Blame game as crude oil battles intensify

Last Thursday’s meeting between oil industry players and the parliamentary Committee on Energy was historic in the sense it was the first time marketers and the government played out their well documented battles in public.

The meeting was marked by a lot of finger-pointing and buck-passing, with a host of accusations bubbling from both the private oil marketers and the Energy ministry alongside its agencies.

But what emerged is that when all is said and done, Kenya lives from hand to mouth when it comes to the importation and consumption of petroleum products.

It means that any change in the price of crude oil is felt instantly in the country.

“Kenya being a net importer of oil products and not having strategic stocks is directly impacted by any movement of international oil prices,” the marketers said in a report prepared for the meeting.

This happens because of a combination of factors, key of which is the fact that there is only one jetty— a facility for emptying oil from a ship onto onshore storage- at Kipevu in Mombasa.

The jetty can only handle 85,000 tonnes of oil, resulting in a perpetual long queue of ships waiting to be off-loaded.

An average vessel carries one million tonnes of oil, which take approximately 14 days to offload at the single jetty. This translates into a long wait, not only for that one vessel, but for those that will be queuing behind it.

Costs incurred by the long wait — demurrage — are passed on to the customer, especially by the private marketers out to make a profit.

The lack of storage capacity and the fact that the government has never established a strategic oil reserve, which would cushion consumers from the impact of changes in the price of crude oil, have contributed to this problem.

Strategic oil reserves

Among the government’s long-term proposals for interventions that would cushion the consumer from price changes is the development of strategic oil reserves along the lines of the State-controlled Strategic Grain Reserves.

Energy permanent secretary Patrick Nyoike said the National Oil Corporation of Kenya has been commissioned to develop a national Strategic Petroleum Reserve, and plans to do this were being developed.

NOCK does not receive direct funding from the Treasury, said Energy minister Kiraitu Murungi, but board chairman Peter Munga said the organisation would easily generate the money needed for the establishment of the reserves.

“We are intensifying efforts to forge international partnerships particularly with oil-producing countries aimed at reducing the cost of both crude and refined oil,” said Mr Munga.

“We are seeking access to affordable local financial resources to enable NOCK create ample storage,” he added.

Mr Nyoike told MPs the National Oil Corporation of Kenya would also commission a feasibility study for the establishment of an offshore jetty.

The offshore jetty would not only handle larger vessels but also reduce the time it takes to offload oil.

NOCK underwent a revival of sorts with the appointment of Mr Munga, who is better known for his role in the growth of Equity Bank, as chairman of the board in 2006.

The organisation had been a sleeping giant since the liberalisation of the oil sector in 1994, when it lost its mandate to import 30 per cent of Kenya’s fuel.

Its role in the industry - to cushion Kenyans against the effects of an increase in fuel prices - had remained peripheral till then as it had managed to put up only six petrol stations countrywide and build a measly 2.1 per cent of the market share. It could at that time hardly make an impact.

Its fortunes have turned around and it currently commands seven per cent of the market share, which is handled through 74 petrol stations.

This has mostly been through acquisitions of former BP and Somken outlets, leasing as well as franchising, making it possible for formerly independent fuel marketers to acquire branding as well as quality fuel from NOCK.

Its finances have also improved vastly since then and the corporation reported that its revenue this year would possibly hit the projected Sh18 billion.

Its sales volumes have also increased steadily from Sh3.1 billion in the 2005/2006 financial year to Sh9.17 billion in 2007/2008 and Sh14.9 billion in 2008/2009.

The Sh18 billion turnover prediction this financial year is based on the Sh9.5 billion half-year result.

According to Mr Nyoike’s presentation at the meeting, NOCK’s ability to sell fuel at cheaper rates than the private businessmen will be enhanced with the establishment of additional fuel storage points.

These will be built in Mombasa, Mtito Andei, Konza, Nairobi and Nanyuki, with a tender set to be floated soon, so that they are established by June.

Ease transport costs

The establishment of the storage points, which will be carried out via a public private partnership, is also aimed at easing transport costs for the oil marketers.

The company is now capable of importing 30 per cent of Kenya’s fuel as required by the law, although the other marketers dispute this.

This has sparked a long-running dispute over a consignment of diesel the marketers insist was charged using the wrong price and are therefore not ready to pay for.

MPs at the meeting also questioned the long delay in the recruitment of a managing director to replace Mr Mwendia Nyaga.

It is understood that the next round of interviews for short-listed candidates will be this week, and Mr Murungi promised a new MD would be in office in the next two weeks.

According to Mr Munga, an able managing director is needed to enable the organisation fulfil its mandate.

“NOCK has embarked on a serious path to stabilise the national oil industry as part of realising Vision 2030. We need to immediately appoint an efficient managing director to steer this grand agenda,” he added.