Uganda: Kenlloyd-Logistics Loses Fuel Deal

THE Uganda Procurement Authority has directed the energy ministry to re-tender the procurement of fuel to restock the Government's oil reserves in Jinja.

The Public Procurement (PPDA) and Disposal of Assets Authority and Parliament halted the murky sh45b deal awarded to a local company Kenlloyd-Logistics (U) Ltd early this month, citing several flaws in the procurement process.

Kenlloyd-Logistics was awarded the contract to restock the Government's strategic oil reserves in January. The company, registered in 1997, deals in logistics and commodities and only started dealing in petroleum in 2003, but beat big oil companies to clinch the deal.

The probe report says there was no evidence of the post-qualification to ascertain the capacity of Kenlloyd-Logistics. Which created uncertainty about the implementation of the contract. "The authority recommends that the accounting officer re-tenders the procurement for the fuel for the Government reserves to mitigate risk and ensure sustainability of the supplies," the report read.

The report calls for disciplinary action against the Commissioner Petroleum Supplies Department, Ben Twodo, for flouting the provisions of the PPDA Act and usurping the powers of the accounting officer and the contracts committee.The report also wants the members of the contracts committee cautioned for failure to correct the anomaly caused by the commissioner. The procurement authority has also cancelled the waiver granted to the energy ministry to use the restricted domestic bidding method, saying the ministry abused the waiver.

PPDA said the energy ministry sought for a waiver from the authority to use the domestic restricted bidding method after the procurement process had commenced. "The authority treats this as a fraudulent practice as defined under the PPDA Act, 2003. PPDA therefore revokes the waiver granted to the entity to use the restricted domestic bidding method in this tender since it does not grant retrospective approvals," the report further read.

The report noted that the procurement method used was not approved by the contracts committee contrary to Section 79 (2) of the PPDA Act, which states that the choice of the procurement or disposal method shall first be approved by the contracts committee.

During the investigation, the chairman of the contracts committee, Ernest Rubondo, said his committee had noted the inadequacy of the bidding document which lacked vital information, but had resolved that considering the fuel crisis at hand, the ministry should proceed with the procurement.

The contracts committee and procurement and disposal unit only got involved after invitation of bids. Given that the estimated value of the supplies exceeded about sh50m the open bidding method of procurement should have been used. However, the energy ministry did not apply to the PPDA for a deviation. It also stated that Twodo issued an invitation to bid, on behalf of the Permanent Secretary (PS), without the prior approval of the then acting PS William Luwemba Apuuli, contrary to the PPDA Act.

According to the report, the petroleum supplies department played the role of the accounting officer, contracts committee and procurement and disposal unit and therefore the invitation to bid issued to bidders was irregular in law. The PPDA report said other bidders were treated unfairly when the ministry allowed Kenlloyd-Logistics to have the backing of a third party - Vitol Group.

On January 23, Vitol Group communicated to the Accounting Officer, Ministry of Energy, confirming their intention to supply oil products to Kenlloyd-Logistics for the volumes tendered out by the ministry. "It should be noted that post-qualification in respect of ascertaining capacity of the supplier should go further than sending mails," the report said.

The investigation established that there was no post-qualification conducted to ascertain the capacity of Kenlloyd-Logistic which creates uncertainty about the implementation of the contract. PPDA points out that the ministry also ignored the concerns and directives of the ministerial sub-committee on economy and went ahead, negotiated and awarded the contract to Kenlloyd-Logistics.

In a January 31 memo to the PS, the ministerial sub-committee was disappointed over the award to only one supplier with no demonstrated financial and logistical capacity in the industry for a big supply. According to the report, the procurement should have been handled in lots, given the magnitude of the procurement.

However, the petroleum commissioner ignored the advice from contract committee for a re-tendering of the procurement. The report further points out that the negotiations held with Kenlloyd-Logistics on the fuel price which increased the contract price from $25m to $26.4m were irregular in law. The Procurement Authority said the upward price adjustment would mean that in the event that Rift Valley Railway continued to adjust its prices, the Government may have to bear the increment.

The bidding document lacked preliminary, technical and financial evaluation criteria, a requirement for a bid security. In addition, a waiver from the PPDA to use the different bidding document was not sought as required by the regulations. The report states that the contracts committee did not approve the bidding document and that the procurement and disposal unit did not prepare and issue the bidding document contrary to Section 31 PPDA Act.

The Ministry of Energy has 55 licensed oil companies, but only invited 39 oil firms to bid. The report says it was not clear what criterion was used to invite the companies. Uganda is at a risk of continued fuel shortage if the Government does not find a solution to the depleted oil reserves in Jinja.

Findings, recommendations of the probe report

There was no post-qualification conducted to ascertain the financial and logistical capacity of Kenlloyd-Logistics.

The ministry ignored the concerns and directives of the ministerial sub-committee on economy and negotiated and awarded the contract to Kenlloyd-Logistics

The Ministry of Energy has 55 licensed oil companies but only invited 39 oil firms to bid.
Kenlloyd-Logistics, registered in 1997 deals in logistics and commodities and only started dealing in petroleum in 2003. How then did it beat big oil companies to clinch the deal?

The procurement for the fuel for the Government reserves should be re-tendered to mitigate risk and ensure sustainability of supplies.

Members of the contracts committee should be cautioned.

The waiver granted to the energy ministry to use the restricted domestic bidding method should be cancelled because the ministry abused it.