Very strange things are happening in the oil sector. On February 14, the State-owned National Oil Corporation of Kenya (Nock) sent out a note to the industry informing them that a ship by the name Volga Tanker with 62,000 metric tons of petroleum products would be arriving in Mombasa on February 26.
That consignment was to be shared by all companies under the so-called OTS arrangement. As is the practice, oil companies checked in international marine registers to establish whether such a ship was, indeed, headed for Mombasa with the said products.
The search showed that the ship did not exist in any register. Volga Tanker was a phantom ship. There were even reports that this specific ship had been scrapped for metal as far back as 2004 in India. Absolutely incredible, to say the least.
Pressed by the industry, Nock said it had nominated another ship by the name MT Adden to deliver 25,000 metric tons between February 17-19. MT Adden did not show up in Mombasa.
At one stage, the industry was given the name of another vessel by the name MT Ratna Sheruti. It did not deliver either.
On February 24, Nock revised the vessel’s nomination for the fourth time, now advising the industry that the performing vessel would be a ship known as MT Ratna Namrata. It finally brought 55,000 metric tons, arriving in Mombasa on March 1.
What happened is an illustration of what obtains when you allow a State-owned firm run by political appointees to participate in such a high-risk business .
With Nock yet to build a full-fledged trading department of its own, a perfect opportunity had been opened for sharks with friends in high places to exploit the situation.
That is how we have ended with this sensational tales of phantom ships, brief-case traders, and oil trading deals gone sour.
I like the way the permanent secretary in the Ministry of Energy stepped in with alacrity to float an emergency OTS tender in order to cure the cock-up by Nock. Someone must be made to account for these phantom ships and brief-case middlemen.
When Nock sent invoices to oil companies asking them to purchase their share of the 55,000 tons consignment on March 2, it sparked a bigger controversy.
Oil companies cannot agree with Nock on what they call ‘‘the applicable month of pricing’’. They say the price at which Nock has invoiced them is way above the price at which the oil company was awarded the OTS tender in February.
They have threatened to boycott the consignment, saying the new prices amount to an additional Sh3 per litre at the pump.
In the past, when the market was liberalised, they could have simply passed on the extra cost to the consumer. They don’t have that choice right now as pump prices are regulated.
If the boycott is effected, there will be no space to accommodate other imports. The stage has been set for disagreements over the distribution of ullage space at both the Kipevu Oil Terminal and the oil pipeline. The controversy will spill over to the next OTS industry tender in April.
This thing could precipitate a major crisis in the whole supply chain whose ramifications will be felt across neighbouring countries of Uganda, Rwanda, Burundi and parts of DRC.
We need to look afresh at Nock’s role in the oil industry. Oil trading is a high-risk business. Among the majors, trading is handled by full-fledged departments staffed with experienced people.
I am not against the idea of Nock playing the role in the market. Let’s not give it more than it can chew. The financial exposure involved is just too high.
As it is, the parastatal has borrowed billions of shillings from a syndicate of commercial banks for working capital to finance crude oil imports.
Technically, these loans are not guaranteed by the Treasury. But they remain contingent liabilities on the government’s books. It’s the taxpayer who is exposed.
I can’t claim any authority on the working of OTS rules. What I know is that any system that allows a player to alter the prices of a competitive bid is flirting with disaster.
This controversy could unravel the whole OTS arrangement. Everybody must be made to play by both the letter and spirit of the rules.