against them, KPC being a State corporation.
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