Ministry releases fresh oil import rules

The Ministry of Energy and Petroleum has released new rules to guide importation of fuel under the country’s centralised purchase and distribution system.

Under the fresh guidelines, oil marketing companies willing to participate in the Open Tender System (OTS) are required to have been marketing petroleum products in the local market within the last two years.

Petroleum economist at the Energy ministry, Mr Joseph Wafula, told the Nation by telephone that the new rules have been adopted to lock out oil marketing companies that lack capacity to deliver on the tender requirements from participating in the OTS.

“We want to do away with companies that obtain licences just for the purposes of participating in the tender while they lack the required capacity. This situation has in the past led to huge losses in the industry,” he said.

Effective December 1, the guidelines also require winning bidders to provide a performance bond within four days after award of the tender.

The value of the performance bond is set at $20 per tonne. It will be cashed in the event of a default in cargo delivery.

“In the event that the performance bond is not submitted within the stipulated time, supplier shall be deemed to be in default and a fresh tender for the defaulted cargo shall be called by the ministry. The defaulting supplier shall subsequently be locked out of participation in the OTS,” read the guidelines.

FRESH REGULATIONS
The new OTS rules also prohibit closing or opening of tenders on Fridays or workdays falling immediately before public holidays but gives exception for emergency import declared by the Energy ministry.

Representatives of 44 oil marketing companies currently participating in the centralised tender system are expected to endorse the fresh regulations before they become effective.

Currently, bidders are required to name their financiers while importers are charged $2 per tonne if they default on delivery of specified cargo volumes. A tonne has 1,180 litres.

The new OTS rules have been adopted to salvage the fuel procurement and distribution system after past instances, where importers have defaulted on delivery, have left oil marketers in losses and disgruntled.

In June, Kencor, a company licensed by the Energy Regulatory Commission (ERC) for transit business but which has no known retail network in Kenya failed to deliver 52,239 tonnes of jet fuel.

124 MILLION LOSS

Kencor was supposed to deliver the fuel between June 12 and 14 but failed due to what it termed as “problems encountered at the port of loading.”

It is understood that oil marketers relying on this cargo suffered an estimated Sh124 million loss as a result of the default. Kencor is said to have agreed to compensate the affected marketers up to $900,000.

The situation led industry players to question the ministry’s decision to allocate the import tender to Kencor which they accused of negligence by informing them of the said challenges only two days from the cargo delivery window.

Three years ago, State-owned National Oil defaulted on delivery of diesel, a situation that left consumers to shoulder a $10 million bill incurred as a result of procurement of emergency and more expensive supplies to prevent a shortage of the product in the market.