Oil import quota fuels industry row

National Oil Corporation of Kenya (Nock) ability to import 30 per cent of the country’s fuel requirements is under scrutiny with the rationale of quota award in focus.

Industry players said the firm may not be able to bring in crude oil, jet fuel and diesel Kenya needs as it normally participates in the open tender system (OTS) for importation but has never delivered any product competitively.

Under the system a company which submits the lowest bid is normally awarded the contract to import either Murban crude oil or refined petrol, jet A-1 and diesel on behalf of other marketers.

Help stabilise market

Nock managing director Mwendia Nyaga said the allocated quota will help stabilise the market with the State-owned firm negotiating for more competitive contracts including long-term deals on a government-to-government basis.

“The main objective of this 30 per cent quota is to stabilise the market. The consignments will, therefore, seek to get the most competitive pricing to enable Nock pass on the benefits to the people of Kenya,” he said.

Retail fuel prices are adjusted upwards or down depending on changes in taxation, international cost of crude, shilling dollar exchange rate, insurance cost of transport and refining among others. Geopolitics is also key.

Energy minister Kiraitu Murungi on June 18, 2010 published Legal notice No. 96 mandating the oil dealer to procure 30 per cent of fuel requirements under Energy (Importation of Petroleum Products)( Quota Allocation) Regulations.

Working on logistics

Nock intended to start utilising the quota effective August 1, 2010 but the parastatal is still working on logistics for ullage (storage space).

Kenya Shell on July 13, 2010 wrote a letter to Energy PS Patrick Nyoike seeking clarification on regulations allocating Nock 30 per cent quota and whether it would be based on current Open Tender System (OTS) for importation.

“Is it envisaged this arrangement will now exclude Nock from the OTS. It is our view that the said regulations raise several areas of conflict with OTS,” said Shell’s country chairman Jimmy Mugerwa.

He said the firm had never brought in cargo under OTS and asked for assurance that the public can have imports priced competitively besides ability to consistently finance and deliver fuel to avoid shortages.

Supplier of big volume

Discussions to facilitate infrastructural requirements for ullage are ongoing between Nock and relevant stakeholders. It is expected to issue communication on starting imports upon finalising storage arrangements.

With the firm potentially a supplier of a big volume and a rival to others, it is feared the quota will give it undue advantage contrary to section 116 of Energy Act of 2006.