Cracks are emerging in the boardroom of Kenya Pipeline Company (KPC) over whether the firm should have initiated the recruitment of a new managing director without a fully reconstituted board that includes Uganda’s representatives.
KPC’s board last week put out an advertisement seeking to recruit a managing director following the resignation of Joe Sang, just weeks after the company’s shares started trading on the Nairobi Securities Exchange (NSE).
Mr Sang left amid a fuel scandal that saw three senior public officials step down. The company’s chief finance officer, Pius Mwendwa, is the acting managing director.
However, a section of the board warned the largely Kenyan boardroom against beginning the process of replacing Mr Sang, noting that such a move would be against the revised articles of association.
The articles were revised in the middle of KPC’s initial public offering (IPO), which ran from January 19 to February 24, when the offer struggled to meet fundraising targets for the government’s 65 percent stake sale.
Under the revised articles, Kenya gave Uganda concessions, including two board seats in the firm after the neighbouring country threatened to walk away from the IPO because of lack of authority in the running of the firm.
Uganda also got the right to veto future hiring and firing of the firm’s CEO.
Five of KPC board members expressed discomfort in proceeding with the hiring of the CEO before Uganda’s representatives are appointed as directors, said a member of board who spoke on condition of anonymity.
The Business Daily has seen correspondence of the full board, chaired by Faith Bett Boinnett, where part of the minutes indicates that nothing stops the board from initiating the hiring of the CEO, noting that Uganda’s directors will have their say once they join later.
Ms Boinnett did not respond to our questions on whether or not the advertisement was legal and procedural.
The Treasury had also not responded to our questions on whether it was consulted before the advert went out.
It is a move that has incensed Uganda, as it expected its input on the hiring process to be sought.
Besides the approval of a director appointed by Uganda, the revised memorandum of association also requires that the recruitment of KPC’s CEO, as well as any redundancy exercise, receive the nod the Cabinet Secretary for the National Treasury (CST).
‘So long as the CST and GoU are eligible to nominate a CST director and a GoU director respectively, the following matters shall require the approval of a CST director and a GoU director:…(a) the appointment of the managing director,’ reads Section 21 of the memorandum of association.
The section adds that the two directors should also be involved in ‘the appointment or removal of the chief executive officer, where such office is distinct from that of the managing director.’
Following the IPO, which saw the Kenyan government offload a 35 percent stake in KPC, with Uganda playing a major role in the success of the sale by snapping up shares worth Sh20 billion, the petroleum logistics firm was converted into a publicly listed company and is now governed by a revised memorandum of association.
However, Uganda is yet to be invited to the board despite having notified Kenya of its representatives, said a source at KPC.
KPC stopped being a government-owned entity on April 22, after it officially converted into a public limited company (Plc) through a gazette notice. This means that the board as presently constituted does not represent the new shareholders as they were all appointed by the Kenyan government, said a source.
The Kenyan government sold a 65 percent stake in the pipeline company, raising Sh106.3 billion in what made the transaction country’s first major IPO in nearly two decades. The government retained a 35 percent stake.
Other Kenyan and regional institutional investors had a combined 20.85 percent shareholding while KPC employees have five percent.
Uganda, through Uganda National Oil Company (UNOC), emerged as the single-largest non-government shareholder after acquiring a 20.15 percent strategic stake worth about Sh20 billion.
‘The board therefore lacks the mandate to transact any business, to make any decisions or make any approvals because they are in office illegally and contrary to the memorandum and articles of association of the company,’ said the source, adding that all the decisions made after the gazette notice are illegal and null and void.
It has also emerged that the representative from the Attorney-General’s office, who would have guided the board on the law, has since been dropped, leaving five independent directors with an outsized role in driving the recruitment of KPC’s first post-IPO CEO.
KPC has also announced the exit of some executives in a major reshuffle of the firm’s leadership following its listing on the Nairobi bourse.
Uganda will invest and hold a strategic stake in KPC through UNOC, the state-owned oil company that imports fuel to the landlocked Uganda.
The country says its participation in the IPO was a deliberate strategic decision aimed at strengthening regional energy co-operation and safeguarding national interests.
The push for Kampala’s bigger say in KPC affairs comes less than two years after Kenya allowed the landlocked country’s state oil firm to import petroleum products through its port of Mombasa, ending a row between the two neighbours.