14 May 2013

Kenya: Nock to Buy Big U.S.$298 Million Rival Oil Firm

STATE owned National Oil Corporation of Kenya has proposed to take over a rival oil company for Sh25.5 billion (US $300 million).

Internal documents for 'Project Chui' state, "It has now come to the attention of the corporation that a leading oil marketer in Kenya with over 160 petrol stations countrywide as well as distribution infrastructure including storage facilities, LPG filling plants, among others, is intending to exit the market."

It is thought that this can only be loss-making Kenol-Kobil whose sale to Swiss based Puma Energy fell through earlier this year. The other major oil marketer is Shell but it has recently been sold to Vivo Energy.

It is thought that the decision to single-source a transaction adviser for Project Chui may have sparked off the recent boardroom wars. With a 1 per cent standard transaction fee, an adviser could be paid Sh255 million.

The transaction adviser will be expected to help in raising the Sh25.5 billion finance from the market. NOCK internal documents indicated that the Tender Committee has been requested to directly procure transaction advice from Standard and Mutual, according to an internal memo from NOCK 's procurement manager to the finance manager dated May 10, 2013.

NOCK is pursuing an aggressive retail expansion programme across the country.

"The exit by this leading oil marketer would present an excellent opportunity for National Oil to acquire these assets and achieve faster growth," the memo adds.

The state oil company currently has 102 stations and has been targeting 200 outlets by end of 2015 with a market share of 15 per cent. It started with six stations in January 2007.

Managing director Sumayya Athumani was unavailable for comment yesterday.

The memo argues that the purchase "will ensure that the Corporation has sufficient footprint to influence supply and prices."

"The petroleum supply crisis experienced on different occasions is testament to how the big oil marketers who have the biggest share of retail distributions assets can disrupt petroleum supply and cripple the country," states the memo.

In the memo, NOCK's finance manager Kamau Mugenda defends single sourcing Standard and Mutual, a local financial advisory firm based in Nairobi.

"Only a limited number of advisory companies can handle this size of transaction," states Kamau. KPMG was ruled out because it is NOCK's present external auditor and was "the transaction advisers for one of the companies that shown interest in acquiring the business of the said oil company".

"PWC has been a long term auditor of the said oil marketing company while Deloitte was adversely mentioned during the infamous Triton saga. Ernst and Young has not had a strong record of handling large transaction advisory assignments in Kenya," states the memo.

CFC Stanbic and CBA were dismissed because "being primarily banks... they may want to skew the transaction in favour of finance coming from them."

"It is National Oil's considered opinion that Standard and Mutual would be a more objective transaction adviser for this project," the memo concludes.

"The services are required urgently as National Oil has received a narrow engagement window with the vendors to discuss and conclude this transaction," the Finance Manager states.

KenolKobil reported a Sh8.96 loss before tax for 2012 from a Sh4.9 billion profit recorded the previous year. Since the Puma deal collapsed, the KenolKobil share price has dropped by 22 percent.

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