Blog Archive

Thursday, May 12, 2011

KRA's Simba System is down!

In addition to the current problems Kenyans faces with the Fuel shortages caused due to possible corruption & ineptness at KPC, we have the problems at the inefficient KPRL.

Now... add KRA to the list of GoK entities who add to the problem!

Simba System is the online clearance/taxation system used by KRA. I support the move to an electronic platform but users complain it is no longer up to the task with frequent breakdowns & connectivity problems.

Simba is having problems. Again. So even when fuel importers want to clear products through Simba, they cannot do so!

For traders, however, they are likely to count losses as Ms Memo said KRA would not reimburse costs incurred during the period the system is down.

Sigh, so KRA messes up & the consumers have to pay???

What does this mean?
- Greater lead times to get fuel to the fuel stations!
- Increased costs for OMCs [since most fuel is traded on borrowed funds]
- Increased costs as fuel trucks wait longer to load.
- Possible stockouts leading to increased costs across the board.
- Reduced tax collection by KRA with some losses which cannot be recovered!

Solution: No short-term solutions but Simba needs to be replaced or strengthened. Let ICPAK, Stakeholders & ICT Board have input on how to improve the stability & abilities of Simba [or help choose its replacement].

"Ghost" firms allocated ullage at KPC

It just gets more interesting [euphemism for oh crap!] at KPC...

So when Kenyans started peering intently into who the allotees of ullage were at KPC, some smart chap came up with an idea! How about using fake 'Ugandan' firms?

On 17-Feb-2011, a firm called 'Black Gold' [So Tintin-like as Bankelele would say] got an allocation for 2,697 MT of fuel.
Now, compare BG's allocation to these legit firms with retail operations in Uganda:
  • Total Uganda 2,911 MT
  • Libya Oil Uganda 345 MT
  • Shell Uganda 1,750 MT
  • KenolKobil 1,000 MT
  • Gulf Energy 2,632 MT [Yes, that Gulf]
The ship (MT NAVIG8 HONOR) discharged 26,776 MT of fuel & 10% of storage was allocated to Black Gold. Another interesting factoid is that the shipment was brought in by Gulf Energy.

1) Did Black Gold evacuate the tanks? When?
2) Did Black Gold export the fuel to Uganda? When?

Wednesday, May 11, 2011

Kenya's Oil Industry - The Unholy Trio

Under the proud eye of the parent Ministry of Energy... the bad boys trio of Kenya's Oil/Fuel Sector!

Kenya Pipeline Company - After the KenolKobil & Glencore cases are done... Kenyan taxpayers will lose anything from KES 5-10 billion!

See earlier blog posts

National Oil Company of Kenya

Kenya Petroleum Refineries Limited

Petrol Shortages in Kenya - May 2011 Part 6

You heard it here first!

Rumors are rife that there are 2 more EMERGENCY TENDERS being floated tomorrow for imports of Diesel/Gasoil (AGO) & Super Petrol (PMS) tomorrow!

This will add to the crazy prices Kenyans are already paying since emergency shipments cost more just like many other 'urgent' tasks!

This second round of emergency tenders in May is after the 1st one a few days earlier!

More interesting stuff! KenolKobil refutes claims & allegations of delayed delivery by MoE for PMS shipments. Apparently, KK was restricted in supplying PMS as required by OTS due to KPC ullage constraints!

15,290 MT of PMS for delivery 10-11 June 2011 [At least 1 month off!]
31,355 MT of AGO for delivery 01-03 July 2011 [Good coz not so much of an emergency but still not part of the regular OTS imports]

Kenya Pipeline Company - Bankrupt? May 2011 Update

This was my earlier post on KPC's impending bankruptcy...

Glencore wants $40 million from KPC for products that 'disappeared' while under KPC's watch!

KenolKobil has a case winding its way through the courts for KES 4-6 billion [depending on the version]. KPC has appealed the verdict to award KK loads of moolah but KK has doggedly refused to be intimidated by KPC, MoE or other goons!

It is just a matter of time before KPC is forced to enter into a settlement with the various litigants!

Monday, May 09, 2011

Petrol Shortages in Kenya - May 2011 Part 4

5 May 2011: kiraitu murungi [Kenya's Minister of Energy] said there were 67mn liters of PMS [Premium Motor Spirit aka Super Petrol], 99mn liters of diesel [AGO] and 102mn liters of Kerosene in KPC's system. [Source: Nation Business Reporter per the Press Briefing on 5 May 2011]

9 May 2011: MoE floats an "Emergency" Tender for the supply of 47 million liters of petrol through OTS [35,000 MT] for delivery between 17-21 May.

So the questions/observations are as follows:
  • Why float an Emergency Tender if there is plenty of petrol in the system? Kenya uses 3mn liters of PMS then 67/3 = 22 days of petrol.
  • Emergency Tenders tend to be pricier since the 'urgency' means paying higher rates for a ship or cargo than under normal circumstances.
  • If the purchase/delivered price uses the May PLATT average (higher than April PLATT average price) then Kenyans are in for another price hike come 15 May 2011 for petrol.
  • Which firms products [especially PMS] are clogging the KPC system?
  • Why haven't these firms been forced to evacuate the products from KPC tanks?
  • Will these firms be allowed to bid for the Emergency Tender?
  • What if these firms bid, win & supply the products ALREADY in the KPC tanks?
Oil marketers have faulted the process, saying, it would not be competitive. "Since the supply is an emergency, there is little time to get a competitive bid,” a leading oil marketer told the Nation.Others warned that this could push up the prices further.

However, KPC has maintained it was wet with the product, meaning, it had enough stocks of the popular super petrol.

MoE controls ullage [storage] at KPC & the OTS tender process which means they have the inside track of who imports what & when. KPC is 100% owned by GoK & controlled by MoE.

With private imports by individual marketers restricted, all players must patiently wait to get supplies from the next OTS tender, even when their customers want more.

The only exception are the rare cases where politically-favoured importers are allowed to bring in product from outside the system.

Access to the only pipeline is regulated by an ullage committee under the oversight of the ministry of Energy.

Another interesting article from The Standard

Kenol(Kobil) General Manager David Ohana confirmed marketers do not know the source of the consignment held in KPC facilities, which he says, had denied them chance to offload their imports currently in the high seas and attracting demurrage of US$40,000 (Sh3.3 million) daily.

So legitimate imports cannot be off-loaded while the tanks are full yet there is a 'shortage'???

For instance, it emerged on Wednesday that of the 19 million litres of petrol sitting in KPC tanks as wananchi were suffering, the largest proportion belonged to trading companies with no marketing outlets.

They were Addax Kenya Ltd, Royal Energy Ltd , Gulf Oil and an importer who signed as “one time vendor”.

How these small players came to hold so much petrol within KPC’s systems at a time when the rest of the industry was dry remains a puzzle.

The Ministry of Energy co-ordinates the so-called ullage committee that decides how to allocate space in KPC storage facilities to oil companies.

Sunday, May 08, 2011

Kenya National Budget 2011. Your Budget.

Dear Kenyans,

You can participate in the process of developing the Budget for 2011-12 through this form/website to provide information & views to Treasury by clicking the link or Subject Header.

The link was down earlier but after I tweeted Uhuru Kenyatta it was back up & running! The power of social media!!!

A new Stock Exchange for Nairobi

Why is GoK & CMA jerking around with the NSE?
If the brokers think the NSE is worth much more than what the GoK/CMA thinks it is, then let investors open up a COMPETITOR asap!

In the USA, there were many exchanges to begin with including the NYSE (founded in 1792), Philadelphia Exchange, American Stock Exchange & Chicago Stock Exchange. Not to forget NASDAQ (founded 1971) which was derided as 2nd Class but over time attracted the likes of Intel & Microsoft!

I know there have been proposals in front of the CMA for years to license another Exchange but the powerful mandarins & current stockbrokers have uses their influence to kill it! For this Kenyans pay much higher fees to support an inefficient system!

Let another exchange come into play. There are 100s of firms that will list in the next 5 years. What's more? The new exchange will be completely electronic & allow investors better tools to trade unlike the current system!

I have a strong feeling some listed firms will even jump over to the new Exchange!

Rent - Price Controls

It seems every politician out there wants to boost their flagging popularity using populist measures!

soita shitanda [he who did not want to give up his taxpayer funded mercedes] wants to cap rents. Another bad idea that can stifle creativity & investment!

Instead of capping rents, the law [& enforce it!] should be to ensure most residential rental agreements [there are always exceptions] should be of a consistent format.

A Standard Form Agreement (SFA) of a nature that is clear, concise & enforceable should be used. Any disputes should be handled expeditiously & this will also allow for Case Law to be established. Most residential units can be placed in narrow 'types' or bands.
- Single Residences
- Flats
- Joint compounds ['Estates' in Kenya]

Lawyers may be a stumbling block since they want to charge crazy fees for drawing up [aka copy & paste] such agreements.

What should be included:
  • Legal Names for both Landlord & Tenant
  • PINs for both Landlord & Tenant
  • Clear description of the Leased Premises including physical address, as detailed as possible, including Land Registration Number & flat/unit number
  • An address or account where the Rents are to be deposited & due dates
  • How the payment must be made [Should be anything but cash for a better trail e.g. cheques cleared by banks, M-Pesa has reference number, etc]
  • Receipts to be issued [mandatory] for all payments by whatever means.
  • All information to be verified/certified by both parties
  • What is included e.g. Club House, Askari, etc
  • What is not included or requires an additional payment e.g. Askari, Club House, etc
  • Estimated Land Rates & who is responsible [typically the Landlord]
  • Maximum number of occupants.
  • Photos or verification of condition prior to Leasing
  • Unique 'serial numbers' for each SFA [to reduce fraud]
  • If any commissions were paid by either party, then reported on the form to who & how much.
  • The agreements should be filed with KRA so all tax information is captured [KRA needs to build a database to capture this information]. Also helps with reduction of fraud.
Both parties should be encouraged to use the Form Agreements. If they choose not to do so, then the 'advantage' in court in case of a disagreement or ambiguity should go to the Tenant [since it is likely the Tenant is coerced into the non-SFA].

Rather than the Court Process, there should be a court-supervised Arbitration Process as the first step.

The SFA does provide options:
  • Length of the Lease
  • Rental Payments (Amount)
  • Due Dates
  • Notice of Termination e.g. minimum of 45 days for each party
An interesting & beneficial aspect is that KRA will be able to capture massive amounts of data & tax revenue. Landlords will not only have to pay VAT [which they may recover from the Tenants] but will also pay income tax on rental income.

Furthermore, comparable units in a comparable area should have comparable rents so this allows Tenants, Landlords & KRA to watch for huge variations! Transparency not Price Controls is the name of the game!

Friday, May 06, 2011

Petrol Shortages in Kenya - May 2011 Part 3

Now for some Q&As as asked by some folks! Answers in italics.

@Waithaka asked: Kiraitu has to read a rioting act to all Oil Markers to behave or risk loosing their licences.
If he is unable or unwilling, He should be fired. But does Kibaki have the balls to fire his longtime friend?

'True it is,' wrote Charles Dudley Warner in 1850, 'that politics makes strange bedfellows.'

@KW: - Is OTS an effective method of importing oil for the country? From quality, quantity and cost perspective?

This is a complex topic. The arrangement is simple yet complicated.
At the current moment, YES.

- Kenya lacks sufficient capacity to accept multiple smaller shipments vs larger shipments. Other ships do offload at Shimanzi & these are primarily private cargoes.
- OTS allows for bulk buying thus if handled properly, can lead to lower prices
- OTS shipments are bid for competitively but the problem has been the delivery i.e. delayed deliveries or short deliveries.

Long Term: I think a similar arrangement to OTS should be maintained for smaller firms to pool their buying power. The larger firms can import their own cargoes without the need for OTS

Quality: Whether under OTS or otherwise, each shipment should [& is] inspected
Quantity: See above
Cost: See above

- As I understand it, our refinery is propped up by GoK regulations. Does this mean it would be more efficient (and/or cheaper) for each OMC to import it's own refined product? If so, does the benefit of refining a certain quota locally outweigh the negative from a big picture point of view (i.e. for the country).

Yes, it is cheaper to import REFINED products vs using KPRL
- KPRL is ancient & very inefficient
- Imports of refined products allows Kenyan OMCs to import what is NEEDED not what can be produced. KPRL produces multiple fractional distillates. Some products are either not needed or over-supplied in Kenya leading to opportunity losses.

Long-term: If Kenya can secure crude oil supplies from South Sudan then building a new refinery in Kenya makes sense for local consumption & re-exports. Uganda plans to build their own refinery which is a good idea for them & Kenya which can import the refined products.

- Are there any penalties applicable to importers/OMC's who hog storage?
Not as such but there seem to be some new rules being put into place about evacuation from KPC storage tanks.

Technically, the 'hogs' should not have been allowed to pump in the 'extra' fuel into KPC's tanks [allocation of ullage is by an ullage committee but KPC controls the process] but it happened & someone at KPC is at fault.

Wednesday, May 04, 2011

Uganda is a country in Africa

So Uganda has plenty of cash to spend on armored vehicles for crowd control but not for new dams or roads or electricty production... Wasn't museveni going on & on & on about the lack of infrastructure like power generation & transmission facilities during his recent visit to Kenya?

I think these are Chinese manufactured crowd control vehicles [end of the clip seemed to be some guys who delivered the vehicles]. I guess if you want advice from rulers who know how to kill their own people, ask the chinese.

So museveni 'forgives' a corrupt & inept former head of NSSF for blowing UGX 8,000,000,000 [8 billion] since she did not have the managerial skills! [Bakoko Bakuru then ran away to the USA]

Please let me have your thoughts on this!

Petrol Shortages in Kenya - May 2011 Part 2

This is is a follow-up blog post to questions asked by StartupKenya
See original blog post here

1. Why has the unnamed OMC hogged ullage at KOSF, how is it benefiting at this point?
There is enough petrol in KPC storage tanks but it belongs to the Politically Connected OMC. When there is a shortage, whoever has the product has pricing power. The hogged ullage is not an OTS shipment but non-OTS so they can charge whatever they want to the other OMCs.

2. What inside info is this that the OMC benefitted from, (3) and how did they benefit?
KPRL had problems which PCOMC was aware of so they could order petrol ahead of time. They had material information others did not. There is ship waiting to discharge petrol but the PCOMC cargo got in earlier thanks to information they had prior to others.

4. Where is NOCK in all of this, don't they exist to prevent exactly against this kind of scenario?
Beats me! NOCK is also an OMC & may be faced with the same constraints as the rest [Total, Engen, Shell, KenolKobil, etc]

5. Why is the shortage only in Nairobi, I know for a fact rift valley has no problems.
Fuel is (primarily) transported via KPC's pipeline to Nairobi & Eldoret. Other options are by rail & road.
Nairobi is a major off-loading point for Nairobi & Central, the largest users & use are in this region.
Eldoret supplies Rift Valley & export markets. There may be 'old' stocks in the pipeline between Nairobi & Eldoret. Or the level of usage of petrol is lower [vs stocks held by OMCs] in RV.
Petrol is being transported by road, as this moment, to Nairobi but these lorries take 24 hours since they driven at slow speeds. Or should be! In addition, they also supply all the towns along the way.

6. How has ERC shown some spine, what have they done?
Unlike kiraitu who blamed everyone else [meaning the OMCs] but his ministry, ERC did not blame OMCs & said so.

7. So we can blame KPRL then?
Yes. It is an inefficient refinery so produces both lower grades of White Oils & lower % of White Oils. It produces more Tops [Black Oils] than it should & which needs to be exported. In addition, it produces more Kerosene than Petrol. Note that Petrol is better suited for cars.

8. Isn't diesel and kerosene also refined from crude, how come there is no shortage of these fuels?
The process of producing fuels from crude oil is Fractional Distillation. An efficient refinery will produce more higher value fractions [White Oils e.g. petrol] vs Black Oils. KPRL is inefficient.
Diesel - There was a large consignment ordered/imported recently so there is enough in the system at the moment.
Kerosene - See KPRL explanation. It produces more Kerosene than Petrol. Also Kerosene is imported as well, if needed.

9.and most importantly... WHO exactly is benefiting the most from this... since this is the person we can most likely blame.
Most likely the PCOMC's owners & partners.

Tuesday, May 03, 2011

Petrol Shortages in Kenya - May 2011

Ahhh... The stink of scandal again!

Why the shortage of petrol during the long weekend?
[Like many complex issues, these are multiple factors at play. I try to keep it simple]

Quick primer:
KPRL - Kenya Petroleum Refineries Ltd. 50% Essar 50% Government of Kenya [GoK]
ERC - Energy Regulatory Commission
MoE - Minister of Energy with kiraitu as minister & nyoika as PS
OMC - Oil Marketing Company e.g. NOCK, Total, Hashi, KenolKobil, etc
NOCK - National Oil Co of Kenya 100% GoK owned
KPC - Kenya Pipeline Company [100% GoK owned. Corrupt & Inept]
KOSF - Kenya Oil Storage Facilities in charge of storage. Linked to KPRL, KPA & KPC
KPA - Kenya Ports Authority

1) KPRL - A recap. By law, all OMCs must process 70% of the fuel imports at KPRL. In practice it is 50% since Kenya's consumption has risen. What it means is that OMCs import crude representing 50% of the fuel they sell.

KPRL [inefficient under the best of circumstances] has been out of action for most of April for some reason or the other. This means the crude to be converted to White Oils remains unrefined which means PMS [Premium Petrol] & RMS [Regular Petrol] shortages have begun to bite.

Of course, in typical Kenyan fashion, the 'powers that be' doesn't tell the consumers or OMCs the full story. Emergency stocks ordered but seems one OMC was favored with 'inside' info. Also there is a ship waiting to discharge but see (2)...

The PS's assertion was confirmed by the Kenya Pipeline Company which said there were enough stocks in the country.

He went on to explain that storage facilities in Mombasa were full and a vessel that was discharging super petrol on Thursday was forced to leave the berth after offloading only 30 metric tonnes as the tanks could not take any more products.

Where is MoE 'powers that be' in all this? Part of the problem, me thinks!

2) KPC & KOSF is at it again. The corrupt &/or inept folks at MoE know of the 'full' tanks due to imports & storage by a 'briefcase' dealer but they will do nothing since it is 'connected'.

Ullage is to be allocated by market share but this briefcase OMC has hogged the storage at KPC/KOSF thus other importers are stuck with petrol on the ship!

3) "Hoarding" allegations by OMCs.
Some uninformed folks find it easy to blame OMCs for hoarding when prices are FALLING. Seriously? Economics 101?

GoK through ERC is set to announce reduction in taxes on fuel. Taxes are paid to KRA/GoK at the point of loading i.e. when the OMC takes it from KPC. The next price 'change' announcement is on 14 May 2011. Therefore, there is no price increase expected until then except for tax reduction. [This can be a much longer/detailed discussion but suffice to say you don't hoard when prices are falling].

4) KPA seems innocent this time around! They cannot do much if the KPC/KOSF tanks are full. In the meantime the demurrage charges add up. Fast.

I have to admit the ERC is slowly showing some spine rather than drinking the Kool Aid dished out by MoE.
Director General Eng Kaburu Mwirichia was however careful not to jump into conclusions adding that accusations of hoarding by the oil marketers hurt them more than they hurt consumers.