9 May 2017

Kenya: 70 Oil Firms At Risk of Losing Licences

Seventy oil marketers risk being kicked out of business as it emerges that they have failed to comply with licensing requirements that should ordinarily enable them to import and transport petroleum products in Kenya.

The fate of the companies, including some top international brands, remains misty amidst a controversy pitying two energy parastatals with Kenya Pipeline Company (KPC) threatening to kick them out for noncompliance, while the Energy Regulatory Commission (ERC) denies existence of rogue players.

This puts into question the integrity of oil marketing process into the country as it emerges that more than half of the players are operating outside the law.

The KPC in a letter addressed to the 70 oil marketers accused them of failing to maintain the minimum oil fill required as well as failing to renew their permits.

"We note that you have failed to obtain and /or renew your licence that allows you to conduct business of importation and transportation/storage of petroleum and storage of petroleum and petroleum products. We hereby issue you with a ninety-day notice to ensure compliance failure to which we shall take the necessary steps in accordance with Transportation and Storage Agreement (TSA) without further reference to you," read the letter signed by KPC managing director Joe Sang'.

Oil marketers are required to have a valid licence from the sector regulator to participate in the open tender system through which Kenya imports fuel every month.

Top dealers such KennolKobil and Total Kenya were addressed in the letter, which flips the veil on the little known on goings regarding oil marketing.

In a contrary rejoinder though, the energy regulator denied the existence of noncompliant companies saying no oil marketer can participate in importation of petroleum products into Kenya through the Ministry of Energy's Open Tender System without of a valid ERC licence.

ERC acting director-general Pavel Oimeke said the regulator gives an updated list, which is vetted before firms are allowed to import or get product allocations, meaning those outside the register are automatically locked out of business.

Checks and balances

"On a monthly basis, the ERC advises the Ministry of Energy and KPC of the validly licenced oil marketing companies and this is what is used for ullage/capacity sharing and import planning. It, therefore, means that an oil marketing company without a valid licence is automatically locked out of the system and cannot trade," Mr Oimeke wrote back in response to queries by Smart Company.

While KPC said their compliance had revealed up to 87 oil dealers had not complied to Energy Act on ERC licensing and minimum line-fill volume, the regulator insists that only 80 firms are actively participating in the Kenya Pipeline system further adding to the mystery of who the others are.

Line-fill volume refers to the minimum product oil marketers are required to maintain in the system. It is the equivalent of the minimum capital requirement for banks.

Failure to keep the minimum volume may hurt product flow from Mombasa given that it may take way longer for products to be pushed in a relatively empty pipeline.

The current pipeline network holds at least 97 million litres as line fill, but more will be required when the new 20-inch pipeline form Mombasa to Nairobi with a flow rate of 1 million litres per hour begins operating in August.

"Our records indicate that you are in contravention of Clause 2.3 of the Transportation and Storage Agreement on uilising KPC's system to contribute a minimum line fill of 1000m3. We note that you have deliberately refused and or neglected to comply with this requirement," KPC told oil marketers in the March 30 letter.

A KPC insider who sought anonymity said the firms operating outside the rules are fond of speculating for higher prices and are only active when prices are higher.

Some of the firms are also suspected to be players in the adulterated fuel market which has threatened Kenya's supply market in the region.

Contacted for comments, oil marketing companies largely kept off the matter with the few who responded defending their compliance.

KenolKobil, which is the current market share leader said they had already advised KPC on how it was going to meet the new line fill after its market share on jet fuel went up.

The firm's group managing director David Ohana said the changes in their minimum requirements is a normal occurrence in the industry shifting with each change on market share.

Key officials

"The law on line fill has always been there and we have been given the three months to adjust our line fill which we are already working on. It does not happen in a day, but we have arranged how to meet the requirement. We have always complied with the requirements," Mr Ohana told Smart Company.

Total Kenya sales manager Gerald Matola promised to get back, but was yet to do so by the time of going to press.

Supply, operations and trading manager from Trojan International Limited Abdi Hussein said although the firm was not in compliance with the line fill requirements in March, it has since complied. He blamed the delay of licensing on ERC whose officials were away when they had sought the renewal.

Kencor Petroleum Limited, which was suspended from the OTS in June after a botched importation of aviation fuel threatened to ground the industry in June 2014, was among those warned in the KPC letter.

The firm has since returned to the OTS, participating as late as last month according to ERC data.

Other companies addressed in the KPC letter include, Oryx Energies Kenya, Petro city Energy, Oil City Ltd, Petro Oil Kenya, Intoil Kenya, United Energy and Gulf Limited.

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