Stalled Mombasa, Nairobi pipeline set to overshoot Sh43bn budget

The construction of the new Sh43 billion Nairobi-Mombasa petroleum pipeline has run into strong headwinds, raising fears of potential losses to the taxpayer through cost inflation.

Concern over the project’s health has risen in recent months as it became clear that work has fallen way behind schedule, closing January at 35.73 per cent against the set target of 98 per cent.

Official documents show that construction work should have closed on February 9, but KPC said the contractor has been granted an extension and is now working with a September 30 deadline.

Kenya Pipeline Company (KPC) spokesman Jason Nyantino blamed the missed deadlines on protracted legal battles by firms that lost bids for the contract and delays in securing the National Construction Authority waiver.

“Delays were also occasioned by long discussions with vendors to complete order placement and final construction drawings as well as delivery of long lead items due to the manufacturer’s production schedules,” Mr Nyantino said.

A consortium led by Lebanon’s Zakhem was on July 1, 2014 awarded the contract to build the new 20-inch multi-product pipeline to replace the existing one, which was constructed by the same company in 1978.

KPC set August 11, 2014 as the commencement date for the project – popularly known as “Line 1 replacement” with a construction period of 18 months with the assistance of Shengli Engineering and Consulting Company of China.

The project’s scope also included construction of four new mainline pumps in Changamwe, Maungu, Mtito Andei and Sultan Hamud and two booster pumps in Kipevu. Zakhem was also expected to upgrade KPC’s fire fighting system at the Jomo Kenyatta International Airport and at the Nairobi terminal.

Execution of the project has, however, fallen off the set timelines, triggering concern over potential cost inflation.

“From the foregoing, the project clearly missed milestones and key deliverables which are characteristic of distressed projects. After analysing the situation, KPC saw the need for change of strategy in order to critically monitor and improve on performance of the contractor and progress to ensure it is completed by September 30, 2016,” KPC said as it announced plans to hire a new contractor to monitor and audit the work.

“One of the strategies KPC has taken is to engage an independent project management company (PMC) to strengthen the engineer’s project management office by offering advice to the engineer and the employer,” KPC said. Mr Nyantino said the contract signed with Zakheim provided for management of the project by an independent firm appointment by KPC.

KPC said its decision to hire a project manager was meant to recover lost time and put back on track a government-backed plan to stabilise supply and pricing of petroleum products in the domestic market.

The bigger and more reliable pipeline connecting the port of Mombasa and the capital Nairobi, which accounts for up to 60 per of the country’s petroleum consumption, is key to achieving that goal.

KPC last Thursday kicked-off the search for an independent firm to manage and conduct a forensic audit of the distressed project – giving the first public signal yet that all was not well.

The audit will also assess the performance of the contractor and prepare progress reports, including monitoring adverse delays in payment as they relate to project milestones for prompt action.

Stabilising supply

“The project management company will be hired to undertake the above roles for a period of 12 months; six in the construction phase of the pipeline and related facilities and six in the Defects Liability Period (DLP) of the project up to close out of the project review post-project appraisal,” KPC said.

Construction of the new pipeline is considered critical to stabilising Kenya’s petroleum products supply and ultimately their pricing with consumers as the main beneficiaries.

Currently, a significant portion of the imported oil products are transported by trucks -- a slow and unreliable route that also damages the country’s roads.

Construction of a new pipeline has become imperative to Kenya’s energy needs in the wake of frequent breakdowns that have lowered its value as the main channel for distributing a resource that effectively runs the economy.

Sections of the 14-inch pipeline have suffered major corrosion, leading to partial blockages as well as weakened seams, a recent inspection revealed.

READ: Pipeline will take longer to build, cost more

A consortium, led by India’s Prashanth Project Limited, has started expanding KPC’s fuel terminal in Nairobi at a cost of Sh4.8 billion. The expansion is meant to enable the facility to hold more petroleum products ad the country awaits completion of the new pipeline.

The consortium comprising Prashanth and Kenya’s Nyoro Construction won the contract to build four storage tanks with a capacity of 133.52 million litres – equivalent to 22 per cent of KPC’s total capacity of 612.32 million litres within 24-months.

The Nairobi terminal with a capacity of 100,528 cubic meters is currently the second largest after the Kipevu oil storage facility that holds 326,333 cubic meters of petroleum products. Kenya has no strategic petroleum reserves and relies solely on oil marketers’ 21-day oil reserves set by industry regulations making the upgrade critical to securing the country’s energy needs.

Much of the refined oil has to be trucked to neighbouring land-locked countries, meaning extra expense for consumers. Road transport is slow and unreliable due to the breakdown of trucks and damaged roads.

Also read: KPC targets counties in new distribution network expansion

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