President William Ruto in his New Year speech called for the revamp of the loss-making National Oil Corporation of Kenya (NOCK) to undertake its mandate as the country's oil reserve and price stabiliser.
"Multinational fuel distributors were not honest when it came to the fuel subsidies since they did not match the reduction in pump prices, and the taxpayers ended up losing billions," Ruto said.
His order to the Ministry of Energy conflicted with another government communication in November that listed the state-owned oil marketer among loss-making agencies marked for privatisation.
Even so, industry stakeholders and experts are divided on whether the firm should be privatised or revamped to undertake its initial mandate.
National Oil CEO Gideon Morintat seems keen to ensure the firm is back to its former self, rallying behind Ruto's call to either engage a strategic investor for capital injection or a complete revival plan as approved by the cabinet.
"There is no planned privatization of Nock. There is a planned restructuring of the business through the creation of a holding company with three subsidiaries each responsible for a specific core mandate: price stabilisation, strategic reserve and distribution,'' Morintat told the Star.
Ruto and Morintat's positions contradict the government's initial plan to privatise Nock alongside other 10 state agencies including Kenyatta International Convention Centre (KICC), Kenya Pipeline Company (KPC), Kenya Cooperative Creameries (KCC), Kenya Literature Bureau (KLB), Kenya Seed Company Limited (KSC) and Mwea Rice Mills Ltd (MRM).
Others are Western Kenya Rice Mills Ltd (WKRM), Numerical Machining Complex Limited (NMC), 35 per cent of Vehicle Manufacturers Limited (KVM) and Rivatex East Africa Limited (REAL).
This is not the first time the government is considering selling the oil agency.
The previous regime also lined up Nock among state firms for sale to ease dependency on the National Treasury.
This followed the firm's poor financial health saddled wit debt burden running into billions of shillings owed to local lenders who were threatening to liquidate it.
As of last year, the firm owed lenders and suppliers a total of Sh13.5 billion. It hoped that the exchequer would bail it out to repay bank loans and meet operating costs.
According to Morintant, Sh6.6 billion was to repay bank loans, Sh3 billion for operating costs and a further Sh3 billion for oil exploration on Block 14T in the Rift Valley basin.
The firm owes Kenya Commercial Bank Sh4.82 billion and another Sh1.8 billion to Stanbic Bank.
In 2022, a draft Petroleum (Importation) (Quota Allocations) Regulations was published to give Nock exclusive rights to import a third of all fuel products into the country, in changes aimed at protecting the cash-strapped parastatal.
This was aimed at cutting dependency on independent oil marketers but the plan did not sail through as the firm was battling huge debts.
As the debate as to whether to sell or restructure the firm continues, MPs have questioned the National Treasury's plan to clear its debt.
Early this month, the National Assembly's Energy Committee criticised the state for unclear plans to settle the debts the loans the corporation owes or to shift the liabilities to a strategic partner.
The amount owed by the corporation to banks has so far hit Sh8.3 billion due to accruing interests and penalties.
Nock is a state corporation founded by the Act of Parliament in 1981, with a mandate of participating in all aspects of the Kenyan petroleum industry. The company was incorporated in 1981 and began operations in 1984.
Its formation was precipitated by the oil crises of financial year 1973/74 and 1979/80 and the subsequent supply disruptions and price hikes which resulted in the country’s fuel prices hitting an all-time high.
At the time, petroleum products accounted for over one-third of the total import bill, making it the single largest user of Kenya’s foreign exchange earnings.
As the debts pile, its revenue has been shrinking, with its end-year loss growing to Sh1.3 billion up from Sh0.35 billion in 2018/19.
Sales volume declined from 322.8 million litres in 2018 to 124.8 million litres last year, an aspect attributed to limited working capital. The financing cost rose to Sh881 million during the year under review from Sh725 million in 2018.
Consequently, the shareholder’s equity significantly reduced from Sh1.62 billion in 2018 to Sh0.28 billion by the end of 2019.
It has never operated optimally, often clouded in alleged mismanagement and competition from private oil marketers who have diluted its supply ability in the market to less than a percentage.
Currently, Vivo Energy Kenya under the Shell brand is the market leader with 23.8 per cent followed by Total Energies at 17.3 and Rubis at 10 per cent.
Despite its poor financial and operational record, some sector players still believe that it has the potential to stabilise the market.
Joseph Karanja, chairperson of Kenya Independent Petroleum Dealers (Kipeda) wants the government to revive the agency, saying it is key to stabilising the shaky local oil market.
"Nock had its work cut out. It is not late. We believe its revival will be key to improving supply efficiency and ensuring the country has enough reserves to stabilise prices,'' Karanja said.
These are similar views held by the former Energy CS Monica Juma, currently serving as President William Ruto's National Security Advisor.
She was key in pushing the government to grant Nock a tender to ship in 30 per cent of Kenya's monthly fuel imports to reduce dependency on independent oil marketers.
She is famous for insisting that "Private dealers are not loyal and cannot be trusted.''
During her tenure at Kawi House, she pushed for a law to have Nock as a strategic national petroleum reserve.
The Draft Petroleum (Importation) (Quota Allocations) Regulations, 2022 aimed at giving Nock exclusive rights to import a third of all fuel products into the country, in changes aimed at protecting the cash-strapped parastatal.
As the proposed law continues to gather dust on the Parliamentary shelves, consumers are subjected to high fuel prices, with a litre of Super Petrol now trading above Sh200.
The firm on the other hand continues to wallow in mismanagement, with the latest Auditor General report highlighting some of the financial issues facing the entity.
They include inaccuracies in bank and cash balances, unsupported decline in the value of freehold land, hived-off petroleum products and unresolved loss of oil products.
The auditor flagged unsupported payments for historical pending bills, payment of unspecified allowances, unsupported board expenses and unregistered leased land.
The report further highlights concerns over the usage of public resources, noting the entity’s failure to adhere to procurement procedures, and the existence of unauthorised over-expenditures.
The budget review reveals instances of over-expenditure on insurance, software licences, training and education, finance costs and medical expenses. However, neither supplementary budget nor approval was provided to support the over-expenditure.
“Further, the corporation budgeted to collect sales revenue of Sh24.95 billion, but only Sh9.8 billion was realised, resulting in under collection of Sh15.1 billion."
The latest audit queries are similar to those raised in the past three financial years reasons that could have prompted the government to consider privatisation.
The state argues that, as part of the revival plan, the move will seek to generate more revenue for the government and reduce demand for government resources among other reasons.
Petroleum sector expert John Aundo gives a double-sided opinion on the merits and demerits of selling or revamping.
He is cautiously positive about the creation of a state-dominant player who takes a price stabiliser role to the mutual benefit of sellers and consumers." A national reserve is also vital for security reasons."
He is also less pessimistic about privatisation. "While I have a wild fear that a state-like private 'monster' might be created to muzzle competition and harm consumers, it is also necessary to ease the burden on the exchequer."
