Blunder that will shoot up fuel cost

By Kenneth Kwama

The National Oil Corporation of Kenya (Nock) could have contracted a cash-strapped third party with questionable financial ability to import the controversial consignment of diesel, which it failed to deliver forcing a re-tendering.

The emerging hitch, however, will be costly to consumers considering that the urgent situation that required re-tendering saw importation of a more expensive fuel as replacement.

After winning the January 31 tender to import 116,236 tonnes of diesel, Nock sub-contracted a little known company with no known precedence in large volume oil imports called Prisco Petroleum Network (PPN) to import on its behalf. The bid was conducted through the Open Tender System (OTS) and the corporation won after quoting a competitive price of $13.44 per metric tonne.

The failure to deliver prompted a costly emergency tender. Galana, which won the rights, will charge $34.49 per tonne based on March’s higher cost — a development that will see consumers pay more than what they ought to have paid for the cheaper priced cargo had Nock carried out its obligations.

The impact of the pricey consignment will come in play once it enters circulation in the retail supply chain, where prices of oil products may go up by as much as Sh10 per litre, according to industry experts.

Energy PS Patrick Nyoike told Financial Journal he was not aware of what had actually happened.

Onerous task

"They (Nock) won a tender, but for whatever reason, it delayed because the consignment ought to have arrived between February 17 and 19. We had to do another tendering process to replace what Nock failed to supply," said Nyoike.

According to an industry source privy to details of a deal between the State-owned oil marketer and PPN, the latter undertook the onerous task, not because it had capacity to supply such huge volumes of diesel, but because it was hoping to make a quick kill by brokering an arrangement with an unidentified ‘able supplier’ who would in turn supply Nock with the diesel.

Financial Journal has established that the company name, Prisco Petroleum Network bears an uncanny resemblance to a Russian based global shipping company called JSC Primorsk Shipping Company (PRISCO Corporation). However, the local firm is not related to the Russian shipping giant that specialises in global shipping of liquid bulk cargo, including petroleum products.

PRISCO Corporation of Russia operates a fleet of 21 vessels (19 tankers and two dry cargo ships) and has offices in Russia and Singapore. According to information posted on its website, the company’s MD is called Alexander Migunov and is based at the Singapore office.

The local Prisco (PPN), which should have imported the disputed consignment of diesel on behalf of Nock, has two directors-Isaac Kombo and Naftali Muriithi.

When contacted, Kombo told Financial Journal that he was not aware of the said deal between his company and the state oil firm.

"I don’t know anything like that," said Kombo who hanged up his phone thereafter. Further attempts to contact him were fruitless.

The State oil marketer was also frugal with information when asked how it identified the firm that was to supply the controversial diesel consignment from which it later withdrew.

So, how did it identify the firm to supply the controversial diesel consignment?

"We always comply with procurement guidelines," stated Acting Nock MD Ms Sumayya Athmani in reply to our enquiry.

Asked whether she was satisfied transparent procurement procedures were followed while working out the deal, Ms Athmani replied with a curt: "Yes they were," without offering further explanations.

But did industry players know the name of the firm that Nock had sub-contracted to supply it with the diesel?

A highly placed official who works at the Oil Industry Secretariat (OIS), the central body that brings together oil marketers in Kenya, says they didn’t know anything about the firm because the deal was shrouded in mystery.

"Nobody knows who was to supply them. Why don’t you go and ask Nock?" posed the OIS official who requested not to be named because of the sensitivity of the matter.

Dummy supplier

The deal went belly up. But what actually happened between the state-owned oil marketer, the yet-to be disclosed ‘able supplier’ and PPN, which was to be the go-between, is still a matter of conjecture.

What is known is that the diesel was not supplied and Nock later blamed the debacle on Shell Kenya Ltd, which it said was responsible for actions that led to cancellation of the tender to supply the industry with 62,000 tonnes of diesel.

On its part, Shell denied the claims and blamed Nock for delaying the diesel consignment. It said it had not at any time withdrawn from the second cargo that Nock had won.

"Kenya Shell chose not to participate in the emergency tender called by Ministry of Energy following Nock’s failure to deliver," it said in a statement.

Shell also stated that since it had ongoing obligations to emergency power plants in the region, it had made other arrangements to procure diesel to meet contractual obligations.

Our source, whose version was corroborated by another independent industry insider, said Shell could have pulled out of the deal after realising it wasn’t going to succeed, but avoided going public with the ‘real’ reason behind its pullout in order not to antagonise Nock with other industry players.

We could not get Kenya Shell country chairman Jimmy Mugerwa to comment.

According to a highly placed source at the state oil marketer, the deal to import the disputed consignment through PPN was a closely guarded secret and only two senior managers at Nock were aware of the arrangement .

Caught unawares

Even Finance department was kept in the dark. While this department ordinarily ought to have been at the core of such a decision, its officer bearers only learnt of it through the media.

"The failure of the deal with PPN was the culmination of a series of extraordinary events driven by behind-the-scenes deals. It is highly possible someone didn’t have the cash to pay within the chain and this is the reason why Nock failed to deliver the consignment in time," said our source.

National Oil accused Shell, which is the Industry Supply Coordinator, of abuse of position by placing an order with its consignment, just to later withdraw, thereby significantly reducing the quantities of diesel to be imported.

During its public spat with Shell, Nock explained that the 62,000 metric tonnes of diesel consignment was reduced to 45,000 metric tonnes after Shell deliberately decided to withdraw their portion of the consignment.

"With the quantities so significantly reduced (by 27.4 per cent), National Oil declined to supply the fuel at the tender price it had quoted," explained Ms Athmani.

Athmani said OTS rules allow the marketer that has won the tender to withdraw from supply if the quantity to be imported is altered by more than 25 per cent.

The Government has since called an emergency tender for this quantity of diesel that National Oil failed to deliver. The tender was won by Galana.