Tight purse strings choke small oil firms

• After fall of Triton with billions in debt, banks unwilling to lend to minor players

The government has made it mandatory for all imported oil products to be discharged at Kipevu Oil Storage Facility (KOSF) in Mombasa while OTS has facilitated efficient data collection at national level.

PDC said price charged to buyers is obtained from a standard cost build up that reflects various elements and the only variable that is subject to competitive bidding process is the freight and premium.

“The company with the lowest bid wins the tender to import the crude oil, finance the import and have it discharged into KPRL tanks in Mombasa and raise invoices to buyers for their respective shares,” said PDC.

Unit price charged is the same for all buyers irrespective of quantity bought and this translates to a common cost structure. The title to crude oil is transferred only after a buyer has paid for their share of the cargo to the importer in full.

Payment for OTS crude oil is due 20 days from Bill of Lading date. Late payments attract hefty penalties in form of 8 per cent interest above base rate.

Any buyer who has not settled their dues is declared to be in default after the 50th day and risks losing their oil trading license apart from being disallowed to participate in future OTS tenders.

Mr Wachira said an importer approaches a bank for a letter of credit facility, secured under the normal bank loans and credit facility and is often on balance sheet.

“Most major oil companies give support to their affiliates by trading cargoes on open credit terms subject to tight remittance schedules,” he said.

Oil majors absorb over 80 per cent of quantities imported under the OTS. The risk of default is on small organisations.