How Epra lost fight to keep fuel marking job

As Britain’s Intertek Testing Services’ fuel marking contract was coming to a close in December last year, the Energy and Petroleum Regulatory Authority (Epra) placed an ad seeking bidders for the lucrative job.

Intertek, which had been marking fuel in Kenya since 2019, re-applied for the tender alongside other private firms SGS and Bureau Veritas Kenya. The state-run Kenya Bureau of Standards (Kebs) also responded to the tender call.

Intertek was ahead of the pack in the process with an overall evaluation score of 91.1 per cent, and was almost inking a Sh546.3 million deal when Epra suddenly cancelled the tender forcing it to seek redress from the Public Procurement Administration Review Board (PPRAB) citing unfairness.

The appeal by Intertek, however, exposed intriguing behind-the-scenes fights for control of the key role that eventually left the regulator with egg on its face.

Fuel marking is a method of authentication used to combat theft, smuggling or adulteration of petroleum products. It involves marking fuel with a unique chemical marker to ensure that fuel sold through the supply chain nationwide can be verified as having been sourced legally.

Confidential correspondence seen by Smart Business shows that Epra’s move to advertise the fuel marking tender sparked internal fights between government agencies that were finally settled in the Presidency’s Harambee House boardroom where the Interior ministry read the riot act and forced the energy regulator to cancel the tender and transfer fuel marking power to the Kenya Revenue Authority (KRA).

Epra’s resistance

According to the documents, an adamant Epra had long resisted plans by the government to have a centralised Integrated Product Marking and Authentication System (Ipmas) coordinated by the Interior ministry.

This initiative — backed by both the National Assembly’s Public Investments Committee and Attorney-General Kihara Kariuki — is aimed at eliminating costly duplication of roles of product marking and tracing by several State agencies.

At a meeting on August 17, 2021, with the heads of ministries, departments, and agencies (MDAs), the Interior Ministry said all product marking services would be transferred to the Excisable Goods Management System (EGMS) that is run by the KRA.

To allow smooth migration to the enhanced EGMS and Ipmas, the MDAs were requested to provide information on their existing systems for review to ensure they are well captured in the KRA system by September 10, 2021.

The Interior Ministry in an October 1, 2021 letter particularly asked Epra to nominate three officers to be part of a technical working group (TWG) whose main objective would be to provide information on its programmes on petroleum fuel marking, monitoring services, and liquefied petroleum gas (LPG) cylinder business that are all marked for integration under Ipmas.

Hesitant to join scheme

Records show that Epra officers participated in several meetings of the TWG on IPMAS at Harambee House but the agency remained hesitant on joining the scheme.

The resistance was captured in a November 2, 2012 letter by the Interior Ministry to Epra amid concerns that the regulator had only handed in partial information on its fuel marking programmes.

The ministry said Epra only presented its business needs in marking LPG cylinders and excluded the marking of petroleum and fuel products —underling the petroleum regulator's reservations for the State’s plans.

“It is further noted that Epra is seeking a service provider for the marking of fuel products. This process appears to go against the spirit of whole government approach envisaged under Ipmas whose national development technical implementation committee is already seized of,” the Interior ministry said in its November 2, 2021 letter to Epra.

“Against this background, therefore you are invited to a meeting on November 10, 2021, at 10 am at Harambee House fifth floor boardroom with a view to discuss the development and implementation of Ipmas,” it added.

Tender call

Despite the push by the Interior ministry, Epra went ahead and published a tender call for fuel marking services on November 9, 2021—catching the attention of the National Treasury which on December 6, 2021, wrote to all MDAs including ministries to prepare to migrate their marking and monitoring services to the enhanced Ipmas.

The memo by the Treasury sealed the fate of Epra, which now had no choice but to conform to the new government policy on centralised fuel marking and testing.

Cornered, Epra’s tender committee on December 28, 2021, informed bidders that the fuel marking tender had been cancelled.

Interestingly, both Epra and Kebs participated in the tender bid process even when they were fully aware of the State’s intentions to shift the fuel marking role to KRA — signalling deep-running sibling rivalry among government agencies involved in product marking and tracing.

Tellingly, in a December 17, 2021 letter to Intertek, Epra had expressed its intentions to extend the British firm’s contract dated January 2, 2019, for another three months to March 31, 2022, to “allow time for adequate consultations with other stakeholders in the national government on the implementation of the programme”.

This could suggest that Epra was bent on keeping its fuel marking role despite the push for a unified system under Ipmas.

Increased excise tax

But even as Epra licks its wounds, the KRA is set to savour glory of success with its enhanced role with the EGMS, which was first launched in 2013 on alcoholic drinks and cigarettes. The system helped increase excise tax from Sh91.8 billion to over Sh216.3 billion annually as of June 2021.

In 2019, phase II of its implementation began, which targeted bottled water, juices, energy drinks, soda, and other non-alcoholic drinks.

The system, which is installed in manufacturing plants marking goods as they are produced, has faced a lot of resistance with claims of internal sabotage and attempts to either avoid or rig the systems.

The second phase, for instance, faced various resistance tactics from the industry, and only started to mark and trace non-alcoholic beverages in November 2019, over four years after signing of the contract with the supplier.

Non-alcoholic beverages, now account for more than 70 per cent of the volume of products marked by the system.

As of May 2020, less than 50 per cent of the minimum volume of products covered in the contract has been marked due to the delays caused by industry resistance tactics.

In short, this has been a significant delay in expected revenue growth for the Kenyan government and in the recovery of the investments made by the supplier Swiss company SICPA.

And as the system continued to gain the confidence, of the authorities the taxman managed to convince the National Treasury that it could help save on multiple contractors doing track and tracing for the government and help cut duplication of roles.

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