The National Oil Corporation of Kenya (Nock) faces closure if the government does not inject new funding.
The State-owned oil marketer said it is suffocating under the weight of two loans totalling Sh6.63 billion owed to KCB Bank (Sh4.83 billion) and Stanbic Bank (Sh1.8 billion).
The loss-making firm has been defaulting on the loans while its petrol stations keep experiencing stock outages as it cannot adequately finance the acquisition of petroleum products to fully stock the outlets.
Nock Chief Executive Leparan Morintat yesterday told the National Assembly’s Energy Committee that unless it gets enough funds to pay off the debts, as well as working capital to stock its retail outlets sufficiently, the company’s fortunes would continue to dwindle.
He told the MPs that the company is seeking Sh13 billion from the government to enable it to stay afloat, which would be in form of both new shareholder capital and loans.
The bulk of the money, Mr Morintat said, would be used in retiring the loans owed to KCB and Stanbic Bank.
Nock, however, needs to pay suppliers whom it owes nearly Sh1 billion as well as keep its operations going. “If these things do not happen, the easiest but also the most painful thing to do will be to close down Nock,” the CEO told the MPs yesterday.
The statement surprised the MPs, who questioned the level of the faithlessness of the chief executive in the team and company that he is leading.
The MPs also questioned the working relations between Nock and the Petroleum ministry, which they noted appeared acrimonious.
Nock made a loss of Sh689 million in the six months to December 2021 and projects the loss to deepen over the six months to June 2022 to a full-year loss of Sh1.4 billion.
Morintat said finance costs have been pushing the company to the edge and this year, he expects Nock to pay Sh1.1 billion in interest on loans as well as penalties for defaulting in the past. He, however, revealed that Nock has reached an agreement with KCB, which has agreed to give the company a moratorium on repayment of the loan.
“The single largest liability is the bank loans. By the end of this year, we project to make a loss of Sh1.4 billion, out of this, Sh1.1 billion will be repayments for interest and penalties on the loans,” he said.
“These are legacy loans that are of no use to the company…whenever we are in talks with would-be strategic partners, they are always wary of how this debt will be handled.”
Nock’s liabilities as of last year stood at Sh9.6 billion while its assets were Sh2.6 billion, leaving it technically insolvent.
Petroleum and Mining Principal Secretary Andrew Kamau said while Nock was struggling, some work has been done in trying to turn around the firm. These include getting new management and board in place as well as cutting costs.
Mr Kamau said the company does not require State bailouts, pointing out that the sale of fuel is a big and profitable business.
He said if Nock fixes internal issues, the company can run profitably and even service its debts comfortably.
“I am not as pessimistic about Nock. I believe that Nock is viable but has serious challenges in such areas as high operating costs, which are higher on average compared to its peers,” said Kamau.
He observed that the company has an opportunity in selling petroleum products, noting that other oil marketing companies far smaller than Nock are profitable.
Kamau also said the government is keen on giving Nock business, with the Head of Public Service having directed all government agencies to buy fuel from the company.
“There are a lot of opportunities for Nock and we should not run to the easiest, which is to give them money,” he said.
“But that said, Treasury has written to Nock and told them to fix their issues including the high cost of operations and if these are looked into, it has no problem releasing the money.”
Early last year, KCB and Stanbic were on the verge of taking over the assets of the oil marketer over its failure to pay the loans.