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Tuesday, March 03, 2009

Kenya Pipeline Company - Bankrupt?

KPC has (or will) have lawsuits amounting to a minimum of Kes 7,000,000,000 filed against them in the next 3 months and all related to the triton case. And this does not include Kenol-Kobil's Kes 3,000,000,000 claim against KPC. Indications are that Kenol (very smart folks) will probably win at least Kes 1,000,000,000 against KPC as KPC's inefficiencies & goofs are revealed in the first group of cases.

All said and done, the Government of Kenya will have to either bail out KPC by:
  • Providing payment guarantees to the banks & other financiers (taxpayers' cost if funds not recovered from Triton/Devani/Cronies).
  • Special bonds to KCB (& other firms) similar to bonds given to NBK.
  • Sale of KPC & proceeds used to pay-off the financiers.
  • Sale of shares in KPC to the Libyans or Chinese or Iranians.


Mine is simple & elegant (IMHO) based Information as I understand it.

1) Negotiate an out-of-court settlement as to who owes who what. KPC - under the Collateral Management Agreement - is liable to the financiers & Oil Marketers to store, safeguard & deliver the fuel products. A negotiated settlement is cheaper & faster than a protracted court case. It is also less distracting for KCB & KPC so they can concentrate on the business not lawsuits. This settlement shows good faith to foreign financiers as to the will to sort out the problem.

IMMEDIATE ACTION: Sack all 'decision-makers' at KPC & Ministry of Energy (yes, including kiraitu murungi). Then arrest them, assemble evidence & take them to court. (This is under the ideal situation but corruption runs rife in the Kenyan government & unlikely to happen).

IMMEDIATE ACTION: KCB (& GoK) should go after yagnesh devani & his cohorts. All of triton's (& devani's) assets in Kenya should be sold asap (TRANSPARENTLY) to recover as much as possible. Of course, if GoK pays KCB as shown above then the stations/properties belong to GoK.

2a) KPC should be fairly valued without the Triton liabilities.

2b) KCB's Kes 2bn loan should be converted into a long-term loan to KPC secured by KPC's assets.

2c) KCB should undertake to pay off the other financiers but get KPC shares in exchange for the undertaking. A Repurchase Agreement (repo agreement) would allow GoK to buy the shares back. This would be an asset (unlisted shares) for KCB. GoK may remain a shareholder depending on the extent of the assets/liabilities & intrinsic value of KPC.

2d) CBK might be involved since the above actions will require a few 'exception' for KCB considering asset ownership & lending to a single entity. These are trying times & require out of the box solutions.

2e) KCB can either pay off the other financiers - of course, this would be negotiated - or negotiate the payables as a 'loan from other finance institutions'. It is a liability for KCB but 'safer' for the financiers.

2f) KCB & the other financers would drop the lawsuits against KPC.

3) KCB should be allowed to package & sell the income+assets from KPC to other banks or investors but under the repo agreement. Essentially, it is a syndicated loan.

4a) KCB would hire competent managers to run KPC as a private firm.

4b) In the meantime, GoK (in conjunction with KCB) should 'prep' KPC for eventual privatisation. This means clean out the rot. Fire inefficient or unqualified staff. Enact better policies, regulations & laws. Complete the expansion plans. Complete the pipeline capacity enhancement.

5) Once KPC is stabilised, GoK should arrange for the sale of shares KCB 'owns' in KPC (at least 75%) to the Kenyan public through the NSE, to enable KCB recover its cash. After KCB has been repaid all its dues (under the repo agreement) by GoK, the balance of shares, if any, would revert to GoK.

6a) I think Kenol has a good case against KPC. Therefore, KPC/GoK should settle with Kenol to prevent any disruption in the oil market as well as provide confidence to foreign financiers.

6b) Sell triton's assets (TRANSPARENTLY) to pay off Kenol. Any outstanding balance owned to Kenol above & beyond that should be provided as 'tax credits' i.e. Kenol can use the tax credit to offset duties/taxes owed to GoK.

6c) Other firms that will accept tax credits include KCB, Total Oil & Shell Kenya. Of course, this all means lower (net) tax receipts for the GoK in the short-run but creates certainty to drive more business activity.


Anonymous said...

i think sometimes our zealousness about corruption blinds us o many thinks. There is corruption and there are poor business decisions.The more i look at this case the more i see poor corporate controls.overalli see here is this
1.KPC had poor cooperate controls
2. Triton made bad bets there whole business model was based on the price of petroleum rising (triton is just one of many commodity dealers hwo hav been wiped out)
3. ministry of energy lacks adequate controls over the sector or the sector lacks transparency

the question for me is it right to criminalize poor decisions ? is not that what contracts and civil courts are for

coldtusker said...

Anon: LOL. You are joking, si?

Poor decisions?

FRAUD is what caused the loss of the fuel stocks. I doubt some idiot left the valve open!

FRAUD is part of corruption. I betcha that folks at KPC & MoE got paid off to look the other way while theft was going on.

MainaT said...

CT-partly agree about the out of court settlement.
KCB-in my opinion needs to urgently go back to the drawing board on its credit approval process. It seems to lend to "funny" firms with GoK contracts. I don't think it can currently efficiently run a KPC-type operation.
My preference would be for a management contract with somebody who can run KPC efficiently.
Again, I think other financiers to KPC should do their own settlements for GoK.
Kiraitu should have gone a while back.
Sale of Triton assets needs to be carefully done

ke said...

You think the government is going to give a firm associated with Biwott money?

Kenol can take them to court all day long, but what if the government tells them, nope. We're not going to pay. What's kenol going to do? huh?

Kiraitu already claimed that he had asked interpol to look for devani. Who knows if it's true or not?

Why even bother talking about the enforcement of contracts in a country that has very weak rule of law system?

coldtusker said...

If Kenol wins, the government is liable - unless it is made law that they are not - and ultimately they will be paid.

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