How Kenya got entangled in the murky world of oil deals, scams

A very intriguing case is going on in Milan, Italy, in which the Nigerian government wants international oil companies Eni and Royal Dutch Shell to pay USD1.092 billion (Sh109 billion) in one of the oil industry’s biggest-ever corruption scandals, perhaps the largest corporate fraud in the continent.

The court has heard that this money was transferred, as bribes, to an account controlled by a former minister of Petroleum Resources, Dan Etete — later convicted of money laundering — and that that it involved awarding the richest oil block in Africa to a five-day-old company known as Malabu Oil and Gas in which Etete was the beneficial owner.

The oil block, OPL 245, is estimated to have nine billion barrels of crude worth roughly half a trillion dollars, and is located approximately 150 kilometres off the Niger Delta.

In the transaction in which Etete sold exploration rights to Eni and Shell, he forgot to do what oil oligarchs and cartels do: pay the fixers and brokers.

The beans were spilt after one of the fixers, a former Russian diplomat named Ednan Agaev, went to a New York court demanding his commission. Another fixer was Emeka Obi, an investment banker, jailed for four years in Italy after detectives raided a house in Switzerland and took off with a briefcase containing the oil transaction dossier.

The oil companies wanted this block, whose other owner was Sani Abacha’s son (he had by then been removed from directorship and his father poisoned), and they were willing to pay for it since they would later not be required to share the revenue with Nigeria’s national oil company.

Most opaque deal

It is in this dirty environment that Kenya in 1999 signed a government-to-government deal in which it was agreed that we can lift 30,000 barrels of crude oil per day from the incurably corrupt Nigeria National Oil Company.  To date, despite attempts to explain it, the Kenya-Nigeria oil deal remains the most opaque arrangement we have ever had with Abuja. In case, you have never heard about it, it is because nobody in the Energy ministry wants to whisper anything about it.

In the initial deal, President Olusegun Obasanjo allowed Kenya to lift 30,000 barrels every day as part of its government policy to “find new buyers” and as “a useful way to pursue foreign policy aims”. By then, the daily oil consumption per day was 52,000 barrels, which meant that this would, on paper, be a good offer. Kenya was to buy the oil at concessionary rates and below the Opec basket price.

But Kenya knew that it could never process the premium Bonny Light, Nigeria’s flagship crude, at the Mombasa refinery since it had been engineered to process United Arab Emirates’ Murban. The refinery was also outdated and grossly inefficient. Kenya, therefore, was to seek an international company to lift the daily allowance, process it, sell it on the spot market, and remit the money to Nairobi, less commission.

In the oil industry, spot market is a term used to denote those who do not buy in the speculative futures market and purchase cargo with no long-term contracts.

Push for transparency

When the matter was first raised in Parliament in 2007, it appeared that the officials at the Energy ministry, then under Kiraitu Murungi, were not willing to share the contract documents. To give this matter some context, it was raised four months to the December 2007 General Elections by the Raila Odinga camp, which was pushing for transparency in oil transactions.

The only thing that Odinga admitted was that he was privy to the negotiation of the original deal. Parliament was told that the negotiation had started in 1999, and this brings Chris Okemo into the picture. Okemo is still wanted in the tax haven of Jersey Island, together with Kenya Power and Lighting Company managing director Samuel Gichuru, for cutting multi-million-dollar deals.

To date, how much oil was lifted in Kenya’s name — and at what rate — is a matter of speculation.

It was Alego-Usonga MP Sammy Weya who raised the issue first and even the Speaker, Kenneth Marende, was astonished by the question: “Wait a moment,” he paused.

“Is the Kenya Government trading with Nigerian oil? Has the Kenya Government become a broker?”

Had we gone deeper into the matter, perhaps we could have found a much more murky oil deal within the Energy ministry. Some years later, I recall calling Weya and asking him what he thought about that deal. “That matter was very dodgy. Some people were asking me, ‘why are you asking that question?’”

It is only by studying the Hansard report that you get a glimpse of the transaction. The then Energy Assistant Minister Mwangi Kiunjuri admitted to a hushed house that Kenya was “given” 30,000 barrels per day by the Nigerian government.

“If Kenya can lift that oil and refine it in our refineries for our use, then we can go ahead and do that. However, our refineries cannot meet the requirements for processing Nigerian crude oil. So, instead of the Kenya government losing that facility, it calls for tenders and tenders the facility to agents to lift the oil on its behalf. Then we get a commission, as a government, from whoever wins the tender.”

In one year of the Nigerian concession, the government would have lifted oil worth USD760 million (Sh76 billion). But Parliament was told that the government could only account for USD40 million a year, which means Sh72 billion could not be accounted for every year.

First consignment

It appears that although the deal was signed in 1999, it was only in the 2004/2005 financial year that the first consignment of 5.38 million barrels was lifted. If any lifting was done before that, there seems to be no records of it. But for the 2004/2005 financial year, Parliament was told that Kenya received a paltry Sh41.6 million per year from the proceeds — meaning it was making Sh115,000 per day from 30,000 barrels. If you break it down further, it comes to Sh4 per barrel.

Assuming that Kenya would have picked up its allocated quota every day, it would have lifted more than 10 million barrels every year.

When Kenya signed the deal, it gave a huge chunk of its share to Vitol, a global energy company, whose chief executive is British billionaire Ian Taylor, once described by The Independent newspaper as “one of Britain’s biggest tax avoiders”.

Taylor, who died of pneumonia in June, is said to have possessed an “easy charm ... and struck lucrative deals with governments, national oil companies, refiners and producers to transform Vitol into a global player”.

The character of Taylor-led Vitol emerged in 2007 when it occurred that Vitol paid about $13m in “surcharges” to the regime of Saddam Hussein to secure oil shipments. After Paul Volcker, the former US Federal Reserve chairman, carried out investigations, he found that the company engaged in illicit payments, secret bank accounts, and diplomats for hire. Finally, Vitol pleaded guilty in the Supreme Court of New York, paid the fine and walked away.

That was the company that Kenya was dealing with to lift its share of Nigerian oil. The arrangement looked simple: Once the government signed the bilateral deal, it was supposed to appoint a large oil trading company to arrange loading and transportation and find buyers in the spot market for any cargoes allocated to the government.

Government had no say

Interestingly, and Parliament was told as much, the government had no say on how much fuel was lifted in its name and there are no details on how much oil was sold.

All that Kiunjuri told Parliament was that the lifts were “dependent on availability and subject to nominations by NNPC” — meaning nobody was monitoring Kenya’s oil share.

By then, Bonny Light was selling for $70, meaning Kenya could access crude worth $2.1 million a day at discounted terms. According to the Opec Basket Price — which shows average prices — and Nigeria Central Bank statistics, Bonny Light was in 2006 retailing at $60 per barrel and could fetch premium prices because of its high demand. That meant that whoever got the allocation could make a fortune.

In the 2006/7 fiscal year, Vitol is said to have lifted 4.71 million barrels at a commission rate of US cent 15.1, and another 4.67 million at the same rate during the year 2005/2006. During the lifespan of the Nigerian deal, Kenya earned a paltry Sh132 million from the man “with a reputation for swashbuckling deals”, as The Financial Times eulogised him. “He fits the tradition of the Elizabethan buccaneer.”

The other share of the Kenyan oil went to Arcadia, a Swiss-based company now owned by Norwegian-born Cypriot oil tanker and shipping billionaire businessman John Fredriksen, regarded in the shipping industry as “Big Wolf” or “Big John”. He started his oil journey as a messenger in an oil company. At the moment, Fredrisken is one of the richest oil traders owning one of world’s largest oil tanker fleet, Frontline, and was some years back accused of making money through oil price manipulation.

An industry watchdog would later claim the deals entered between Nigeria and several African countries, including Kenya, “emerged as devices to allow big trading companies to circumvent an informal Nigeria National Petroleum Company rule that no term lifting contract holder could receive more than 60,000 barrels per day.”

But if a company also had a contract to lift the discounted oil, it could get an extra 30,000 barrels — if it was available. And that is where the loophole was: Availability. And that was the catch.

Thus, all what these big oil companies needed was a contract with a country that had an allocation of subsidised Nigeria oil and they could get more. Again, those countries had no records on how much was lifted on their behalf in the corrupt oil industry.

How much Kenya got from this Nigerian deal will never be known, but what we know is that the Energy ministry was lucrative. Look at every soul that has worked there.

[email protected] @johnkamau1