Rants, Raves & Reviews

ERC - Regulator or Speculator?

2012-01-10T17:50:00.001-06:00

KenolKobil used to provide its 'understanding' or forecast on where the price of fuel is headed... Since the trajectory of prices was on the ascent i.e. going up on a monthly basis... Do remember that fuel is price controlled in Kenya...

Read Kenya's Oil Industry - The Unholy Trio

There were 3 main reasons:
1 - Oil prices were rising in the International Market
2 - The Kenya Shilling was falling like a rock vs US$ (in which currency oil is priced)
3 - The inefficiencies of government controlled entities like Kenya Pipeline Company & Kenya Petroleum Refineries.

In August 2011, the CBK governor bitched about KenolKobil's forecasts saying it was fueling inflation. KK has about 25% market share of the petroleum industry. How does he attribute galloping inflation to a single OMC?

...as Central Bank of Kenya (CBK) Governor Njuguna Ndung'u warned that the monthly fuel forecast by KenolKobil was putting pressure on the currency market as players rush to secure dollars on the projections.

"People rush to buy dollars when one company says prices will increase by certain margin on the understanding that they will get them cheaply," said Prof Ndung'u.

So ndungu thinks people are idiots? The KES continued dropping to 107 even after KK was 'banned' form forecasting prices... Seems the problem was not KK but the ineptness of the government!

Then the PS (Patrick Nyoike) in the Ministry of Energy who seems to have a bone to pick with KK... chimed in... http://allafrica.com/stories/201108150085.html & I quote:

Energy permanent secretary Patrick Nyoike on Saturday said that the government had asked KenolKobil to stop its monthly forecasts. He said the forecasts had seen some marketers hoard fuel in anticipation of higher prices.

"We have stopped Kobil from announcing price changes because that's the work of the regulator and not market participants," said Mr Nyoike, adding that the forecasts had spurred speculation in the oil market and led to the persistent fuel shortages. Prices are normally reviewed on the 15th day of every month.

So let's get this straight... nyoike thinks KK's announcement made OTHER OMCs hoard fuel... Are these OMCs idiots? They probably know what's coming down the pipeline too! Remember this is the other 75% of the petroleum market which includes government owned & controlled National Oil Corporation of Kenya (NOCK).

Fast forward to Jan 2012 >>>

So after all the hot air emitted by nyoike in Aug 2011, it turns out he (& the ERC) decided it was his role to 'forecast' fuel prices BEFORE all the calculations were completed! The ERC is a regulatory body not a forecasting/polling/predicting entity.

http://www.businessdailyafrica.com/Corporate+News/Fuel+marketers+accuse+ERC+of+distorting+market+/-/539550/1303302/-/t76lpyz/-/index.html

When the ERC (which sets fuel prices) & PS of MoE makes such claims, it can trigger stock-outs at Fuel Stations who may hold off on buying fuel at the 'higher' prices. Why should they suffer losses by buying pricier fuel when prices will drop in a few days as indicated by the MoE/ERC?

I guess even in the new Kenya, there are First Among Equals... Don't do what I do...

Or the MoE & ERC may have some other nefarious plan up their sleeves to scam the Kenyan public?
Kenya had the Triton/KPC scam which KPC & MoE (nyoike & murungi) washed their hands off...
Kenya had the KPC scam where the pipeline expansion was sub-par & delayed...

Even some bloggers were gagged... ColdTusker BANNED from predicting scams

Cooking Gas & The Pecking Order

2011-12-28T02:06:00.004-06:00

This is a Guest Blog. I have been asked not to reveal the name.

Gas or Not?

After a long period without cooking gas, I got a call from one of my informers. I'd spoken to four petrol station workers, so that they would alert me anytime the commodity was finally supplied.

So on the 27th, early afternoon, I got a call from one of my 'watchers' from the Total Hurlingham petrol Station. I was in the CBD when the call came so it only took me all of 11 minutes to get to the petrol station. I met a gentleman with Yuvenaris/Yuvenalis on his name tag and immediatelly unloaded my empty 13kg cylinder, but he shocked me and told me that there was no gas! I asked him a second time and he assured me that cooking gas had not been delivered.

I almost packed my empty cylinder back into the car, but much as my 'lookout' had told me that cooking gas is very fast moving in these times of scarcity, I was a bit doubtful about how fast the product could have moved.

I then called my lookout up to enquire about the speed the commodity had moved, and after I explained what I was told by Yuvenalis, he told me to persist, cajole and even threaten. It seems that there is some of racket where the petrol station attendants in charge of cooking gas (and other products that are in short supply) usually hold back from selling it, only to sell it to brokers at a marked up price, as my lookouts from all gas stations confessed.

With this in mind, I persisted and told Mr. Yuvenalis that I was aware that cooking gas had been delivered and that I was not going away until I got my cylinder. I dropped one or two big names and the fellow softened up and told me to stop demanding in a loud voice, and that the gentleman in charge, a Mr. Maweu, who was away, would come and he'd ensure I got my gas.

When Maweu Nzioki, as his badge read, finally came, he informed me that 'very few' cylinders could be availed' after the people that had placed their orders picked their product. He went on to explain to me that "'Orders from above' kept his hands tied as "Watu Wakubwa" usually booked through bigger offices, and there was nothing much he could do. I was even more persistent, and so was he. Mr. Nyachae, the current chair of the C.I.C just happened to be parking his vehicle in the lot, and Maweu then went on to point out Nyachae as one of the Watu Wakubwa who had booked their cooking gas. Up until now, I have not been able to establish if Mr. Nyachae had actually booked for his cooking gas.

I was still not convinced, so I persisted, very loudly telling him that there are no provisions for prior booking and that we were all equal under the constitution, etc, there are no 'big or small people'. It did not take long for him to cave in, and finally, I got my 13kg gas cylinder, though not as happy a camper as I'd have wanted to be.

As a parting shot, before I left, another gentleman drove into the station asking for cooking gas and Mr. Maweu blatantly lied to him as well, that the commodity was unavailable. I walked into the scene and told the gentleman that there indeed was a supply of cooking gas and he should demand it. Maweu, on sensing defeat quickly sold him a cylinder of 13 kg Total cooking gas, lest I stick around and mess his 'business' more.

That is my sad tale.

Still a kanu government...

2011-12-11T04:09:00.001-06:00

An article by Makau Mutua Wetang’ula behaving as if he is Bashir’s lawyer got me thinking...

The current government (cabinet) is composed of the same chaps who were kanu shrills back in the bad old days of danny t moi...

*2012 presidential candidates highlighted*

mwai kibaki - president - He was in kanu for eons and was dan's VP for a while. Quit in 1990 to form DP which many say was a front to break up the opposition (well, let's call a spade a spade - the GEMA constituency) vote that matiba commanded. Thank the heavens he can't run for a 3rd term but never say never. See kaguta museveni of Uganda.

raila odinga - prime minister - RAO was a johnny-come-lately to the kanu bandwagon to which he hitched his LDP cart before he realized he has been outsmarted. Just like his father, he may never see the presidency & at best, like his father, remain a weak #2.

kalonzo muyoka - vice president - Well, I have to admit that for a chap who was all but finished in presidential politics in 2007, turned lemons into lemonade. He prophesied a miracle and a miracle he performed by selling out the ideals of Kenya's fragile democracy for VP's seat.

uhuru kenyatta - deputy PM - The current head of kanu but make no mistake, this is not the dreaded kanu of yore. The mantle of the new kanu may have passed to uhuru but the powers-that-be are almost all from the old kanu. uhuru was considered dan moi's 'project' or preferred successor in 2002. As head of the official opposition, in 2007, uhuru did the math & decided to support the incumbent rather than vie for the presidency.

musalia mudavadi - deputy PM - His dad was some sort of kanu hotshot. The son is an affable chap but seems to be hanging on others' coat-tails. He was made VP for a few days by dan moi. He was uhuru's running mate in 2002.

moses wetangula - foreign minister - Nominated by moi as an MP & he has returned that favour by being a politician who gives nothing but the best for the wrong cause. Implicated or accused of various scams (or at best incompetence) including the purchase of land in Japan for Kenya's embassy at an inflated price. Also known to open 'mouth, insert foot' in diplomatic circles.

george saitoti - internal security - He was dan moi's VP for ages, then dropped like a hot potato. Picked up again but not a chap who was taken seriously thereafter. He oversaw Kenya's worst economic crisis. Either he was clueless about goldenberg or complicit. According to many he was both.

mutula kilonzo - something constitution - was dan moi's lawyer for eons. Here is a chap who probably has a file ala J Edgar Hoover on dan moi & family's stolen wealth. All those pieces of land all over the country including bits of Mau Forest (or what is left of it). He might even have been kanu's lawyer. Well, at some point there was no real distinction between danny boy moi & kanu.

wiiliam ruto - dishonorable mention - came into the limelight in 1992 at the head of "youth for kanu 1992" (yk92) which was a means of getting moi & cohorts re-elected & screwing the Kenyan taxpayer. Soon thereafter came the goldeberg scandal. Well, the dirtier you are the better Kenyan idiots, erm, voters, like you. The erstwhile minister for education or agriculture or something of the sort.

john michuki - environment and national resources - was quite the powerful chap in the old kanu for a brief period.

fred gumo - regional development - as minister for anything development is an oxymoron. He is as neanderthal as they come but this is Kenya where selling land 'allocated' to you by the kanu government back to the kanu government for KES 300,000,000 means you get re-elected.

william ole ntimama - national heritage & culture - is a chameleon. A former kanu man who changed his colors. I am not sure if he can even sit through cabinet meetings at his age.

yusuf haji - defense - is a chap who was moi's lightning rod as a provincial chief of sorts and now oversees Kenya's defense forces and the huge budgets for shady deals. A very pricey ship never delivered. Third-hand warplanes. Some junk helicopters. You name any piece of war debris, Kenya buys it.

dalmas otieno - public service - heads a ministry that does little. I am being extremely generous. He might have been minister for transport under danny moi. Means jackshit when you consider the state of Kenya's road/rail/air infrastructure during the kanu era.

joseph nyaga - cooperative development and marketing - a long time kanu member until 2002. Some ministerial post under moi's kanu government.

sam ongeri - (mis)education - has served every corrupt regime he could.

Who have I missed? Who should I add to this list?

Business Daily... Quality? Editorial Failure?

2011-11-30T01:08:00.001-06:00

From the Business Daily comes this gem...

http://www.businessdailyafrica.com/Opinion+++Analysis/Why+Kenya+needs+a+high+interest+rates+regime/-/539548/1281500/-/6nn5ne/-/index.html

In the United States for instance it is virtually impossible to buy anything in cash even if you have the money. All retailers insist on credit sales preferring to know your credit rating as opposed to accepting cash.

What a load of BULLSHIT - and not the type you can use to improve your crop yields!

Except for purchases over $10,000 (coz of money laundering laws/regulations) it is highly unlikely a retailer is going to refuse 'cash' for any purchase... Heck, why should they say no to good old hard cash?

I challenge the writer to visit a store - electronic, clothing, department store, etc - in the USA & say... I want to pay in cash... Chances are the cashier will smile & say "of course, sir/madam" and take the cash!!!

Retailers do NOT care about your credit history if you are paying cash... after all why should they bother with your credit history if you are PAYING in cash???

Kibaki & the Demolition Squad

2011-11-29T17:47:00.001-06:00

Well, I have to give it to President Kibaki, who took a stand as regards the Syokimau, Eastleigh among other demolitions!

http://www.businessdailyafrica.com/Corporate+News/Kibaki+supports++controversial++house+demolitions/-/539550/1281632/-/hvdy4a/-/index.html

Yes, yes... he took the high road & I am glad he did so... It turns out as Carol Musyoka's article describes... there was something fishy about Syokimau...

http://www.businessdailyafrica.com/Opinion+++Analysis/Had+I+not+smelled+a+rat++I+would+also+have+fallen+victim/-/539548/1280374/-/11sxpsp/-/index.html

As for Eastleigh, it is time some order was brought to bear in the area. I may sound a little un-PC but I am sure there are more than a few al-shabaab sympathizers in Eastleigh. Kenya has an important military installation (the Eastleigh Airbase) around which lots of buildings have not only encroached into the 'safe zone but also high/tall buildings which pose a threat to the aircraft.

So we support President Kibaki in getting rid of corrupt cartels within the Lands Ministry. I would even venture that if he lined some of these corrupt officials up against the wall & had them shot... most Kenyan would cheer!

The Dollarization of Kenya

2011-11-27T22:11:00.001-06:00

Let's not kid ourselves... and huff & puff about the sanctity of the Kenya Shilling!

There was a time the Exchange Rate was KES 7/US$ & last month it was KES 105/US$... So in less than 40 years the KES has gone to the dogs. And even they spat it out.

When KQ said it will price local/domestic flights in US$ (converted to KES at the prevailing rate) some folks huffed & puffed and called KQ all sort of names...

I said BULLSHIT to those silly arguments that KQ should charge in KES coz it is a Kenyan firm... It is out to make a profit not be patriotic.

Anyway, so comes along this little tidbit... HFCK to source loans in forex to on-lend in forex! Hah! So where are those folks who complained about KQ?

KES interest rate are 24% & climbing... So it makes sense for some who are willing to take the forex risk to borrow in US$ at much lower rates!

The over-arching theme is that Kenya is dollarizing... Ask your supplier about the following goods or services:

Cars
Computers
Flights (local & international)
Fuel (yep, its a combination of oil prices prices in US$)
And so on and on and on...

Just dollarize... Zimbabwe did it & it has one of the lowest inflation rates in Africa...

** I hope the idea of a common EAC Currency is shelved until ALL the trade barriers are removed between EAC countries... Then merge the Fiscal Policies of all the EAC countries... Otherwise, it will fail... See the travails of the Euro!

*** A 'new' currency based on a /basket/combination of currencies would be a better idea but harder to implement. Some of the candidates for the basket would include US$, Yen, Yuan, Rupee, Euro, Sterling Pound, UAE Dhiram, Uganda Shilling & Tanzania Shilling. These are countries Kenya does substantial business with...

A Rant On Public Finances

2011-11-25T16:48:00.001-06:00

The original blogpost is linked here.

A RANT ON PUBLIC FINANCES

by Ramah Nyang on Friday, 25 November 2011 at 08:53

A quick update on public finances – there’s a treasure trove of data out there with all sorts of interesting inferences to be made on it. However, it usually takes an specific event to trigger a search for data of a specific sort – like say, why projects are stalling and salaries aren’t being paid.

The Eldoret Correspondent, Matthews Ndanyi, sent over an interesting tidbit on how infrastructure projects worth KES 10 B across some 45 Technical Training Institutes have stalled – because of the funds budgeted for these programs has not been released.

Another 1.6 B is also missing in action – and that includes workers wages for between 3-6 months, depending on the Technical Training Institute in question. The sources for this story are scared to talk to the media. The KE Govt being the vindictive bastard that it is [Remember this? - http://www.youtube.com/watch?v=wGVD3jqvQ70]

their fear is entirely understandable.

Some digging led me to this article –

[http://www.treasury.go.ke/index.php?option=com_docman&task=cat_view&Itemid=54&gid=70&orderby=dmdate_published]

the first quarter review of the Budget’s implementation. On spending by line Ministries – the report said, quote,

“the Ministries that reported under expenditures includes Roads; Water and Irrigation, Higher Education, Science and Technology; Public Health and Sanitation, amounting to KES 7.5 B, KES 5.5 B, KES 4.4 B and KES 3.3 B respectively.”

So there’s over KES 4 B lying around in the Higher Education Ministry, and if you crunch the numbers a little more, it gets more interesting. It’s off target by 24.89% on recurrent spending, and a massive 60.83% on development expenditure.

The story’s sources gain credence – and a series of phone calls and text messages to the Higher Education PS, Chrispus Kiamba, are not responded to. Classical silent treatment – it’s like dealing with an moody partner, only one you religiously pay, and get shoddy returns from.

The thing is, it’s not just the Higher Education chaps that are working at the speed of racing sloths. Aggregated across all Government Ministries, development expenditure’s off target by 46.5%. That’s about half of Uhuru Kenyatta’s highly lauded “investments” not coming on line, and we’re already halfway into FY ’11-’12.

The Water Ministry, which was to spearhead part of the much publicized irrigation blitz the Finance Minister talked about in June, hasn’t touched 54.2% of its development budget. The other bit of the equation – the Agriculture Ministry – makes short work of that. 62% of its development budget is still untouched.

Inference – we’re not bloody serious about taming inflation beyond 2012. Given these figures, I would not be surprised if in 2012, we’ll still see the Central Bank Governor lamenting how food price shocks are making a mess of their efforts to tame inflation.

Also, one, Uhuru Kenyatta’s paying lip service to the business of cleaning up public finances and making sure our taxes go where they’re needed, to do what he claims they should do.

And someone wants me to take this fellow’s pitch for President seriously? Bollocks.

These books look like some failed Hogwarts experiment. Any private firm worth its salt would have the CEO & CFO fired for presenting numbers of this sort – but KE taxpayers being who they are, we either give the CFO & CEO of Kenya.Inc a free pass, or we bury our heads in the sand and assume nothing bad’s happening.

In a ruling this week, Judge Mohammed Warsame described the Government as follows.

“….the government monster in the name of security ought to be investigated and tamed otherwise it may run amok and cause more suffering to the citizens of this country….”

He was talking about the demolition of buildings in Eastleigh, but his words apply to the state of public finances as much as anything else.

This monster, must be brought to heel – but if you’re going to bet on anything, bet on KE taxpayers joyfully casting their ballot for more terrible financial managers in 2012.

Price Controls - Failures Abound in the Fuel Sector

2011-11-23T15:27:00.001-06:00

The populists in GoK and Parliament decided that Price Controls is the way to go... then did (as usual) a half-assed job...

Well, selective Price Controls do not work. They create problems for the Taxpayer at large. They create Rent-seeking. They create inefficiencies & a taxpayer funded bureacracy.

http://www.businessdailyafrica.com/Corporate+News/New+charge+sets+up+consumers+for+higher+petroleum+prices/-/539550/1278248/-/xbrecm/-/index.html

As you know (see prior blogpost here) Interest Rates have jumped to 24% or higher for many Borrowers including OMCs. What a pity the ERC is playing populist politics...

The energy sector regulator, however, declined to give an indication of the margin by which the next adjustment will increase fuel costs, saying the oil marketers “will not be allowed to pass on the lending cost increases in full.”

So who bears the cost???

So whereas Banks (some whose owners/shareholders are either powerful politicians or very well connected) are not under any sort of Price Control regime... Basically, the populist Mandarins at the ERC are saying... "Let the banks make super-profits"

8-10% spreads over CBR
Spreads of 1-5% for forex

but we want you the (legitimate) risk-taking OMC who invests billions in infrastructure to go BROKE... Of course, the Briefcase Dealers are doing a-OK...

As I have argued in the past, many OMCs will STOP importing fuel for the Wholesale Sector. A consevative OMC will import only that product/s it can quickly move through its own sales channel without giving/extending credit to anyone.

The (competitive) Free Market will be killed off as many smaller retailers rely on credit but at 24% (or higher) they cannot afford to absorb the financing costs associated with storage. The OMCs who import and distribute fuel (KenolKobil, Shell, Total, etc) will stop extending credit to the Retailers. In essence, 'trading' will slow down to a crawl.

Bottomline: Price Controls are bad and selective Price Controls create rent-seeking. I expect to see fuel shortages as the norm in some areas serviced by small/independent Retailers as OMCs will not import more than they can sell through their own channels to cut financing costs. The 'distant' areas with mostly Independents will see a thriving black market in fuels.

East African Community - Union? What Union?

2011-11-21T01:20:00.001-06:00

Kenya & the rest of the EAC should stop wasting time (& taxpayer cash) on discussing a Monetary Union. It remains a WASTE of time (& taxpayer cash) in 2011, 2012, 2013 or 2014. IMHO, it will remain a waste long 2014! The only beneficiaries are the (taxpayer funded) academics, (taxpayer funded) government bureaucrats, (taxpayer funded) UN/EAC/World Bank/IMF officials & other so-called 'academics' who get grants or paid junkets to attend conferences on someone else's dime!

There are 5 members in the EAC:
Kenya
Tanzania
Uganda
Rwanda
Burundi

Potential Members:
South Sudan
Sudan
Ethiopia

Rwanda has done the most in the shortest possible time to integrate or become a true EAC citizen by opening up its borders to other EAC members. A progressive leadership knows Rwanda needs the EAC & is working hard to make it the place to be as a launching point into the EAC.
Kenya has the largest economy in the EAC & has done well compared to the others but it can (& needs to) do much more. At the minimum, the operations at the port in Mombasa and the border (Malaba, Namanga, etc) need improvement. A lot of it.
Uganda has done OK and even though it still 'fears' Kenya's economic weight, it has a renewed confidence after the confirmed discovery of 2 billion barrels of oil. The political bickering, corruption and decimation of the Constitution to allow Museveni a third term remains problematic.
Tanzania is a laggard. It has always been and will continue unless there is a HUGE shift in attitudes. I do not see any progress any time soon even though it can be EAC's powerhouse and surpass Kenya's economic might since it has lots of natural resources e.g. gold, natural gas, iron ore, coal, diamonds and lots more. There are huge rivers, plenty of arable land, a long coastline with many harbours and access to a huge hinterland including Zambia, Rwanda, Burundi, etc
Burundi is a poorly managed Rwanda. Not very consequential but its inclusion into EAC will benefit the region with an emphasis on stability.

My roadmap is simple...

Rwanda & Kenya need to 'open' up their borders/trade completely. There remain a few barriers. A joint Customs Union, with electronic paperwork, can benefit the transport of goods to/from Mombasa-Rwanda even though the physical route goes through an unstable Uganda. Kenya should not let Tanzania steal a march on this important trade route.
Uganda needs to build the oil refinery ASAP. Then supply Kenya, Rwanda, DRC & Tanzania.
Uganda and Kenya need to fix/upgrade/build the railway between Mombasa & Kampala. Then to extend it to Hoima and Kigali.
Burundi needs to follow what Rwanda is doing. Not rocket science. Copy the good. Avoid the bad. Simple.
Fast-track South Sudan into the EAC. Kenya, Uganda & SS need to extend the railway north to Juba. Perhaps an integrated oil pipeline as well.
South Sudan needs to build a refinery. The geopolitics make it difficult but why export crude oil when the processing can be done in situ to create local jobs & opportunities.
Tanzania will plod along at its pace but there will some integration though much slower.
Ethiopia is a socialist country. Period. It will plod along but Kenya is the natural supply route for southern Ethiopia. It is a huge market/supplier for EAC's goods & services.
Sudan is just trying to upset the apple cart for South Sudan. The real market for Sudanese goods/services is South Sudan. Cordial relations with Ethiopia will help both countries. Not a real contender for the EAC.

Monetary Union? Forget it until the trade barriers are removed.

Political Union? Laughable till 2020. Kenya's constitition is untested. Uganda's constitutional Term Limit was shredded to bit. Tanzania is the only EAC country with 'tested' political stability. Rwanda's first change in the Presidency comes up in 2017. No idea about Burundi. South Sudan remains unstable. Ethiopia is a virtual dictatorship. (Arab/Muslim) Sudan will not allow a non-arab or non-muslim to be president/imam/sheik.

Fiscal Union? A pipe dream until "Open Trade" is implemented. We saw what happened in Europe where the Monetary Policy is managed by the ECB but Fiscal Policy was left with Greece, Italy & Spain.

Bottomline: No-one is giving up 'power' to someone else in the near future.

Price Controls - Failures

2011-11-20T02:16:00.001-06:00

No matter how nice Price Controls sound to the public, the truth is they will eventually fail. There may be a TEMPORARY solution for a pressing need during a severe calamity but Price Controls extract a massive cost to any economy if applied over an extended period of time.

The Government of Kenya (GoK) - in this case most of the populist but greedy/hypocritical legislators aka MPigs - in its usual moronic manner instituted Price Controls on fuels... Now the idiots who pushed for it are shocked that the Price Controls do not work...

http://www.nation.co.ke/business/news/-/1006/1275928/-/4gssnlz/-/index.html

Price Controls create Rent Seeking opportunities among those who have the power to control the supply/sale of these goods/services.

When an Oil Marketing Company (OMC) cannot earn a decent Rate of Return on its investment, it will minimize or stop its activities.

Some Kenyan banks are paying 25% for KES 50mn (or more) for 3-month deposits. Loans are cost a minimum of 25% p.a. therefore the incentive to 'invest' or 'trade' does not make sense for many OMCs.

My analysis is that many OMCs are bringing in the minimum amounts of fuel required to run their retail outlets to attempt to cover the minimum fixed costs. There is little incentive to take additional risks to import fuel to 'trade' thus Kenya will face a fuel shortage unless steps are taken to increase the margins allowed under the Price Controls.

Kenya has an INEFFECTIVE bureaucracy to monitor fuel adulteration which is how some of the OMCs stay in business.

Free Markets allow for many Sellers & Buyers. The first condition is being decimated under the current Price Control regime. The 'smaller' players who cannot internally finance the fuel imports are being driven out of business.

http://www.capitalfm.co.ke/business/2011/11/independent-fuel-dealers-complain-over-pricing/

Kenya's largest OMC by volume (Total Kenya) reported a loss for 3Q 2011 on its fuel operations. The only other OMC that publishes its results is KenolKobil which has a regional network & extensive Trading Operations within Africa. It would not surprise me if some of the mid-sized & smaller OMCs close up shop in 2012 if the Price Controls (which squeeze the margins) remain in place.

I am certain many of the petrol stations adulterate the fuel:

- Kerosene/AGO's specific gravity is similar to Diesel's thus some stations would mix (tax-free) kerosene into diesel. Good for sellers. Bad for buyers.
- Regular petrol mixed in Super petrol then sold as Super/Premium. Good for sellers. Bad for buyers.

This is a complex topic but the simple message is that Price Controls do not work.

Syokimau - The saga continues...

2011-11-16T16:40:00.001-06:00

This is a sleek website from the developers of Athi View Estate but there is probably no view left...

I am not sure if this project is endangered since it could be on land that KAA does not claim it owns...

Syokimau - Smoke, Mirrors & Bullshit

2011-11-14T23:23:00.001-06:00

So AFTER the demolition of houses built in Syokimau, there will be a probe on why they were demolished?

Probe starts on Syokimau house demolitions

What I (& many Kenyans) want to know is why the developments were allowed by the relevant authorities in the first place...?

Via NTV - More than meets the eye

I am sure corruption was involved & of any of the property owners engaged in bribing officials of the municipality then they deserved the fate that befell them. Nevertheless, I have a feeling there were amny innocent victims too.

See earlier blog post on Lack of Land Rights In Kenya

Syokimau - Land Rights (or lack thereof) in Kenya

2011-11-13T16:36:00.001-06:00

Do not buy a house in Kenya unless you are 100% sure that the title is 100% clean.

Why?

http://allafrica.com/stories/201104040237.html

Read the above sensible article by the sensible Carol Musyoka who discusses the financial decision/s & implications of Buy vs Rent. Now that interest rates in Kenya are 22% or higher (vs 14% 6 months ago) the problems will only get worse as many Buyers who borrowed will default in 2012 as they can't keep up with payments.

Or how about these houses demolished in Syokimau in Nov 2011 when the poor folks were told all was OK. They were given permission to build & then this...

Video 1: http://www.youtube.com/watch?v=VayMSPq94cE
Video 2: http://www.youtube.com/watch?v=d7GCZ7mro5A
Video 3: http://www.youtube.com/watch?v=xgGGtt3btxw

The folks who were building in Syokimau were not politically connected crooks like naushad merali or gideon moi but Kenyans who thought they had a clean "Right" to the land.

I do not condone violence but if these residents picked up a gun & put a few bullets into those who sold them the land, approved the building plans & lied about the flights' path... I would simply look away...

Rwanda has a Electronic Registry for Land. It covers Kigali and is expected to cover all of Rwanda by Dec 2012. This is a country that was devastated in 1994 but have done so much to improve the processes that create good National Institutions.

Cement Firms in East Africa

2011-11-10T22:10:00.001-06:00

Globalisation...!
[Kenya's whole district thing is too new for me so I will use provinces coz easier to remember!]

Kenya's Athi River Mining (ARM) does not have a cement plant in the town of Athi River but one in Kaloleni, Kilifi District, Coast Province. ARM is building a huge plant in Tanga, Tanzania & will also use it to supply Kenya.

Uganda's Tororo Cement owns Mombasa Cement but the plant is not located anywhere near Mombasa (Coast Province) but in the town/district of Athi River.

France's LaFarge owns Kenya's Bamburi Cement (plants in Mombasa & Athi River) which owns Hima Cement in Uganda. The Mombasa plant exports to Seychelles and Mauritius.

India's Sanghi Cement is building a plant in West Pokot in Kenya but the target market is South Sudan & DRC

Kenya's Devki Cement has a plant in Athi River.

France's LaFarge has a large stake in EA Portland Cement located in Athi River.

France's LaFarge owns Mbeya Cement in Mbeya Tanzania which often supplies Zambia.

France's LaFarge owns Chilanga (now LaFarge Zambia) Cement in Chilanga & Ndola Zambia. The Ndola plant supplies DRC. Turns out LFZ has shares in Mbeya Cement of Tanzania.

To add to all this... Kenya & Tanzania import cement from Egypt, Pakistan & China!

*** Updates - I have been informed (but not verified):

1) ARM has a 'Cement Grinding' plant in/near Athi River

2) Mombasa Cement has a clinker plant near Mombasa

Insider Dealing on Nairobi Securities Exchange

2011-11-01T02:20:00.002-05:00

Thanks to the wrangles on the Board of CMC... some directors will start running scared at some of the listed firms on the NSE...

http://www.businessdailyafrica.com/Claims+of+insider+trading+emerge+at+CMC+case+hearing+/-/539552/1265234/-/fl98j3z/-/index.html

These firms are typically controlled by a few shareholders but often have a majority shareholder often through proxies. An interesting tidbit is that these firms are often poor performers but have lots of deals with Related Parties.

Hah... so let me leave it open to my readers to tell me which ones they think fit the mold?

Kenya in 2012

2011-11-01T01:16:00.002-05:00

These are just my thoughts/opinions. I am not going to link articles or stats but please do comment or correct me if I have made errors... Or if you disagree with me!

Kenya is not an island. We import everything from aeroplanes to zit creams. In between, we also import water (*SMH*) and all sorts of items. The most important being Petroleum products.

Kenya's primary exports are to East Africa, Europe & the Middle East. The rest of the World is important but less so. Therein lies one of the problems.

Kenya's primary exports are Tea, Horticultural products (Flowers, Fruits & Vegetables) & Textiles.

An interesting but growing part of the Export Market comprises Intermediate Goods which includes chemicals, plastic products, building materials, etc. These are products Kenya imports as Raw Materials (or components) then re-exports as finished goods primarily to East Africa.

Finally, Kenya has significant forex income through Tourism, Remittances & export of Services.

2011 has seen high oil prices that sucked the air out of Kenya's forex outflows. According to the WB, the Petroleum Imports were higher than net exports. And the Kenya Shilling (KES) paid the price.

The confluence of high oil prices, failure of rains & global economic turmoil resulted in a rapid increase in inflation which has placed Kenya on the edge of a knife going into 2012. Not all is doom & gloom but care must be taken.

At some point Kenyans need to stop and think what needs to be done. Yes, the politicians in Kenya have generally failed Kenyans but they are a microcosm of Kenyan society. After all most politician were (fairly) elected by Kenyans. I am not going to comment on the 2007 elections except there were no political losers.

Kenya has to look and adopt policies that have succeeded in other countries. I am not suggesting wholesale adoption but selected adoption of what has driven Asian countries forward.

Singapore - Few natural resources but a great harbor which they have fully exploited. Kenya has Mombasa/Kilindini which can be expanded & improved. And privatized despite political meddling by a bunch of corrupt politicians.
India - As 3rd world as it gets. Yet 1st world in many respects. India has technology Kenya can implement due to the 'price' factor. India's technology in many areas may not be high-tech but ideal for Kenya especially in Agriculture & small-scale manufacturing.
China - Kenya needs to learn how to build from the Chinese. They work on building roads in Kenya day & night which means more is done in less time!
Pakistan - It may not be as glamorous as its neighbour, India, but it faces similar problems as Kenya does. Nevertheless, it has managed to churn out some decent firms as well as innovate in various sectors in including farming.
Rwanda - OK, not an Asian country but what a country. Discipline, Transparency & Efficiency. Kenya needs to adopt "UMUGANDA" which is community service once a month by ALL able-bodied citizens. No exceptions except for the ill or disabled. President to Peasant.

I am of a Libertarian bent which means I am a Fiscal Conservative & a Social Liberal. I don't care what you do in your private life as long as you don't expect or have me pay for it!

The Bugbear is 2012's General Elections. Kenyans will pay a heavy price as the country comes to a standstill. Kenyans love elections. I think it is stupid for a country to be paralyzed just because we have elections. Folks in the USA work on on the even of Election Day, on Election Day and the day after. In Kenya, Election Day is often a holiday and often the day after.

If Kenya does not;

get sufficient rains in 2012
maintain peace in the major agricultural regions
maintain a stable economic environment
get the Fiscal Policy on track
maintain a tight Monetary Policy
keep al-shabaab & friends in check

then 2012 is going to be very difficult for Kenyans. Whoever becomes the President will have a tough time getting Kenya back on its feet in 2013.

Do I sound pessimistic? Yes.

(Partial) Solutions

Privatize but TRANSPARENTLY. Let me repeat. TRANSPARENTLY. No matter what politicians say, the Business of Government is not Business.
Support agriculture development. Not by providing subsidies but better roads from farms to towns, easier market access by simplifying licensing of agro-producers, introduce new & better crops. I would even venture many of these roads should be Public-Private Ventures.
Kenya has to encourage its local manufacturing firms to stay put. Expand when & where possible. No subsidies but a better environment including easier access to financing & better courts dedicated to business matters.
Export, export, export. Kenya cannot compete against China or India in many markets but East Africa (esp the hinterland) is Kenya's oyster. The hinterland extends all the way to DRC, Sudan & Ethiopia.
Reforms - Judiciary, Civil Service, Education. I believe Education should be privatized though heavily supervised/policed to keep out charlatans. Citizens should get vouchers they can use to shop around. Misuse or fraud should be severely punished.
Re-negotiate Trade treaties - Many countries subsidize their industries directly & indirectly. This has to be countered or we will kill off local industries. Egypt is a notorious COMESA partner which exports to Kenya what they import!
Security - Not a cheap endeavor but a safe country means more citizens will be out & about everywhere. No-one should feel unsafe not matter what ethnicity anywhere. Transporters should work 24/7 to improve utilization rates of infrastructure. Shops, hotels, airports, ports, offices can all run 24/7 for those who need the services. Rwanda is an attractive destination since it is considered 'safe' especially Kigali when compared to Nairobi.

The above solutions are relatively easy to attain but they require an engaged citizenry not the current 'tunaomba serikali' nonsense!

2012 will be a tough year but if Kenya starts down the path of sustainable development, folks will sit up & take notice. They will choose to invest in Kenya which is a small but important step going into 2013.

Your thoughts?

KES 100 to US$?

2011-09-22T03:49:00.001-05:00

It seems many Kenyans have resigned themselves to KES 100 to US$.

The odd thing is they complain while;

drinking imported beers instead of Tusker/Sierra
wearing imported shoes instead of Bata
eating imported cereals instead of local Weetabix
imports galore instead of acceptable local products/services

So why complain about the KES 100???

CBK Mismanagement of the Discount Window

2011-09-07T06:10:00.000-05:00

*My apologies for any technical language but I shall try to simplify the blog post to appeal to all my readers. Suggestions/Corrections are welcome. Not complete coz I need to clean it up as well + complete it*

Banks just like retail/corporate borrowers need to borrow money.

Banks lend money they 'borrow' from depositors (you & I). Sometimes, due to various reasons, they need 'cash' which does not mean the banks are 'broke' but they face a liquidity (cash) shortfall due timing issues.

Banks lend to customers/borrowers.
Banks buy T-Bills & T-Bonds (lending to governments) for interest or trading income.
Banks buy other assets which might not be cash-like (i.e. not very liquid) for income.
Banks buy corporate Bonds or other instruments for income.
Banks buy/hold Foreign Exchange for trading or business dealing.

Therefore a bank at a specific point in time may be 'illiquid' i.e. it does not have the'cash' it needs therefore at the end of that day it needs to borrow 'cash' from other sources. These sources are:
- Depositors/Customers
- Other Banks
- Central Bank

Getting last minute cash from Depositors/Customers is a tough call but the first port of call NORMALLY are other banks in the 'Interbank' market. If the cost or availability in the Interbank market is too high then the 'illiquid' bank can approach the Discount Window of the CBK.

CBK's Discount Window - The borrowed funds are normally short-term in nature and at rates higher (often punitive) than the benchmark or prevailing T-Bill rates.
* Different CBs may use different benchmarks including 30-day T-Bills.

There is a Monetary Policy Committee that seems out of sync with the 'real' economy. The MPC sets the Central Bank Rate (CBR) which was at 6.25% which the CBK used as the DWR (Discount Window Rate) but which was not correlated to the T-Bill Rates.

So the 'smart' banks:
- Borrowed at the CBR at 6.25% & bought T-Bills at 8%+ (Almost risk-free arbitrage)
- Lent in the Interbank at 6.25%+ then borrowed at the CBR at 6.25% (Risk-free arbitrage)
- Borrowed KES at 6.25%, converted into USD/Euro/Forex then lent the forex at 7.5%+
*So the bank benefits from arbitrage in interest rates but also potential depreciation*

Sensible Central Banks make the DWR higher than the benchmark i.e. there is a 'haircut' to borrow from the CB. Not so in Kenya where CBK's DWR < T-Bill Rate.

Not surprisingly banks loaded up on T-Bills while borrowing from the CBK. Other banks went all out to buy Forex (hard currencies). This led to a rapid drop in the KES vs 'hard' currencies.

What did the CBK do? Nothing at first. Then some 'hidden' moves which were promptly ignored by the banks concerned. Ndungu (CBK Governor refused to reveal the banks' names).

Next: CBK Governor blamed KenolKobil for the rapid increase in inflation & depreciation of the KES. So while he refused or was afraid to tell Kenyans which banks were behind the rapid & massive depreciation of the KES, he was happy to blame KenolKobil about an opinion!

Next: Issue circulars that were contradictory or at the minimum confusing!
The new DWR = CBR + Prior Day's Interbank Rate - CBR + 3% = Huh?
*Why not just say IBR + 3%? No need to "+ CBR - CBR" coz = ZERO

And the crap hit the fan! The overnight IBR started jumping 2-3% daily and soon breached 30%. Crazy! The KES remained 'weak' since the banks paid more for large short-term (wholesale) deposits but paid peanuts to small depositors. The lending rates started creeping up for ALL borrowers. Go figure!

The banks that had 'hoarded' forex were sitting pretty as long as they were not very illiquid. They simply waited it out.

*Still more to come*

CBK - What is going on? Or not?

2011-09-06T05:04:00.002-05:00

Can anyone make head or tail of CBK's recent moves relating to the Monetary Policy or Exchange Rate Policy?

I am going to refer to the August 2011 newsletter by Cannon Asset Managers - please click on this link for the entire newsletter - for an incisive look at what the CBK is saying or not saying or who knows what it's saying...

"Central Bank once again reverted to a tight monetary policy stance, just 2 weeks after indicating that they did not believe tight policy stance would have the desired result"

Flip flop... Well, at least they are willing to change but have the mandarins at CBK really thought it through? Or will the flip flop continue?

"We forecast that, having got its message across to the banking sector (though we are not sure what the message is), the CBK will relent and bring the overnight discount rate closer to 8%, without diluting its tight monetary policy stance."

So as CAM said "not sure what the message is" - What happened to clarity? Heck, I think CAM is being polite. You can't go start, stop, start, stop, start, stop... then start the process all over!

"we estimate that the weighted average rate of the rejected bids for the 30-year bond was about 21.7%"

Gulp! This would kill off investment since many would rather invest in T-Bonds than invest in the real economy! I do agree that CBK/Treasury should reject such bids but it also shows the lack of confidence in Kenya's Economic or Monetary Policies. If the (estimated) WEIGHTED AVERAGE is 21.7%, I dread to think what the higher end of the range was!

Bottomline: These announcements & badgering by CBK is confusing folks leading to a higher premium on loan & forex to 'mitigate' the uncertainty. I have spoken to many bankers who say they are MAXIMIZING the risk premium/spreads on loans & forex since they can't plan.

Some banks have even stopped (reduced) lending - not because of the liquidity crunch - but the uncertainty of CBK's unpredictability. Unpredictability leads to Volatility leads to Higher Spreads leads to Higher Pricing/Costs leads to Reduced (sustainable) Economic Activity.

If I get the time I will blog on the CBK's crazy shenanigans at the Discount Window & how even a mediocre Finance/Economics/Banking students would have collectively scratched their heads at CBK's moves.

Or CBK Guv can blame KenolKobil for the woes facing Kenya!

No rain? - KK should plant more trees.
KES falling? - KK decided to pay for fuel imports instead of delaying payments.
Interest Rates Up? - KK has a Commercial Paper out.
Traffic Jams? - KK has made it easier to buy fuel by opening up more stations.
Fuel Shortage? - KK hasn't opened enough stations.
Inflation up? - KK's Deal Poa should be 10/- not 5/-
Food Shortage? - KK should be in the business of growing food crops.

* I hope Cannon is OK with the use of the quotes in red. I assume it is OK as long as I give credit to CAM & the newsletters are posted on their website *

Disclaimer - All comments/opinions are mine. The 'original' newsletter can be found at http://www.cannonassetmanagers.co.ke/newsletter-august/index.html and has a lot more detail. I also like the grading given to banks but note the lack of sufficient detail provided to the investing public.

ColdTusker BANNED from predicting scams

2011-08-15T02:59:00.005-05:00

Mr. Cold Tusker,

I write to you to BAN you from predicting, forecasting or even dreaming of scams at entities under the control of the Govt of Kenya or Ministry of Energy.

Such predictions have a way of coming true. Furthermore, shedding light on such scams or potential scams makes us look exactly like what we are. We feel exposing these to the public shall open their eyes & make it difficult for us to continue such plans prior, during & post to the 2012 elections.

We have our friends (mboss, can I call them flunkies) in the Media who are capable of not informing Kenyans as & when needed.Of course, all actions are for the good of the few at the expense of the many.

This is a blogpost you posted in January 2009, please note as you predicted, such a scam did take place around June 2011 but we feel you should not predict or highlight such matters. Let our PR folks deal with it by:

Blaming the Kenya Shilling (note to self; Do not piss off CBK Guvnor)
Blaming the Arabs/Indians/Malaysians/Somalis
Blaming consumers
Finally our fail-proof method; blaming KenolKobil. No reason required.

To save taxpayer money, we have pre-printed letters blaming KenolKobil for any & all ills facing us. We found it easier & thanks to the Media & gullible Kenyans, it works very well.

So herewith we BAN you from predicting scams concerning any of the following entities:

Govt of Kenya

Ministry of Energy

Kenya Pipeline Company

National Oil Company of Kenya

Central Bank of Kenya

After all the transfer of wealth of only 10/- per Kenyan per month means a freaking lot to the some of us. Consider it our version of "AllKenyans4SomeKenyans".

Thank you for your cooperation on behalf of the politically helpful folks,

[Names Redacted]

WHAT DO YOU THINK COLDTUSKER SHOULD DO?

Another Scam Coming Up at NOCK

2011-07-04T00:56:00.002-05:00

I can almost guarantee that we will see a scam in the KES 9bn ($100mn) oil jetty project being handled by NOCK.

Why do I think NOCK can't handle it without losing money?

Well, the corrupt idiots [yes, both corrupt & idiots!] recently gave Prisko [as shady as they come] KES 90mn to source & deliver diesel. Yeah, right. What's more the stupid [& corrupt] decision led to late deliveries of diesel which Kenyans paid for through a price adjustment by ERC.

Yes, instead of disciplining the corrupt folks at NOCK, the ERC passed on the cost to the suckers known as KENYANS...! Who as usual, took it in the ... without a peep!

Market Outlook for Kenya - June 2011

2011-07-01T04:38:00.006-05:00

Continuing my attempts to get Finance Professionals to provide insights, I have convinced

Sunil Sanger of Cannon Asset Managers Limited for allowing me to post this Research Report or click the header.

If you have questions or comments, please post them on here & I will ask him to respond.

For those who need more specialized assistance, you can contact Sunil Sanger or Daniel Chege.

www.cannonassetmanagers.co.ke

Thoughts on Kenya's 2011 Budget &/or Ministerial Statement

2011-06-20T16:09:00.002-05:00

*** Guest Post by Nikhil Hira - Tax Partner at Deloitte Deloitte & Touché Kenya

Well another budget season comes to an end - or has it? We heard Hon. Uhuru Kenyatta deliver his Budget speech (or was it a Ministerial Statement?) on 8 June 2011 amid considerable confusion. It really seems to me that clarity is needed on the New Constitution and what it really means during the Transition as we head towards its full implementation. Ever since the Referendum in August 2010, there have been several instances of us moving to the cliff's edge with one foot over only to be pulled back. This isn't the way to attract the investment we want and need. Indeed if we continue in this vein we will increasingly become the laughing stock of the world.

Enough about the Constitution, let's turn to the budget that was or, perhaps, never was. We are now in the midst of the 21 day period that the Speaker of the House set for public input. What surprises me is that, as of Friday last week, no guidelines had been given as to how this process is supposed to work. Nevertheless, I intend to submit my thoughts on the proposals announced on 8 June. Overall the tax measures were a mixed bag of innovative to the down right impractical.

To me the introduction of the tax free status for Real Estate Investment Trusts albeit from 1 January 2012 was extremely innovative and forward thinking although it remains to be seen what the detailed guidelines will contain. Of course what concerns me is who will actually benefit from this wonderful idea - let's hope it doesn't result in a major scam! By the way, I was asked the other day whether a development of 2 houses on a small plot of land could be set up as a REIT. Well I suppose we will have to wait for the guidelines but I can't see this being possible.

On the other extreme the various measures introduced for personal tax. Great in theory but in practice........

The abolition of the requirement for the employed class to file returns if their only income is taxed under PAYE, was great to hear - after all it means less red tape. But how is to work and given our propensity to evade tax, isn't it likely that a number of people will do just that? It seems the onus is back on the KRA to find and catch the evaders and with a system that is already under strain, one wonders how practical it is.

Similarly, the measure to prevent the use of the Personal Relief (that princely sum of Kshs 1,162 per month) more than once is a great idea but who is responsible for enforcing it and who will be responsible if misused - the first employer, subsequent employers or the employee. It really seems minimal thought went into it. May I suggest some guidelines from KRA or we will all be like the proverbial dog trying to catch it's tail! I understand Rwanda has a scheme for nominating the Principal Employer and in this day and age of info sharing, why not talk to them?

Which conveniently brings me on to the information exchange agreements. Those of you with cross border transactions with related parties, be prepared. - all the revenue authorities are going to be talking about you and it is unlikely to be all good. And even if you don't fall into this category of taxpayer, you will be caught under this sharing arrangement if you have other sources of income cross border so beware!

Then my biggest bug bear - the doubling of WHT on professional fees from 5% to 10%. One of those shock and awe moments for me at least! My, and other suppliers of management and professional fees, cash flow is going to take a severe hit. Add to this the continuing saga of withholding VAT and I must say this measure is entirely counter-productive. It's not going to work I'm afraid.

No reduction in tax rates once again, indeed not since 2005, leaves the taxpayer worse off given inflation. Why this fear of reducing tax rates I am not sure but we have historic evidence of what they can do to collections. I hope the Budgetary Committee takes note of this and pushes for it before Finance Bill 2011 becomes an Act.

Travel chaos at JKIA after power blackout

2011-06-12T16:11:00.002-05:00

Click the link on the subject header for the article.

Operations at the Jomo Kenyatta International Airport were thrown into disarray as aeroplanes could not land or take off for several hours.

The air traffic closure, from 5.30 pm until after 8 pm on Saturday was occasioned by a power blackout, according to the Kenya Civil Aviation Authority.

An aircraft was diverted to Entebbe airport in Uganda while the rest were forced to land in Mombasa and Kisumu during the time.

Others that were due for take off were delayed at the airport in Nairobi.

The Authority’s public relations officer Mutia Mwandikwa said the interruption stalled the entire computer system, including the runway lights.

“After the power failure, the back-up system also failed to start immediately. The UPS (uninterruptible power supply system) took some time before it was fixed,” he said.

During the time passengers were stranded while airlines were forced to adjust their schedules.

Mr Mwandikwa said normal operations at the airport resumed at 8 pm.

Someone needs to be fired or sued. Here is my take:

Someone in the earlier management [perhaps even current management] was paid off to install a crappy UPS system. So when push came to shove, it did not work!

UPS systems need batteries & these must be maintained but I would venture someone was sleeping on the job while being slipped a few coins!

The cost to airlines to divert planes to other airports is HUGE. There are costs for additional fuel to/from NBO + crew costs + upset passengers + wear & tear on aircraft + delayed schedules, etc!

KRA's Simba System is down!

2011-05-12T12:23:00.000-05:00

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!

http://www.nation.co.ke/business/news/Technical+glitch+paralyses+KRAs+tax+clearance+system/-/1006/1161276/-/q7m4x/-/index.html

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.

http://www.businessdailyafrica.com/KRA+clearance+system+hitch+hits+port/-/539552/1161372/-/5dp3hwz/-/index.html

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

2011-05-12T05:50:00.000-05:00

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.

Questions:

1) Did Black Gold evacuate the tanks? When?

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

Kenya's Oil Industry - The Unholy Trio

2011-05-11T12:11:00.001-05:00

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

http://coldtusker.blogspot.com/2011/05/kenya-pipeline-company-bankrupt-may.html (May 2011)

http://coldtusker.blogspot.com/2009/03/kenya-pipeline-company-bankrupt.html (July 2009)

National Oil Company of Kenya

Kenya Petroleum Refineries Limited

Petrol Shortages in Kenya - May 2011 Part 6

2011-05-11T11:35:00.000-05:00

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

2011-05-11T03:04:00.002-05:00

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!

Petrol Shortages in Kenya - May 2011 Part 4

2011-05-09T00:53:00.003-05:00

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'???

"Kenya Oil Industry in chaos" from Daily Nation

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.

Kenya National Budget 2011. Your Budget.

2011-05-08T13:02:00.003-05:00

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

2011-05-08T12:38:00.002-05:00

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

2011-05-08T10:40:00.002-05:00

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!

Petrol Shortages in Kenya - May 2011 Part 3

2011-05-06T02:52:00.008-05:00

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.

Uganda is a country in Africa

2011-05-04T17:06:00.007-05:00

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?

http://www.youtube.com/watch?v=ZIzGnZw_G8Y

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]

http://youtu.be/6YjLe4uE3L0

Please let me have your thoughts on this!

Petrol Shortages in Kenya - May 2011 Part 2

2011-05-04T02:39:00.004-05:00

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.

Petrol Shortages in Kenya - May 2011

2011-05-03T12:35:00.007-05:00

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.

The Rise of the Kenyan TransNational

2011-04-28T15:05:00.003-05:00

A good sign is that while global firms are (ostensibly) looking at Kenya, in reality as a beachhead for E & C Africa, Kenyan firms are growing into Transnationals. Nairobi is becoming the HQ for many of these firms.

Nakumatt has grown from a single dusty megastore in Industrial Area [opposite Nyayo Stadium] into EAC's largest retailer. It dominates Kenya but has opened stores in Uganda [outshining the older Uchumi], Rwanda & will soon open 3 stores in Tanzania. I am sure Burundi & South Sudan are not far off.

Even Uchumi [which expanded into Kampala many years ago] plans to open new locations in Uganda to mirror Nakumatt's expansion. There are runors about expanding to Tanzania as well.

KenolKobil has pursued an expansion strategy for years & the regional footprint has become more important to KK over the years. It just announced a significant new acquisition in Tanzania. By 2015, KK's regional operations > Kenya operations. KK has established a subsidiary as far south as Mozambique. It trades as Kobil [no more "Kenya Oil" aka Kenol] in the region.

Kenya Commercial Banl (styled as 'KCB') was the first Kenyan bank to venture into EAC with an operation in Tanzania. KCB does not use "Kenya" for easier acceptance to other markets including Rwanda, Uganda & South Sudan.

A close [& more successful] competitor is Diamond Trust Bank [styled as DTB]. Unlike KCB, DTB acquired majority stakes in its sister firms [under the aegis of AKFED] over time & is not a unified brand in all EAC countries except Rwanda.

Equity Bank purchased Uganda Microfinance Ltd & is now among the fastest growing banks in Uganda. Greenfield operations are quite successful in South Sudan. This remains a bank to watch.

Mid-tier banks like NIC Bank [no more the verbose National Industrial Credit Bank] and I&M Bank [no more the verbose Investments & Mortgages Bank] have expanded into Tanzania. Seems Ugandan banks are over-priced for them or the smart money says the potential in socialist leaning Tanzania is greater.

***I&M Bank took an interesting route by acquiring 50% of First City Bank with a Mauritian conglomerate (CIEL) which has extensive operations in the Tanzania & Zambia. My gut tells me that they will acquire a Zambian operation since Tanzania & Zambia share an extensive border & trade relations. The Tanzanian acquisition ['C&F Bank' now renamed 'I&M Tanzania'] is a joint venture between I&M and CIEL.

AKFED has used the Kenyan operations to support & eventually acquire other EAC businesses.

Jubilee Insurance Company had a path similar to DTB. The Tanzania & Uganda operations are now subsidiaries of Jubilee Kenya but I expect the Kenya operation to become Jubilee Africa but HQ's in Nairobi.

Tourism Promotion Services (TPS aka Serena) is a Kenya based firm but grew 'East African' by acquiring TPS properties in Tanzania & is now TPSEA. The brand name "Serena" is owned by AKFED. There are Serena properties [not part of TPSEA] in Uganda, Rwanda & Mozambique.

[BTW, the Kampala Serena puts the Nairobi Serena to shame!]

Like the path followed by other AKFED firms, I expect TPS(U) & TPS(Rw) will merge into TPS(EA) within a few years. Maybe even the Polana Serena in Mozambique. Of course, add a name change to TPS Africa soon thereafter.

The brand name "Serena" is owned by AKFED & there are Serena properties in Afghanistan, Pakistan & Tajikistan but these have little connection to the original TPS.

Another AKFED baby is Nation Media Group which has extensive operations in Uganda & Tanzania. Unlike DTB or TPSEA, these were greenfield operations but seem to be doing well. I am sure there are plans to head further west. Museveni was not happy with NMG but since AKFED is a major investor in Uganda [Air Uganda, Bujagali, TPS/Serena, DTB, Jubilee, etc] he has eased off.

Sameer Group [naushad merali's group] has interests in various countries. Except for the perennial under-performers in Kenya, I know little of them but Sameer recently bought a £15,000,000 call-center in the UK.

TransCentury has made a splash & excepts to list in a few years. They are in Tanzania [through a NSE-listed EA Cables subsidiary as well as direct ownership of Chai Bora], Uganda [RVR = Rift Valley Railways] & South Africa [Kewberg Cables]. I believe they are poised to expand even further & faster over the next few years especially through the revamp of RVR.

Cooper Motors Corporation (nowadays CMC Group) has operations in Uganda & Tanzania.

Kenya's largest firm East African Breweries [which changed from 'Kenya' Breweries to 'East African' Breweries after making forays into Uganda & Tanzania] looked into expansion into Ethiopia as well. EABL broke up with SABMiller controlled Tanzania Breweries by buying a majority stake in Serengeti Breweries.

*** KBL became EABL which became KBL (again) in the 1970s after the nationalization of Uganda Breweries during the days of the murderous buffoon idi amin as well as nationalization by the socialist fools who ran Tanzania. With the loss of its Tanzanian & Ugandan operations [leaving only Kenya] EABL changed its name to KBL. And now back to EABL.

Kenya Airways (KQ) has the largest pan-African footprint & in some countries it is the de facto international airline! KQ in West Africa provides a 'matatu' service by hopping in & out of multiple cities boarding & disembarking passengers before reaching its final destination!

Even the small firms are in the act like NSE-listed firm Car & General (C&G) has operations not only in Tanzania & Uganda but in India as well!

There are numerous smaller, private or family firms with interests in EAC. These may fly under the radar since they might not share a common name or want to (legitimately) remain out of the spotlight.

Africa - Deja Vu

2011-04-26T16:22:00.006-05:00

In 1994, about 1,000,000 people lost their lives in the Rwandan Genocide. Most of the dead were Tutsis butchered by the Hutu Interahamwe. It was ethnic cleansing reminiscent of the Jewish Holocaust [other groups were also targeted by the Nazis].

In 2008, Kenya faced it's less severe form of ethnic violence primarily pitting the Kikuyu vs the Kalenjin. What happened was wrong. From the first insult hurled to the last unnecessary death. Kenya, Kenyans, Kikuyus & Kalenjins have paid the price since. Of course, a few have gotten away with murder. Kenya's economic future was shattered in the medium term. The scars of 2008 remain in an economy that:

Faces food shortages [many killed & displaced were farmers]
Economically displaced persons [Uprooted businesses & dearth of tourists in 2008]
A gargantuan government [Huge money-guzzling cabinet]
Many, many more ills!

Now we have Nigeria which has experienced violence before the complete cycle of elections in 2011! The excuse ranges from religious to ethnic tensions but the dead are mothers, fathers, brothers, sisters... whatever religion or tribe...

Churches and mosques were burnt, and mobs with machetes hunted for Christians in the northern city of Kano. Muslims were attacked in reprisal.

The excerpt below could be attributed to a Rwandan, Kenyan or Nigerian. It would not surprise me to hear the same happen in another African country. Take your pick of 50 odd countries because it seems most African countries never learn. A pity most do not follow the examples set by Botswana & Mauritius which have regular non-violent elections where power is transferred fairly & peacefully.

"The rioters used a sharp cutlass to cut his forehead," said insert name here younger brother as he sat by his bedside along with their mother. "They nearly sliced his skull into two."

Ideas for 'local' Fuel...!

2011-04-20T09:21:00.003-05:00

Check what this Kenyan farmer in Kisii is up to!

Gas from cow dung

No need for electricity from KPLC or LPG from OMCs!

Kenya - Fuel Sector Solutions

2011-04-18T15:58:00.006-05:00

It is a sign of the times that I, a citizen blogger/tweeter, am responding to a Tweet by Kenya's Deputy Prime Minister & Finance Minister, Mr Uhuru Kenyatta (@UKenyatta). I doubt he (or his staff) would have responded to my letters!

He does not know me but he [or his handlers] have responded to some of my Tweets & that has encouraged me to write another blog post. This does not mean I support his political views but he has done OK, in my book, as far as Kenya's economy is concerned. I was an idealist when I was younger but have grown pragmatic as concerns the rate of (good) change in how Kenya does business. Let's be clear, Kenya has very far to go before meaningful comparisons to Singapore can be objectively made.

Of course, this is a basic outline of what Kenya can do but I hope its a start when riots in some far-flung country don't affect me as much. Nevertheless, Kenya is not an island in the global environment.

[BTW, President Paul Kagame of Rwanda (@paulkagame) is on Twitter too & has personally replied to me. ;-) ]

Kenya's Fuel (Petroleum) Crisis(es)

Problem:

Volatility of Prices - Kenyans are being disingenuous in apportioning blame when Kenya experiences huge variances in fuel prices. The volatility of oil prices can be blamed on lots of factors but Oil (crude) is heavily traded on the global market & Kenya has no petroleum deposits to speak of to fll back on. Hopefully, we strike some hydrocarbon deposits, soon.

Solutions:

1) Kenya [as a country] enters into Derivatives that 'set' a base price. Not a cheap option since Derivatives cost Premiums/Payments [aka Money]. The gain/loss from derivatives can be used to 'stabilize' the price. Of course, as KQ knows, they can also hurt when prices fall.

Derivatives require Premiums or Cash Payments/Receipts depending on the type, strike price, etc. Lots of options. Lots of calculations. Lots of sharks.
Hedging is complex & generally works better if you are a Seller of the Product e.g. if Angola knows how much oil it can produce, it can sell it 'forward' through Derivatives or Forwards so it knows how much it will earn in a fiscal period.

2) Bilateral agreements that allow lifting of Crude at discounts to Market or Fixed Prices. Helps Kenya but there is a price to pay as well since Bilateral Agreements always involve Quid Pro Quos.

What can Kenya offer the Middle East countries? Support at the UN, no matter what? Food security? What? [In essence, very little]
Kenya may enter into untenable agreements which will bite back when the chips are down. I remain wary of these bilateral agreements. Iran offered Kenya a deal but the conditions might be onerous.
That said, there is Southern Sudan. Kenya can promise (& deliver) a refinery &/or pipeline to SS to move oil 'south' thus reducing SS dependence on the North. In exchange, there is a commercial 'payment' in oil e.g. Kenya moves 100 barrels to Lamu in exchange for 5 barrels.
Uganda plans to build a refinery but needs to 'sell' its refined products. How about a long-term agreement with them?

Problem:

Huge Import Bill [& need for forex] for fuel. Not an easy one to tackle since Kenya imports 100% of its petroleum requirements.

Solutions:

1) Reduce the use of Oil/Capita. Not easy as we 'expand' our economy. Nevertheless, improving the roads, cutting down on 'poor' driving habits e.g. matatu-style driving will save Kenya a huge percentage of WASTED fuel.

Traffic is horrendous in Nairobi (other urban centers too) partly due to a poor road network. Well, improve it by building more roads. We need them as the country expands. Nevertheless, this costs money & therein lies the rub. Are Kenyans ready for 'efficient' toll roads?
Public Transport - This is critical. Look at New York or London where buses & trains are the primary mode of transport. I do not mean matatus but I mean decent & reliable BUSES & a train system. Singapore & Bangkok have relatively new (& efficient) Urban Rail Systems. Let's look to India [Dehli Metro] & South Africa [Gautrain] as examples of what can be done in the 3rd World & African scenarios.
Devolution - The private sector is already devolving out of the CBD. Financial Institutions' HQs have moved to Upper Hill but banks have branches & ATMs everywhere else. It is time for GoK to do its part. Move 'out' of CBD to an efficient purpose built 'city' served by rail, airport & roads. Also devolve functions as well as continue going online.
Singapore contemplated moving government functions OUT of the city centre to enable 'release' of prime property to private entities & reduce traffic into the city for government services. Add new & better designed buildings for efficiency.

2) Bio-fuels - Forget the naysayers. There are lots of advantages to UNSUBSIDIZED bio-fuels. Let us choose those that make sense. Some will work, others will fail. Let's not be afraid of failures as long as the process is transparent & we learn from it.

Ethanol - Kenya can dramatically increase ethanol production by using sugarcane waste/baggasse as feedstock. Mumias is putting in an ethanol plant. What is required is a minimum payment that encourages Mumias/Sugar Firms to install the conversion plants & provides an incentive for continued production. We need to return to ethanol blending or UNTAXED 85-100% ethanol fuel.
Bio-fuels can also be produced by using other feedstock including certain fast-growing grasses. I am not saying we use 'food' crops for bio-fuels but marginal lands for dedicated bio-fuel crops.
Many researchers in the USA are working on bio-fuels from algae, switchgrass, etc. We need to do the same. What can we grow in our semi-arid areas (with limited water requirements) that can be used to produce Bio-Fuels?

Problem:

Increasing Consumption of Imported Fuels

Solutions:

1) Population Control - Why do folks think Kenya can keep on feeding more folks? We need to improve QUALITY of life. I say max of 3 kids. Any more then off to the sterilization table. I am NOT advocating China-style policies.

We can increase per capita energy use without increasing our total import fuel bill. There is always a minimum requirement per kid/person. So more people means more fuel is required to maintain the standard of living.

Problem:

Taxes on Fuel

Solutions:

1) Taxes - Taxation of fuel in Kenya needs to be harmonized for efficiency & to prevent adulteration not for populism.

Kenya's government needs to be more efficient but the taxes are here to stay. They should be reasonable so as to make smuggling & adulteration insignificant.
Taxing kerosene at low rates to shield Wanjiku leads to adulteration of diesel. The chemical & physical characteristics of diesel & kerosene allow 'mixing' to the detriment of users of diesel. As for Wanjiku, she needs to understand (4) helps lower her bills.
Diesel is 'dirtier' than petrol but has enjoyed popularity since it was taxed at a lower rate than petrol. There are other reasons diesel is preferred for certain applications like 'safari' vans, etc.
GoK needs to shift to 'green' vehicles as a matter of public policy. This gives a boost to local bio-fuels. Ethanol-only cars can fill up at any fuel station obviating the need to manage VAT/refund paperwork for GoK or exempt organizations.

2) Revenue - GoK still needs revenues but these can be recovered from indirect taxes (vs tax on biofuels) on fuel stations, wages, land rates, income taxes, etc i.e. other economic activities generated by bio-fuel production.

What of adulteration of petrol/diesel using biofuels? Well, currently biofuels are pricier than 'petroleum' [if no taxes are applied] & this will somewhat help.
Enforce laws against adulteration. Heavy fines & jail terms. Easier said than done in our current system of goverment & judiciary.
Taxes are here to stay but can we increase the production & use of LOCAL fuels that encourage other economic activities?

Corruption - (Zero) Charity Ngilu

2011-04-13T14:24:00.003-05:00

From Mzalendo:

Full Ngilu (Ministry of Water Report)

The allegations of corruption against the current Minister of Water, Charity Ngilu, have been pouring in since late last year when her former Assistant Minister, Kiunjuri, presented a dossier with corruption allegations to KACC, in addition to the pending allegations currently under investigation by KACC and parliament, just last week, her Ministry was accused of embezzling Kshs 57 million belonging to the Kazi kwa Vijana program. And the Minister appears to have been behind efforts to force out the Nairobi Water MD because he refused to endorse dodgy procurement contracts.

Although she has been offered several opportunities to defend herself in parliament and before KACC, she has so far ignored them. Instead she has chosen to argue that the allegations are the work of several individuals who are out to “fix her.”

Conspiracy theories aside, the mounting evidence is damning.

We have been able to obtain a full copy of the infamous Kiunjuri report and are sharing it here in the public interest and because it’s yet another example of just how brazen our politicians are about pilfering taxpayers’ money.

Full report is available here (PDF, 1.4MB)

Some highlights:

Inflated prices of goods – sandpaper bought at Kshs 220 instead of Kshs 10 [How's that for a profit margin!]
Cost-overruns on dam construction without requisite work to justify
Conflict of interest with companies getting tenders for dam construction

We are doing our part to keep our eye on our politicians, and so should you!

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A Random Walk on Kimathi Street

2011-03-09T03:15:00.006-06:00

Wow! What a year so far... [Say it like Jeff Koinange: Whaaat a year... Whaaat a ride... We have seem NOTHING like it... Only on this blog. Only from COOOOLDTUSKER...]

I enjoy Financial Analysis [I crunch numbers for a living] but I need to brush up on my 'psychology' knowledge. I trust my number crunching skills are [immodestly] better than most but not Behavioral Psychology! [I completely misjudged the aftermath - or mood of folks - of 2007 elections]

2010 was a decent (economic) year for Kenya which also translated into a decent year for many Kenyan firms.

2011 is proving to be tougher, just 3 months in, with the myriad problems facing Kenya. Let's see:

- Politics. As Kenyans we can ignore politicians. The problem is the MPigs & cronies control the purse strings. Most Kenyan politicians are unethical, corrupt & shameless. Period.

- The constant & annoying political wars! kibaki-raila; PNU-ODM; KKK-'others'; you name it, we have go it... These 'wars' affect Kenyans' psyche as well as portray Kenyans as savages to investors... Before anyone gets on his high horse just reflect back to 2008...

- Revolutions in [oil-rich] Africa. Protests in [oil-rich] Middle East. Kenya as a net oil importers pays 25%+ more vs 1Q 2010.

- Drought. Well, this is a problem not necessarily the making of Kenya's inept & corrupt government or the feckless voters who elect the same or similar turds over & over. Nevertheless, we have failed to reclaim the Mau or other water catchment areas...

I will not include the scams. The latest is the NOCK scam. More on that in a post later on.

Anyway, all said & done, I do not expect an Annus Horribilis for most firms... A tough year? Yes. Disaster? No.

Yet the prices of many listed firms has dropped to crazy levels. Great for investors with resolve, cashflow & a thick skin...

KenolKobil [FY 2010 was 1 Jan - 31 Dec] Price: 9.70

Kenya's oil industry is loaded with scams [The latest is the 100% GoK owned NOCK scam] but KK is a tough cookie. They fought both KPRL & KPC [who had the support of the perenially inept or corrupt Ministry of Energy] though I would not say it was an unequivocal win.

The 1H was quite good with strong support from the subsidiaries but the Kenya profits will suffer in 2H because of the KPC & KPRL fight nevertheless I expect a decent 2H.

Price: 9.70

EPS 2010 (Est): 1.15

EPS 2011 (Forecast): 1.25

PER 2011: 8

P/B: 1.2

KQ [FY 2010-11 is 1 Apr - 31 Mar] Price: 35

It is going to be tough for KQ in 2011. In 2008, tourists disappeared. In 2009, the high oil prices hit KQ as well as the Global Financial Crisis. In 2010, it was rebuilding but the delayed 787s hurt KQ. In 2011, KQ have problems with lack of sufficient aircraft, pathetic Nairobi Airport, high fuel prices, lousy politics... Sounds bad? Sure, except most of the doom & gloom has been priced in already! And then some...

KQ continues expanding into [profitable] Africa including N'djamena & Ouagadougou. Jeddah also on the list for 2011. 2012 & beyond includes Kuala Lumpur & Sao Paolo. All these are trade destinations not just (volatile) touristy destinations.

The weak KES does [sorta] help KQ since 90% of the revenues are in hard currencies [primarily US$] which outweighs the forex expenses. For now.

Price: 35
EPS 2010 (Est): 4 [There is much more to EPS after taking into account various hedges]
EPS 2011 (Forecast): No idea!
PER 2010: 8.5
P/B: 0.81

Williamson [FY 2010-11 is 1 Apr - 31 Mar] Price: 180
It is a mixed bag for Williamson Tea. Tea prices are at high [vs 5-yr averages] but the drought will negatively affect 2011 production unless it rains. Seems India & sri Lanka are also facing supply problems. I doubt the prices will rise much more but increased production would help.

Price: 180
EPS 2010 (Est): 80 [includes non-cash profits of 40]
EPS 2011 (Forecast): No idea!
PER 2010: 2.5 [4.5 cash]
P/B: 0.4

The above is just basic information & folks need to dig much deeper!
For a long, unleveraged investor I see very little downside [expect for a repeat of 2008] for the above [& other] stocks at these prices.

PesaPoint has a Point - Open Access ATMs

2011-03-04T01:44:00.008-06:00

Blogging is tough! Takes loads of time so I will try short posts for now.
Click on the Title for the Link to the Article/Source>

Seems Kenya is slowly but surely sliding back to Price Controls aka Command & Control:

Price Caps - Consumers & GoK force Price Caps on Oil Marketers. Not fair since it might kill off competition & the pricing formula places too much power into the hands of GoK/Ministry of Energy mandarins. No 3rd party oversight like South Africa.

Price Floors - Safaricom & Telkom want to protect their margins by 'lobbying' GoK to force Airtel to charge a minimum. Though GoK/CCK has not agreed to it, Airtel may be bludgeoned into accepting implied Price Floors through subtle threats.

Other potential Price Controls or throttling competition [including an untested law on competition]:
- Airtel, Yu & Orange want in on Safaricom's M-Pesa phenomenon. Nonsense. Build your networks EXCEPT for 'fair' clearing house fees.
- Banks must have leaned on CBK Governor to make Forex Bureaus less competitive. Wrong. Wrong. Wrong. Increase the oversight on the Forex Bureaus with heft penalties for abuse. Forcing us to go to banks who nickle & dime us? Unfair!
- Mastermind convinced GoK to amend the tax rules for cigs [in favor of MM]. BAT fights back by adjusting prices DOWNWARDS. MM complains.

What I prefer is open access [with fair interconnection fees] to all players who agree to minimum quality requirements.
What galls me is the lack of ATMs everywhere. Yes, we have great competitors/alternates in M-Pesa, Airtel Zap & Orange Money & YuCash. Yet, sometimes I want cash at odd hours. Anonymously. I am NOT comfortable going to a M-Money agent for a large sum [40,000/- or $500] then walking out. Who knows who he knows?

The chap has my mobile number. He has my ID number. He knows how much I withdrew. Or deposited. I like ATMs coz I figure HAL is still a benign chap. For now.

So back to my the crux of the matter. Instead of pushing price caps for M-Money, let's encourage Open Access between the players including Banks, PesaPoint, PesaPal, Telcoms, etc

ATMs - In 3 years from 1,078 (2007) to 2,052 (2010) is pathetic. Not even 100% while bank profits, loans & deposits have grown at least 100% for most banks since 2007. Check www.bankelele.blogspot.com for Bank Ratings.

Just my 2 cents!

Sale? Savings? What Savings? Oil & Bananas

2011-03-01T03:14:00.007-06:00

I have been goaded into blogging again... Yes, Twitter has (almost) decimated the blogging trend!

Anyway, a short tale:

I was out shopping for fruits & veggies & I saw a sign "One dozen bananas for 40/- Stall #57" in huge letters on the other side of the market. It was crowded so I went to the nearest stall & asked for 12 bananas. The saleslady (Mama Mboga/Matunda/Ndizi) wraps them up & asks for 70/-...

Me: GASP! What??? They are only 40/- at Stall#57... You are ripping me off!!! Huff! Puff!

[Calm] Saleslady: I also sell one dozen bananas for 40/-. When I don't have any.

So I go go over to Stall #57... Lo & behold... there are NO bananas for sale! So I return to the original banana stand & quietly fork over 70/-

[George Bluth Sr: There's always money in the Banana Stand]

So what was the above tale about?

Well... National Oil Company of Kenya (NOCK) claims to be a saviour for Kenyans.

NOCK: "...would have seen the diesel reach Mombasa at $13.44 per tonne above prevailing crude prices..."

Note the 'would have' because lo & behold, NOCK will NOT fill the tender they won & crowed about!

NOCK: Delays are normal. Kwani? The delivery date of 19 Feb 2011 was merely a suggested date. We are a proud Kenyan firm that believes 100% in Kenya Standard Time.

Bottomline: Kenyans will pay $34/tonne for delivery. 3 weeks late. When crude is priced at $120 vs $98/bbl. Yep, we got snookered. Again. At least 22%

The next Triton... is....

2009-07-28T00:23:00.002-05:00

The next Triton-like scam will involve a politically connected firm known as "Gulf Energy"... you read it here first...

(I am gathering details...)

KQ cannot trust corrupt KAA

2009-07-19T17:18:00.003-05:00

KQ used to face multiple complaints about lost/stolen luggage when it relied on KAA for safety of its passengers' cargo & luggage.

No more. KQ hires its own guards to man the holding area for cargo & luggage.

An added cost of doing business in Kenya. No wonder the cost of flights to/from Kenya are so high.

The Kenya Airports Authority (under the political appointee george 'banana' muhoho) needs to be privatised. It remains a bastion of corrupt deals.

In spite of all the problems in the 'West' & all the 'potential' in Africa, I wonder if it makes more sense to invest in Asia, Europe & America rather than Africa...

Why doing business in Kenya cost more

2009-07-14T19:28:00.008-05:00

Many un-informed journalists, citizens, politicians & idiots complain about the 'margins' or 'spreads' charged on goods & services. On the surface that is true. Kenyan businesses tend to have wider spreads than what is common in the Western world.

(Let's be clear... I am NOT condoning any sort of scam or counterfeiting or shortchanging or cheating... I am talking of WYSIWYG)

I will try to provide specifics instead of 'general comments' favored by the group/s above.

Let's look a little deeper:

Inefficiencies - Many firms e.g. Kenol-Kobil have to deal with an inefficient oil importation regime. They are forced to process 50% (by law 70%) of their requirements through Kenya Petroleum Refineries Ltd (KPRL) which uses much older technology (hydro-skimming) as well as being sub-optimal in size. This leads to lower high-value (white fuels) derivatives. Cost to Kenyans an additional 3/- per litre.
Corruption - Many firms e.g. Kenol-Kobil are forced to pass on additional 'charges' to consumers since the management of Kenya Pipeline Company (KPC) has a history of being involved in corrupt deals (including tenders to extend the pipeline). The latest scandal was Triton-KPC. Cost to Kenyans is hard to determine but definitely high.
Legal system breakdown - HFCK will take defaulters to court but the case could take 5 years even if HFCK has all the cards. Why? An over-burdened court system which does not have a dedicated 'business' court. Deferrals are common as lawyers postpone, postpone & postpone hearings. And when they do show up, the judge/magistrate does not.
KRA (non)refunds - KRA collects VAT, duties, taxes, etc. Penalties abound if a business is late in remitting the payments. In the event of a refund... get in line. We are not talking of disputed refunds. Even simple refunds are not paid to the businesses in a timely manner. KRA claims they are given KShs 1.04 billion per quarter for refunds REGARDLESS of what they collect. Kenol-Kobil & Total could have KShs 1,000,000,000 outstanding to each of them at any one time. So they borrow from the market. And add financing costs to our petrol price.
Taxes ad infinitum - The government imposes horrendous amount of taxes in the form of levies, duties, VAT, income tax, etc. Then there are property taxes, license fees, payroll taxes, etc. A retail outlet in the CBD with a 10% margin can't even break-even. And this is before rent is due!
Insecurity/theft - Theft by employees is pretty common in Kenya. And I do not mean office supplies. I have so many personal examples. My Dad (an engineer/entrepreneur) used to scour Industrial Area factories for jobs - rewind/resuscitate old (burnt) motors. Reduced imports. Saved Kenya forex. Helped the environment. Provided Kenyans jobs. While he was juggling sales, accounting, etc... the employees were busy stealing & selling NEW copper wire (used to rewind motors) as scrap metal. He soon found out about the theft since income didn't match expenses. The copper wire was bought on credit. He paid the suppliers out of his pocket. Heart-broken. Fired ALL the employees. Shut the business down.
Uncertainty - Uncertainty is very costly. The KShs careens all over the place because of Kenya's fragility. These ups & downs creates problems. Look at the volatility of the Kenya Shilling. Or how volatile oil prices caused KQ's KShs 7.5 billion loss on hedges. Or the 'fear' of violence in almost every election. Fear had gripped the country in 2002. and when Kenyans relaxed in 2007, it blew up in their faces.
The 'politically-connected businessmen' - How does a legit business compete against these tax evaders who the KRA never touches? Goods come in from Somalia untaxed but nary a raid on Eastleigh or Mandera?

No wonder the markups in Kenya are so high... what else do you expect?

Therefore, even if I feel I am being over-charges vis-a-vis Amazon's prices... my hats off to the businesspeople/entrepreneurs in Kenya!

Idiocy is the new fashion in Kenya

2009-07-12T16:10:00.001-05:00

The National Environmental Management Agency in Kenya is supposed to safeguard Kenya's environment.

Yet, the agency plans to build their HQ on land in the Karura Forest - a fast disappearing forest within the greater Nairobi area.

Blogging vs Tweeting

2009-07-12T13:55:00.001-05:00

Do you wonder why coldtusker is not blogging as much?

Check out my Twitter page for answers.

Kenya - is there any good news?

2009-07-10T13:54:00.006-05:00

KenGen & KPLC - They are raising their rates since Kenya has a shortfall of Hydropower. And the politicians bicker & dither over the water catchment areas. Even worse? We are setting ourselves up for a massive famine.

Nairobi City Council - Stupid by-laws.

Dogs can't bark without permission. WTF?
No rainwater harvesting. SMH.

Welfare Programs (Cash handouts) - Does anyone beside me see the potential for abuse? And where is the GoK going to get funds for this?

Subsidies - Overall, these drain the coffers while imposing a burden on the greater society. Fertilizer subsidies matter little if there is NO water.

Water Shortages - No action on water catchment areas. Forest being decimated. And prime forest land continues being 'allocated' to & by politicians.

Crime - Nairobbery deserves its name. No more "Green City in the Sun". Even the Prime Minister's office was broken into. So much for security! This article is a must read. Even Mombasa is being hit by the crime wave. I used to walk around Old Town at 1am... no fear... not the same anymore...

Guns & murders are commonplace...

Untreated sewage dumped into the ocean - Yuck and double yuck. Kenya's 'favorite' ocean town discharges all its RAW sewage into the sea. I am sure this will do wonders for tourism.

Post-election Murderers running free - Yep, running all over. Free as birds. And stealing whatever they can lay their hands on.

No wonder Prez Obama stayed away from Kenya...

Is there anything to redeem Kenya?

Olympia Capital Holdings Ltd - Cautionary Statement

2009-06-23T13:01:00.004-05:00

OLYMPIA CAPITAL HOLDINGS LIMITED

CAUTIONARY STATEMENT

Olympia Capital Holdings Limited (OCHL) owns 51% of Olympia Capital Corporation Limited (OCC), a company listed on the Botswana Stock Exchange. In December 2006, OCC purchased 74% of Plush Products (pty) Limited (Plush).

For the fnancial periods ended December 2006, February 2008 and February 2009, Plush did not contributed positively to the bottom line of the group. From September 2008, following the slipping of the South African economy into a recession, we saw a signifcant drop in our sales that made the company go into a loss making situation.

We believe in the products and the market, but not the model to market that we have used to date. A decision has been made to close the company, sell the assets to meet our obligations and consider re-entering the market with a leaner model.

The closure of Plush will not have any negative effect on the operational group proftability, however we will only tell with time the effect that the loss of the actual investment will have on our group balance sheet.

Michael Matu

Chief Executive

23rd June 2009

Many folks have been asking about Olympia Capital Holdings (Kenya). The shares' trading was suspended on Monday at 11am but resumed trading on Tuesday after the statement was released. We will have to wait for the FY 2008-9 results expected by 30 June 2009.

The conventional wisdom in financial markets is that the longer the delay in announcing results, the worse they are.

[KQ released their 2008-9 results 1 week later than usual. Well, there was a Kes 7.5bn charge to profits relating to hedging.]

It is highly likely that OCHL will have to write off the ENTIRE equity injection into Plush-Yokota. And there is a chance that the profitable units might suffer as well from the cash drain or 'connection'. Nevertheless, OCHL's acquisition of Plush has set Olympia back many years.

That said, Plush has NEVER contributed to the bottomline for OCC (Botswana). So this action will stop the cash outflows for now.

Corruption at KPC continues!

2009-06-22T03:30:00.003-05:00

KPC's scams continue... The idiots (or thieves or both) at the Ministry of Energy wanted to blame spiraling fuel prices on everyone else BUT the crooks at KPC.

Kenyans pay (IMHO) at least an extra 8/- per litre of fuel thanks to corruption & inefficiencies in the government, Ministry of Energy, Kenya Pipeline Company, Kenya Refineries, Kenya Ports Authority...

Likoni ferries stall - DANGEROUS but Deja Vu

2009-06-15T21:37:00.002-05:00

This is an earlier post on the danger of not using the old ferries.

And in a repeat of what happened earlier... two ferries stalled at the Likoni channel... Again and again and again...

Aga Khan Firms - Invest for the future

2009-06-15T19:27:00.003-05:00

I am a huge fan of all the listed Aga Khan firms (run/controlled by AKFED). They are a great investment at current 'depressed' prices.

Diamond Trust Bank - Among Kenya's best mid-tier banks. Regional growth is boosting its profile.

Jubilee Insurance - Among the largest of East Africa's insurance firms. It also owns a part of Africa Re.

Nation Media Group - The largest media group in East Africa. Future growth prospects in other parts of Africa.

TPSEA (Serena) - As the other AKFED's African hotel subsidiaries/associates merge into TPSEA, it will become one of Africa's premier hotel groups.

Kenya's winners after the tough times

2009-06-12T14:39:00.005-05:00

Just a quick overview

Equity Bank - Acquisitions + Organic growth will propel it to the #2 Kenyan bank by 2012. Plenty of cash for NBK and/or HFCK acquisitions.

KCB Bank - Organic regional growth but need to raise cash in 2010. Huge bet on housing in E. Africa will propel lending.

EABL - The classic tortoise expansion strategy into regional markets. Dominates Kenya but strong challenger (SABMiller) elsewhere but Tanzania is no-go for EABL. Ethiopia is the Holy Grail for EABL.

Cash is a-plenty plus Diageo is always there if needed.

KQ - Huge hedging 'paper' loss in 2008-9 which will translate 'cash' loss of cash by Dec 2010 but KQ generates plenty cash from operations. Cash-flow + cash hoard ($100 million)allows for route & fleet expansion. Dominates many African markets but Ethiopian Airlines is tough African rival. Other competitors expanding but Africa is littered with dead airlines.

KenolKobil - Expansion is afoot & the cash is available. Borrowings mostly short-term to finance inventory. Kenya is the largest & toughest market but KK hints acquisitions in Central & Southern Africa. Smart, lean, responsive & voracious management.

AccessKenya - Huge capex in laying cable in Nairobi. Other metros will follow. Push for SoHo customers. Remains a juicy acquisition target. I expect Access to enter Tanzania & Uganda after SEACOM goes live in 4Q 2009.

Fertiliser Scams - Follow the blogger

2009-04-19T16:24:00.001-05:00

Well... it turns out that weeks after my warning... The Standard has finally figured out that scams are a-happening...

http://www.eastandard.net/editorial/InsidePage.php?id=1144011576&cid=16&

And that too in the editorial...

Subsidised Fertiliser Scams - I told you

2009-04-14T15:53:00.006-05:00

As predicted by yours truly...

Fertiliser Scams Coming Soon

Subsidies do NOT work in Kenya... they are just a way for the politically-connected to scam taxpayers....

http://www.eastandard.net/business/InsidePage.php?id=1144011586&cid=14&

http://www.eastandard.net/editorial/InsidePage.php?id=1144011576&cid=16&

And this is the tip of the iceberg...

Anglo-Leasing & amos wako

2009-04-14T08:05:00.003-05:00

I believe that many of the senior politicians in the kibaki & moi governments benefitted from anglo-fleecing contracts.

Let us start with amos wako who approved these contracts. And now refuses to follow up on the cases filed against the anglo-fleecing folks. Why? Coz (IMHO) he is a beneficiary.

Then kibz... who refused to stop the scam... kibz refusal to halt anglo-fleecing scam in its tracks is the primary cause of his unpopularity today.

Had kibz (did he benefit from anglo-fleecing?) kept his deal about zero tolerance to corruption, he would have beaten raila fair & square during the 2007 polls...

Somali pirates killed - Good riddance!

2009-04-12T15:44:00.003-05:00

As I thought... the Americans would launch a Special Ops to rescue the American captain captured by the somali pirates...

Well... the GOOD NEWS... the SOFs (Special Ops Forces) killed 3 somali pirates & captured 1 (why not kill him as well?) AND rescued Captain Richard Phillips.

Good riddance!

Kill the Somali Pirates

2009-04-11T08:16:00.000-05:00

The French mounted a rescue attempt on the "The Tanit" but lost a French hostage. The French in good form killed two pirates. The Indian Navy also destroyed a somali pirate boat killing a few somali pirates.

The rest of the world needs to get in line. The Germans capture pirates. What a waste of time. The USA has not mounted any attacks on the somalis. The Germans are constrained by some silly notion of not being the aggressor. The USA is haunted by the "Blackhawk Down" incident as well as Obama's obsession/need to improve relations with the muslim world. Obama was filmed bowing down to the saudi king!

My opinion?

Well, Kenya is affected in many ways by somali piracy. We lose tourists (cruise ships), higher import costs for oil, etc. These pirates also provide bases for al-qaeda as well as drug smuggling into Kenya.

I think the Amercians, Brits, Indians, Chinese, etc should BOMB the somalis back to the ice age. A co-ordinated attack on all major ports/bases should cripple the somali pirates. A second attack should be on any somali boat or mothership.

Yes, yes, yes... some civilians will be hurt but let's face it... these civilians are the support staff for the pirates. I would rather have a safer Kenya then worry about some dead somalis.

Obama bows before king abdullah

2009-04-10T17:09:00.008-05:00

Obama bows down before king abdullah of saudi arabia...

Ouch! This is going to hurt Obama's reputation as the leader of the free world when you consider that saudi arabians are well not 'free'.

So what do you think?

http://www.americanthinker.com/blog/2009/04/obama_bows_down_to_saudi_king.html

http://www.jihadwatch.org/archives/025498.php

http://www.suntimes.com/news/politics/obama/1518581,w-obama-saudi-king-bow040809.article

http://www.suntimes.com/news/huntley/1520326,CST-EDT-hunt10.article

Possible Explanations:

“I wasn’t bowing . . . I was ducking in case someone threw a shoe.”
"Oops, I dropped my contact lens."
"Keep buying our T-Bills or my goose is cooked!"

What a nightmare for the protocol officers esp if a king/chief of some rinky-dink kingdom expects the same treatment/reverence!

Safaricom enters the Gambling business

2009-04-09T08:38:00.003-05:00

SafCon in its own sneaky fashion introduced the "Lipua Mamilioni" compaign which claims you can win Kes 1 million a day.

In very small print... to enter... you send an sms that costs 3.50 to SafCon. 1 sms per entry.

So shouldn't this 'promotion' be labelled as gambling?

Where is the CCK?

Where is the Betting & Gambling Licensing Board?

Kenol Share Price Shenanigans

2009-04-07T05:32:00.001-05:00

****

On 6 April 2009, there was a block trade of 1.4 million Kenol shares done 'across the books' by Dyer & Blair at 30/- on the prompt board. I believe the seller got a raw deal. This was an outlier trade yet it was used to calculate the Volume Weighted Average Price which was 30/- at the end of trading.

The prior closing price was 45/-. And the results for the year ended 31 Dec 2008 were decent (EPS of 6.66) & included a dividend of Kes 3.50. On the normal board there were bids at 49/- with few sellers.

On 7 April 2009, there is demand for 392,000 shares at 33/- (10% above the VWAP of 6 April 2009) but no sellers.

The problem is that liquidity in this counter has been 'killed'. Sellers (unless desperate) will not sell at prices below 45 (IMHO). The rules on the NSE only allow for a price increase if there is a trade. So until someone sells shares at the lower price thus short-changing themselves... the price will remain at below the market-price until the shares go ex-dividend.

Solution:

- NSE needs to exclude 'outlier' trades when calculating VWAP. Or at least the opening trading prices.
- In the event of slow/dead trading due to bid/offer mis-matches, allow for an auction that brings the price to a level that allows for normal trading.

In Kenol's case, I am sure there are buyers willing to pay higher prices (than the bid of 33/- allowed) but they are stuck at 33/-. There were buyers willing to pay 49.25 on Monday (6 Apr 2009) after the results were disseminated.

My Opinion - I may be wrong: I think the buyer may have been D&B or an affiliate. The CDSC takes 2 days or so to credit the account of the Buyer. The Buyer will then push up the price to the 'realistic' level & then start selling the shares... Sigh... to be a broker in the know...

Price-fixing & manipulation at the NSE - Idiots

2009-04-05T13:33:00.001-05:00

***
What idiocy by the NSE.

The NSE wants the stockbroker licenses valued at a minimum of Kes 251mn. This is silly at best & perhaps criminal.

The NSE (or any stock exchange) is founded on the basis of PRICE DISCOVERY. Willing buyer, willing seller. So doesn't this go against their own credo... So why not just 'fix' prices on the stock exchange as well? After all... who cares about the 'willing buyer, willing seller' concept?

The Kes 251mn is based on what Renaissance paid for the 'clean' thuo license. Well... this was in 2007, when NSE was booming. Not in 2009 when brokers are collapsing. Nyaga & Discount collapsed in 2008 & 2009. Bob Mathews survived coz of Co-op Bank.

(If I had Kes 251mn, I would rather put it in the Infrastructure Bond at 13.5% Nett (Kes 30mn or so). No management hassles, no fraud, no employees, no need for capex, no working capital.

JKIA reminds you of _________?

2009-04-04T16:21:00.004-05:00

****
BusinessWeek has an interesting article how (major) airports reflect the country at large.

So what does JKIA remind you of?

I think JKIA is a little like River Road... bustling but seedy. Folks sleeping on the sidewalks. Dirty. Multiple dukas on either side of the 'walkway/road'. Il-mannered staff. Unattended desks. Matatu stand.

muhoho-ho-ho (corrupt? inept? Or both?)back at KAA

2009-04-03T10:54:00.004-05:00

Well, I guess it helps to be uhuru kenyatta's (Finance Minister & Deputy PM) uncle as well as a buddy who speaks the same language as kibz (Kenya's prez).

Yes, the reviled, corrupt & inept george muhoho is back at KAA in spite of all the accusations of incompetence. It seems he might have firm instructions to wrap up - and collect the cash on - all the funny deals within the next 12 months. Before others get wise to the 'deals' especially the long-dated land leases. Yep, sell out Kenya. Quicker the better. After all 2012 is not that far away!!!

muhoho & friends forget - or do not care - that JKIA could be the real hub of Africa. That Nairobi could be a thriving 'shopping' destination for transit passengers. That this can create thousands of well-paying jobs for Kenyans. Diversify our economy. Enrich all Kenyans.

No... All that is NOT relevant because quick cash for 'personal' use can be made by entering into opaque deals with 'unknown' or connected firms. Allocate land to unknown foreign airlines (OneJetOne) & developers (the so-called Qatari based Afro-Asian Investment Company) while starving locally-grown Kenyan airlines of growth opportunities.

http://www.nation.co.ke/News/-/1056/556420/-/u3r8h1/-/index.html

Anyone out there who thinks all is above board here?

I&M Bank has a very profitable 2008 - but 2009?

2009-04-02T08:47:00.000-05:00

This is for MainaT (http://mjengakenya.blogspot.com)

For those who wonder about I&M Bank & the NSE... well, it turns out that City Trust Ltd (AIMS on the NSE) owns 8.93% of I&M Bank. Talk of a diamond in the rough.

Anyway, a lot of this has been filched (erm, borrowed) from the I&M Bank Press Release on 31st March 2009.

On a personal note... I think the bank is a great bank for those who want real customer service. Not the cheapest (but reasonable vis-a-vis other Kenyan banks) bank but great staff who work with their customers. I doubt they will grow to be a 'big bank' but that does not seem to be their aim. Niche banking.

"Following the acquisition of 50% of Bank One Ltd., Mauritius, I&M Bank Consolidated Group Accounts have been published for the first time, reflecting group asset size of Kshs 42.8 billion which depicts a 46% increase in the Group’s assets.

The Bank has increased its customer advances portfolio by Kshs 6.67 billion reflecting a growth of 35% over the year. On customer deposits, the Bank’s portfolio has grown by Kshs 4.73 billion (20% growth).

Profit Before Taxes are at Kshs 1.62 billion, which surpasses its 2007 bottom-line performance by 25%.

Significantly contributing to this profitability is the efficiency ratio (operating expenses /total income) of the Bank which, at 44.4%, is impressive by international standards. The Bank won the ‘Most Efficient Bank’ award in the Banking Survey Awards 2008 for the second year running.

During the year 2008, I&M Bank successfully issued Kshs 600 million floating rate notes, thus bolstering the Tier II capital of the Bank. The Bank also received a Kshs 537 million long term foreign currency line of credit from PROPARCO, the French Development Financial Institution. PROPARCO is a shareholder of the Bank.

I&M Bank continued its strategy of technology driven product innovation with the introduction of two new Visa pre-paid card products and expansion of its ATM network. It increased its footprint in Kenya by opening two new branches in Nairobi’s Wilson Airport and Ongata Rongai. During the year, the Bank also upgraded its core banking software to the state-of-art Finacle system.

I&M Bank has also recently expanded its Board of Directors with the induction of three new eminent independent directors, Mr Evans Kidero, Mr. Mugo Kibati and Mr. M. Soundrarajan."

Comments/Opinions

1) All 3 new directors are/were MDs/CEOs of publicly listed firms. Kidero - current MD of Mumias Sugar. Kibati - former CEO of EA Cables. Soundarajan - former MD of CFC Bank
2) So is I&M Bank thinking of a listing?
3) PROPARCO has given a huge loan to Mumias for the co-generation plant. Could Kidero be a representative of PROPARCO?
4) They took a huge NPL charge in 4Q 2008 (vs 3Q 2008 or 4Q 2007). Conservative or a ticking bomb?
(My understanding of NPLs is that the loans are downgraded i.e. not 'bad loans' but potentially bad. With time the loans can be restructured or recovered through sales of assets/collateral).
5) Dividend payout of 398mn (36% - payout ratio). Wow, quite an increase on FY 2007's dividend but doesn't make sense coz they raised Kes 600mn about 5 months ago in a Rights Issue. Why go through all the hassle of raising Kes 600mn then pay out 400mn a few months later?

Headlines We Would Love To See - April Fool's Day

2009-04-01T10:03:00.006-05:00

***I am cleaning up the post but enjoy... .

kibaki shows leadership mettle

.  Capital Markets Authority to put in effective measures to combat fraud on the NSE

Artur Brothers Consulting appointed to train JKIA's security personnel. (jke is a mean, mean man)

.  NSE Stockbrokers swear they will NEVER scam investors of their hard-earned money

.  prof ndungu (CBK) claims Kenya's economy is solid as a rock - (Not) April Fool's Day coz he actually means it!
.  bonny khalwale vows not to act for the cameras while in parliament

.  ka-loser (kalonzo) admits he is not God's gift to Kenya

.  kibaki fires corrupt & inept ministers    

.  mutua tells the truth

.  Kenya Police Force Will PROTECT innocent people

.  lucy accepts wambui as part of the family - (well... when Hell freezes over)

. Attorney General (wako) will prosecute a corruption case CONCLUSIVELY

.  lucy accepts wambui as part of the family

.  Kenya's parliament bans tribal/racial politics - April Fool's Day21 minutes ago from web          

.  Kenya to have zero deaths in the 2012 elections - April Fool's Day (yeah, I am a pessimist)

. Kenyatta University students take a vow they will NOT stone innocent motorists     

.  Kenyatta University students take a vow they will stone innocent motorists - (Not) April Fool's Day
     
.  Conclusive Land Reform in place in Kenya

.  kenyatta family to return land jomo 'inadvertently' stole

.  MPs agree to take salary cut in sympathy with Kenyans' suffering

.  george muhoho signs up as a kamikaze pilot   

. moi admits his presidency was a failure

. Kenya Pipeline Company guarantees there will be no more fuel shortages

.  Kenya's cabinet to commit hara-kiri (Oh, please say this is so... but April Fool's Day)

.  lucy kibaki to take vow of silence

.  kibaki shows leadership by paying taxes

.  murungi to resign over oil scandal

Coldtusker to stop being a thorn in KAA's + KPC's + GoK's side (Well... Definitely an April Fool's Day joke)

Raila - The New Government Spokesperson

2009-03-31T05:10:00.003-05:00

alfie 'goebbels' mutua used to be the purveyor of idiotic statements. Of course, his derision the then "mere junior senator from Illinois" aka Barack Obama... the now "President of the USA".

Anyway, raila has started defending every scam in town. Or so it seems. Why is he being the whipping boy?

KAA + OneJetOne + muhoho + Afro-Asian Investments (some fake Qatari firm): I have no faith in georgie muhoho whose only claim to fame is his familial connections with uhuru kenyatta. Of course, KQ is upset at the KAA giving away Embakasi airport while KQ has no space to park its planes!

KPC + Triton: I am not sure but a good source told me that raila implied that no money was lost to Triton. And there seems to be pressure on KCB to give KPC-Triton a pass... And then there is this article making the rounds.

Mau Forest: What happened? RAO has backed off calls for kicking the squatters out. Kenya needs to rain & water that the Mau complex provides.

"Lesser Corruption" defence: What is RAO smoking? Grand corruption is alive & kicking... and all he could say was that the current corruption is 'less' than prior years? Whereas I can forgive him for 'forgiving' small time corruption but NOT the mega-scams in the billions e.g. KPC-Triton...

alfie 'goebbels' mutua must be smirking at RAO's gaffes!

Kenya's Public University Students - Idiots?

2009-03-30T16:21:00.001-05:00

I have never understood the need for violence & destruction. I never damaged university property (well... not knowingly) even when I felt the administration was wrong. And in dan 'illiterate' moi's heydays, the administration was often wrong...

How does burning university buildings - and looting computers - help the kenyatta (or any other) university students? They only hurt themselves & not the administration or lecturers...

When raila allowed University of Nairobi students to 'protest' in the streets... they messed up by destroying the goods & premises of various businesses...

And university 'graduates' wonder why many businessfolk refuse to hire the Univ grads... Coz the 'grads' are plain Idiots!

(I am all for PEACEFUL demonstrations or those that do not destroy what is 'mine')

Kenyan Restaurants are (sometimes) their worst enemies

2009-03-27T09:55:00.003-05:00

Kenya is hurting. Kenyan consumers are hurting. Kenyan exporters are hurting. Kenyan businesses are hurting.

I do not understand Kenyan businesses... they refuse to cater to the consumer.

Whereas inflation (higher wages, higher fuel costs, higher taxes) is a problem for businesses, Kenyan consumers' discretionary spending power is down - substantially - but the businesses keep on raising prices... and that will continue reducing consumption OR drives consumers to substitutes.

I have been a regular at various mid-priced restaurants & food courts around Nairobi... and everything I usually order was up in price since late 2008.

Fresh Juices: From 120 to 150 (25%) - I substitute juices for sodas but...
Sugarcane Juice: 60 to 70 (17%)
Chips: 120 to 150 (25%) - since I am cutting down on greasy foods this doesn't hurt me much
Bhajias: 120 to 150 (25%) - since I am cutting down on greasy foods this doesn't hurt me much
Sodas: 40 to 50 (25%) - On the way out for me
Ice-cream: 90 to 110 (22%)
Beer: 100/120 to 120/150 (20-25%) - At this rate I will be a teetotaler
Smallish samosas: 6 for 100/- (a plate) to 3 for 100/- (50%)

Perhaps... it is time for Kenyans (Nairobians) to stop frequenting these restaurants!

I would rather meet up with friends at an outdoor spot OR at someone's house (with a nice garden), buy beer & sodas from Nakumatt (or have a keg delivered), cook/bbq at home!!! Buy juices in bulk or packs from a supermarket. Even hire a cook or self-cook and since cleaning up is a chore... so hire a maid/servant for a day or evening... and the overall cost is 50% of the restaurant bill. If not less.

I know a group/chama that has built a banda at one of the member's 'backyard' and they meet every so often. They share the cost (& can each invite one other family) by 'charging' an annual fee as well as costs per get-together. Granted the banda is free but it is not fancy... a few chairs, tables & sofas... they even hire extra security on the day. And the cooking is self-cooking though they hire a few folks to clean, cut & dice the 'raw' food...

They have all the fun at 1/2 the cost...

Coldtusker = MP = 2012

2009-03-18T16:43:00.002-05:00

MPs want to be paid Kes 1,500,000 a month. That is 18,000,000/- per year!!!

And they do jackshit. Some of the constituencies have a GDP less than Kes 100,000,000/-...

Bastards... but not if I get elected as an MP in 2012... and make Kes 1,500,000/- per month...

KQ protests allocation of Embakasi airport

2009-03-17T13:27:00.005-05:00

KQ protests the corruption & ineptness of KAA (& muhoho-ho-ho) in the matter of the allocation of the Embakasi airport to OnejetOne.

I highlighted the corruption & ineptness of the KAA earlier.

Naikuni of KQ told NTV that the 'expansion' at the airport is 4 years behind schedule. KQ's aircraft are parked all over since JKIA's parking aprons are not ready for use.

Poor KQ. They have been trying to get KAA to expand JKIA since 2002 when they expected a huge jump in passenger numbers!

According to NTV, KQ spends almost KShs 100,000,000 a month at the Panari Hotel - the only hotel that by-passes the traffic prone Uhuru Highway - to accommodate passengers whose flights have been cancelled or delayed.

BTW... I have a gut feeling that muhoho-ho-ho (& family/cronies) either took a cash bribe or an ownership/profit stake from the developers of the hotel-retail complex being developed at JKIA.

Sameer Africa goofs!

2009-03-17T13:21:00.003-05:00

I was flipping thru the 2008 Annual Report for Sameer Africa...

The notice on pg 6 says the AGM will be held on Friday 3rd April 2009 at 11am.

The proxy form says the AGM will be held on 2nd April 2009 at 11am.

They produce one Annual Report a year... they have one AGM... can't they get the date right?

Investing in Property in Kenya is foolish

2009-03-13T14:32:00.007-05:00

Another reason why I do NOT believe investing in property in Kenya. I also blogged on why I don't invest in property in Kenya... Here is the link to that.

AFTER planning approvals, AFTER construction permits, AFTER construction, AFTER occupancy permits, AFTER... AFTER... the government wakes up and condemns the Westgate and Ukay malls.

I do not have the full details on the matter... nor who is right or wrong...

The concept of property rights simply does not exist in Kenya.

Examples:

- Land-grabbing by the political elite (jomo 'crooked wa ngengi' kenyatta & cronies) in the 60s & 70s.

- Land purchased from the 'White Farmers' redistributed to the politically connected. Real landless lose to the already landed in the 60s.

- Expropriation of property & businesses of Kenyan-Asians in the 1960s & 1970s.

- Forcible removal/eviction of 'up-country' folk during the Likoni clashes in the 1990s.

- dan moi would sign away government land as a reward for his cronies.

- Forcible removal (through violence) of Kikuyus from many sections of the Rift Valley in 2008.

- Fake Title Deeds and 'missing' files at the Lands Office.
- Adverts in the newspaper on a regular basis about caveats on land for sale (or not for sale).
- Signboards all over Nairobi proclaiming "This Land Is Not For Sale".

I believe in investing in Africa (incl Kenya) but not in land or property. For residents/citizens,I recommend at most a modest (or affordable within their portfolio) house but not much more than that!

Now... I am thinking how much exposure Kenyan banks have to 'condemned' land or buildings. I am worried...

Of course, while pretending to care about the environment... the government is on a tear condemning fragile eco-systems like the Tana Delta & Masai Mara.

Taxes to go up - Kenya

2009-03-12T15:05:00.003-05:00

Whereas uhuru kenyatta claims that the government will not increase local or foreign debt to bridge the deficit. Also he claims no increase in taxes.

Yeah, right.

Taxes were raised on alcoholic drinks in late 2008. Add extra fees that the municipalities keep on dreaming up. Add interest payments on the sale of government bills & bonds...

And all this adds up as a tax. Indirect but a tax!

How can uhuru keep a straight face when MPs & ministers pay (almost) zero taxes on their income?

uhuru defended the grand coalition government as something 'we' chose. Who is we? I am NOT included in that 'we'. A bunch of thieving & greedy bastards chose to create 42 member cabinet is NOT 'we'.

And GoK ministers get at least 2 high-end gas guzzler (including uhuru) as well as 'chase cars'. And they drive at high speeds which is fuel inefficient!!!

The official car of the PM of Japan (MUCH, MUCH larger economy) is a regular Toyota Century or Lexus LS600hl.

I wonder what the Finance Minister of India ( 1.1bn people & MUCH larger economy) get as his official car... I betcha it is not even close to uhuru's gas-guzzling cars!

Singapore's prez has a 2001 Lexus LS430 & 1999 Mercedes Benz s320L. Dare I even compare Singapore's Per Capita Income with Kenya's?

And the PM of Singapore usually travels in a MB S280. No gas-guzzling Hummer!!!

African Banks - Internationalisation?

2009-03-11T08:43:00.001-05:00

African banks are rather small (assets or capitalisation) compared to their international peers.

The only countries with banks of 'decent' size are either S.African (S.Africa proper), N.African (Egypt, Morocco) or W.African (Ecobank & Nigerian banks).

But as we have seen... size does not matter. After all Bank of America & Citibank are among the largest banks in the USA. And we have Lloyds & HBOS in the UK. All are in trouble.

I expect the large 'international' US banks e.g. Citigroup & BofA will shrink or sell their foreign operations over the next few years to raise cash to pay off debts.

West European 'international' banks are also feeling the hurt including Barclays & UBS. Many French, German & Swiss banks are also hurting.

HSBC & Standard Chartered may survive the current problems but in my view they are really Asian (Chinese & Hong Kong) banks.

Now... I think that most African banks will weather the storm. And grow from strength to strength.

Whereas all do not (& cannot) have ambitions to become '' international" banks... I think a few will do so over the next 5 years. And become much stronger. Standard Bank of S. Africa (Stanbic) is moving into other markets by buying out small to mid-sized banks.

I remain a sceptic of Nigerian banks. They have tried to expand but I do NOT trust their balance sheets.

A major factor that will push internationalization of African banks is the return of diasporans with the relevant expertise.

All said and done... I do hope that African banks can reach all parts of Africa. And provide a product to all Africans - whatever their socio-economic status.

Mobile Payment Systems & Mobile Funds Transfer systems have already penetrated huge swathes of the cash transfer market.

Kenya Airports Authority - Another Scam! - Again!

2009-03-08T07:05:00.004-05:00

It seems the nincompoops (or merely the corrupt) at KAA are at it again.

KAA's CEO is a george muhoho-ho-ho (whose nephew, uhuru kenyatta, is Kenya's Finance Minister & a Deputy Prime Minister) who has extensive political connections. Of course, GM got the job not on merit but thanks to his golfing buddy mwai kibaki (Kenya's current president).

For those unfamilar with uhuru's background... His father was Kenya's first president & an internationally infamous land-grabber. jomo kenyatta (real name kamau aka 'crooked' wa ngengi) never saw a piece of land he didn't like. For free or at a huge discount to market value!

Anyway, so GM heads KAA which runs jomo kenyatta int'l airport (crooked loved naming public projects after himself) in Nairobi. JKIA was built in the 1970s & has seen little improvement since. It is a small, stuffy, congested & lousy airport for a city the size/status of Nairobi.

It is amazing that Kenya Airways has managed to grow despite JKIA being its hub. I find using JKIA to be torture.

So... it seems that a 'politically connected' airline (OneJetOne) will be allocated the old Embakasi Airport in exchange for (fill in the blank).

As an FYI, OneJetOne's parent (AirSouthAsia) does not have permission to fly out of it's home base in Sri Lanka.

Whereas JKIA faces immense challenges especially as regards congestion, there have been half-hearted attempts to increase the size of the airport. Nothing major has been done so far. A prior plan was rife with problems & rejected by the airlines. It seems that some officials in KAA had more than a passing fiduciary interest.

It seems OneJetOne was given preferential treatment in this deal. Instead of advertising to all & sundry about the possibilities of using the old airport, there was a hush-hush element to the newspaper advert & subsequent lease deal.

Using the past as history, I would not be surprised to learn that georgie muhohohoho & cronies were getting a slice of the action!

And to make matters even worse, one of the directors of OneJetOne is a former PS (gerrishon ikiara) in charge of airlines & airports. And by dint of his government position, he was on Kenya Airways' board of directors & privy to KQ's future plans!

And on a smaller scale, there is the endemic corruption regarding parking at JKIA. KAA does not properly maintain parking markings at JKIA which means police officers wait to pounce on innocent motorists!

The Short-Term Parking at JKIA is inadequate & Long-Term Parking is woefully inadequate. The LTP is dark & deserted... you could be killed & no-one would find your body for day!

KQ - An Update

2009-03-06T03:37:00.003-06:00

I spoke too soon...

My blogpost on 24 Feb 2009

KQ's share price has tumbled further since I posted the above. At 12.38 pm on 6 Mar 2009 KQ is trading at Kes 17.25 (though the trading is very thin)...

Did I miss anything on my blog post that accounts for the additional decline?

At this point I think KQ should close up shop... to protect the shareholders!

- Sell the planes while there is a market. Emirates & Ethiopian are still buying planes. Perhaps they would be interested in immediate delivery of the newer planes?

- Cancel or transfer leases of the leased planes.

- Sell the older planes to myriad African 'matatu' airlines.

- Sell the routes (if there is value to be gained) &/or landing slots to Emirates, BA, Virgin, KLM or Air Uganda.

- Cancel (or sell/transfer) all plane orders to get back the cash from down-payments/deposits.

- Use the above proceeds to pay off all debtors.

- Close offices & but sell the 'marketing machine' to another airline.

- Take the remaining cash & distribute to shareholders.

I think the above will yield enough cash to pay each shareholder more than 45/- which is far better than the current price realisation!

OR just sell the entire airline to Emirates or Qatar or AF-KLM who will get the enviable & profitable routes as well trained staff & ready to fly planes in one fell swoop at a far lower cost than a de novo set-up.

Kenya Pipeline Company - Bankrupt?

2009-03-03T02:24:00.004-06:00

KPC has (or will) have lawsuits amounting to a minimum of Kes 7,000,000,000 filed against them in the next 3 months and all related to the triton case. And this does not include Kenol-Kobil's Kes 3,000,000,000 claim against KPC. Indications are that Kenol (very smart folks) will probably win at least Kes 1,000,000,000 against KPC as KPC's inefficiencies & goofs are revealed in the first group of cases.

All said and done, the Government of Kenya will have to either bail out KPC by:

Providing payment guarantees to the banks & other financiers (taxpayers' cost if funds not recovered from Triton/Devani/Cronies).
Special bonds to KCB (& other firms) similar to bonds given to NBK.
Sale of KPC & proceeds used to pay-off the financiers.
Sale of shares in KPC to the Libyans or Chinese or Iranians.

Solution

Mine is simple & elegant (IMHO) based Information as I understand it.

1) Negotiate an out-of-court settlement as to who owes who what. KPC - under the Collateral Management Agreement - is liable to the financiers & Oil Marketers to store, safeguard & deliver the fuel products. A negotiated settlement is cheaper & faster than a protracted court case. It is also less distracting for KCB & KPC so they can concentrate on the business not lawsuits. This settlement shows good faith to foreign financiers as to the will to sort out the problem.

IMMEDIATE ACTION: Sack all 'decision-makers' at KPC & Ministry of Energy (yes, including kiraitu murungi). Then arrest them, assemble evidence & take them to court. (This is under the ideal situation but corruption runs rife in the Kenyan government & unlikely to happen).

IMMEDIATE ACTION: KCB (& GoK) should go after yagnesh devani & his cohorts. All of triton's (& devani's) assets in Kenya should be sold asap (TRANSPARENTLY) to recover as much as possible. Of course, if GoK pays KCB as shown above then the stations/properties belong to GoK.

2a) KPC should be fairly valued without the Triton liabilities.

2b) KCB's Kes 2bn loan should be converted into a long-term loan to KPC secured by KPC's assets.

2c) KCB should undertake to pay off the other financiers but get KPC shares in exchange for the undertaking. A Repurchase Agreement (repo agreement) would allow GoK to buy the shares back. This would be an asset (unlisted shares) for KCB. GoK may remain a shareholder depending on the extent of the assets/liabilities & intrinsic value of KPC.

2d) CBK might be involved since the above actions will require a few 'exception' for KCB considering asset ownership & lending to a single entity. These are trying times & require out of the box solutions.

2e) KCB can either pay off the other financiers - of course, this would be negotiated - or negotiate the payables as a 'loan from other finance institutions'. It is a liability for KCB but 'safer' for the financiers.

2f) KCB & the other financers would drop the lawsuits against KPC.

3) KCB should be allowed to package & sell the income+assets from KPC to other banks or investors but under the repo agreement. Essentially, it is a syndicated loan.

4a) KCB would hire competent managers to run KPC as a private firm.

4b) In the meantime, GoK (in conjunction with KCB) should 'prep' KPC for eventual privatisation. This means clean out the rot. Fire inefficient or unqualified staff. Enact better policies, regulations & laws. Complete the expansion plans. Complete the pipeline capacity enhancement.

5) Once KPC is stabilised, GoK should arrange for the sale of shares KCB 'owns' in KPC (at least 75%) to the Kenyan public through the NSE, to enable KCB recover its cash. After KCB has been repaid all its dues (under the repo agreement) by GoK, the balance of shares, if any, would revert to GoK.

6a) I think Kenol has a good case against KPC. Therefore, KPC/GoK should settle with Kenol to prevent any disruption in the oil market as well as provide confidence to foreign financiers.

6b) Sell triton's assets (TRANSPARENTLY) to pay off Kenol. Any outstanding balance owned to Kenol above & beyond that should be provided as 'tax credits' i.e. Kenol can use the tax credit to offset duties/taxes owed to GoK.

6c) Other firms that will accept tax credits include KCB, Total Oil & Shell Kenya. Of course, this all means lower (net) tax receipts for the GoK in the short-run but creates certainty to drive more business activity.

ColdTusker applies for the Greatest Job in the World

2009-02-24T08:15:00.001-06:00

Job opening - the Greatest Job in Kenya

Would you like to lead the beautiful country of Kenya, where your followers will all be tribal voters, your friends are sycophants, your team an army of highly effective corrupt and evil criminals (all trained at the school of Mwalimu Moi). You will preside over the collapse of an economy and oversee a transformation of a once proud people to a state of beggars.

Kenya
We are a bankrupt country looking for a suitable candidate to rule the nation of some 39 million poor Africans. The ideal candidate should have no scruples, no guilt complexes, and a willingness to break the law (he or she will never be investigated). The candidate should be willing to protect corruption, impunity, illegal forces, and police brutality, willing to turn a blind eye to extrajudicial killings, famine, disease and extreme poverty. He or she should have a crazy spouse whose antics can be used as a diversion or smokescreen when necessary. He or she will accept and protect all wrong doers. He or she may need to devise crafty fund raising schemes to liquidate state assets for purposes of buying elections or lining ones own and friends or relatives, pockets. He or she is required to befriend and work with wanted criminals. He or she must be deaf, blind and mute in order to effectively ignore the rapid decline in state. He can use police force to quell any dissent from the population. He is not expected to know the people, indeed the less he knows the better.

Presidency – the job of the president is to amass personal wealth and to protect criminal politicians, family and friends. This job will be starting January 2012.

Job description –ignoring state policies and regulations in order to protect corrupt and criminal politicians and amass wealth.

Performance standards: This is a challenging position and a successful president will be measured by his ability to rig successive elections. He will also exceed the crimes of the previous president past five years within his first term.

Minimum Qualifications – a previous criminal record, ability to steal with impunity, ability to creatively protect corrupt friends. Excellent acting skills especially feigning sickness and ignorance. A network of the worlds most wanted criminals. Colourful wives and friends an advantage. Only blind, deaf mute candidates need apply, alcoholics or other drug dependency preferred.

Special duties – attend state parties, cutting ribbons, drinking at golf competitions, extensive travel to Dubai, China and other shopping havens.

Work schedule and station– one hour per year, timing flexible.

Budget - none, the country is bankrupt

Remuneration – the president can take whatever he desires for himself, family and friends, including cash and properties which can be grabbed as required

Perks – astronomical allowances, access to any land or assets required, Great family benefits, contracts for children. You will never be investigated,

Accountability – none.

Contract terms renewable every 4 years (you can change this and declare presidency for life).

Your team

Prime Minister – Your closest asset. Responsible for for maintaining a state of fear, coordinating mass killings, rape and looting. In charge of overseeing a parallel corruption system, ensures protection of criminals, and undermining your government. Responsible for keeping quiet.

Vice president – protects your back and helps orchestrate the illegal acquisition of funds for your next election. The Vice president is responsible for maintaining silence on national scandals.

Cabinet Ministers – People you select for their contribution to your election kitty. Responsible for vomiting on the shoes of donors. These people will serve you faithfully in degazetting forests, stealing grain, stealing pensions etc etc.

Official Spokesperson – Responsible for ensuring you don’t have to appear in person to respond to any uncomfortable scandals like raids on media houses, missing grain, Armenian brothers, police brutality, extrajudicial killings, or arms to Sudan. Responsible for carrying your cross.

First Lady – Your court jester. Fashion oblivious, extreme temper, slap happy. Responsible for national entertainment and creating a diversion when journalists get too close to scandals.

Other wives, mistresses and sycophants – Your silent loyal army from the mountains that does most of your work. Responsible for setting fashion standards, organizing deals, being proxies on fishy contracts, representing you incognito, and are the real center of power in the country.

Members of parliament – a bunch of bickering elected folk who need to pay off their votes. Responsible for setting their own salaries and perks.

Apply now to Applications@ThegreatestjobinKenya.con

Full credit to http://wildaboutafrica.wordpress.com

Kenya Airways - Oversold?

2009-02-24T01:59:00.004-06:00

I was reviewing share prices vs reported book values & my own 'projections' of profits. So what follows are my own views/opinions.

I will discuss the prospects of various listed firms as businesses with a discussion of the share prices as well. As many of you know I am a huge Warren Buffet fan so I hope I do him justice.

Pick # 1 (BTW, WB does not believe in investing in airlines... I know, I know...)

Kenya Airways (KQ) - Price on 24-02-2009 is 20/-

KQ has faced a tough 3 years with the plane crash in May 2007 - this was at the peak for KQ - and then the hits started;
- elections in late 2007
- post-election violence in 2008
- record high oil/fuel prices
- global financial turmoil in late 2008 & continuing

So the question is whither KQ as a business?

Let's do a SWOT Analysis (I will update it as I get comments)

Strengths

KQ is among Africa's largest & strongest airlines. Dominant in E & C Africa.
Strong Balance Sheet (Sep 30 2008) shows Kes 10bn in cash/liquid assets. Approx 20/- per share.
National airline thus an advantage in getting airport slots in bilateral agreements.
Privatized for over a decade. GoK owns 23%. KLM 26%. Better management vs government controlled firms.
KQ can survive 2 years of losses while smaller airlines will collapse.
Majority of the revenue is in US$, GBP & Euros.
Aircraft have high fixed costs but deployment is flexible.

Weakenesses

Single hub (JKIA) thus exposure to local politics - see effect on KQ during Nov 08-Mar 09 election period.
Inefficient hub (JKIA is controlled by the GoK) leading to inefficiencies.
Reliance on government controlled entities for Jet A1 fuel. KQ faces problems sourcing fuel in various countries including Kenya, Ghana, DRC, Zambia, etc.
Over-reliance on Europe for tourists. Credit crunch in Europe will hurt KQ.
Inflexible (high fixed-cost) aircraft. Only 3 Embraers (E-190). The rest are Boeing jets.
Higher cost airline with large(r), unionized & inflexible contingent of staff.

Opportunities

Africa, especially Sub-Saharan Africa (SSA), has the lowest airline penetration.
Ineffecient government owned/controlled carriers (e.g. Air Tanzania, Air Zimbabwe, SAA) benefits KQ.
Increasing African trade with the Mid-East, Far East, China & India will increase passenger & cargo numbers.
Huge potential in tourism from the increasingly wealthier Chinese, Indians & Middle Easterners.
KQ has become the 'local' or 'regional' airline for many SSA countries e.g. Lusaka-Lilongwe, Lagos-Abidjan-Monrovia, Accra-Freetown, etc.
Global Financial Crisis will enable 787 deliveries to be made sooner than expected.

Threats

Ethiopian Airlines has a stronger pan-African presence & better global reach vs KQ. And it keeps growing.
Airlines privatizing - or recently privatized - all over Africa including Air Tanzania, Air Uganda, Air Malawi, etc.
New & expanding Low-Cost Airlines (Jetlink, Fly540)
Low purchasing power in SSA means air travel is a luxury for 99% of the population thus limited growth in the next 5 years.
High & volatile oil (fuel) prices.
Low barriers to entry. Anyone can buy a plane (see Fly540, Air Uganda). Both in Kenya & in SSA.

Financial Discussion

KQ has almost 20/- (per Sep 30 2008 balance sheet) in cash or near-cash. The 1H 2008-9 period was barely profitable BUT most other airlines made losses.
Oil prices were at their peak in 1H 2008-9 but they have dropped by 65% though KQ entered into unfavourable hedges which will continue into 2009. KQ will see benefits of lower prices in 2009-10.
KQ has been aggressively expanding in 2008. KQ will continue expanding into Africa & globally in 2009:

Dhaka (Bangladesh)
Kisangani (DRC)
Libreville
Blantyre (Malawi)
Malabo (Equatorial Guinea)

The good news for KQ is that they can easily discontinue loss-making routes while open new routes rapidly provided they have agreements in place.

So the business is OK. Sustainable. And growing 50% over the next 3-5 years.

Earnings: KQ barely managed 1.59 for 1H 2008-9. I expect a better 2H thus at least 3.50 for FY 2008-9 which leads me to say BUY.

PE = 6x which is great. Cash flow will be lower as KQ spends to expand.
PB = 0.5 (Kes depreciation has boosted value of aircraft/assets but note an offset for US$ loans/liabilities)

Buy Kenyan, Build Kenya

2009-02-23T04:22:00.005-06:00

Kenyans need to make good choices. Now. To save themselves.

Buy Kenyan

It is as simple as that.

Let me state from the outset. Kenyan manufacturers need to be price & quality competitive. This is not a choice for them. They need to give Kenyans value.

For those who cry 'protectionism', I am NOT advocating tariff barriers or quotas or subsidies. I do encourage additional (non-monetary i.e. subsidies) incentives for Kenyan firms like better roads/infrastructure, staff training, lower tax rates, etc.

Your local Nakumatt (or Tusky or Uchumi or grocer) stocks too many foreign goods esp foods. Kenya is an agricultural country. We need to become a major agro-processor as well.

Baked Beans (I like Baked Beans on Toast)

Kenylon (Kabazi Canners of Kenya) manufactures baked beans but it seems Heinz (imported from the UK via Dubai) seems to has a larger display. There are other local brands BUT the imported brands dominate.

So why does Kenya need to import baked beans?

If Nakumatt sells 100,000 cans of Heinz beans (89/-) per month, that would 'save' Kenya $1,200,000 (Kes 100,000,000) annually. 'Save' above means reduce the need for forex to fund imports. I am assuming retail margins of 10%

KShs 100 mn paid to Kabazi means a good portion goes to local farmers, factory workers, other local manufacturers & transporters. And this gets recycled into the local economy as these 'beneficiaries' buy other local goods.

Butter & Cheese

Why does Kenya import butter from New Zealand via Dubai?

KCC, Brookside, Daima, etc has great milk products. We export to the middle east, so why do we import these? We used to import milk products from China. Why?

Kenyan farmers will increase production IF we reduce imports thus boosting local demand.

Snacks/Chocolates/Prepared Foods

I am amazed that Kenya imports crisps, chocolates, biscuits, cereals, chevda (among other Indian snacks), etc

Kenyans produce great products so why the need to import???

Crisps - Krackles, Tropical Heat, etc
Chocolates - Cadburys, Out of Africa (though most ingredients are imported)
Biscuits - House of Manji (the best Digestives), Brittania
Cereals - Weetabix (local), Procter & Allan, etc
Indian snacks - Tropical Heat, Deeps, etc

Kenyan products in this category are generally cheaper than the imports yet we blow away forex & the creation of local jobs.

Why do Kenyans buy 'prepared foods' when we can hire or buy freshly prepared foods locally. As for convenience, there are local firms & SMEs in the market.

Juices/Squashes (fruit drink mixes)

Why don't Kenyans buy more locally produced juice or juice blends or even fruit drink mixes.

There are many local players in this market including:

Del Monte (locally grown pineapples)
Kenylon
Quencher (mainly fruit drink mixes)

And even when we import juices, why not just concentrates that can be re-constituted & packed in Kenya.

And why not drink FRESHLY SQUEEZED juices. Creates jobs for maids, hotel/restaurant workers, etc. Kenyan 'fruit juice' businesses need to lower prices for freshly squeezed juices. I miss the fresh fruit carts in Nairobi's CBD. I could get a juicy slice of pineapple for a mere 10/-.

Spirits/Beer/Wines/Alcohol

I know Kenyan spirts leave little to the imagination but there is hope. Let's by more EABL, Keroche & London Distiller products.

There are few local wines (Mara is imported from S.Africa). Locally produced wines should attract lower taxes. There are other fruit wines that can be produced from locally grown fruits including:

- Passion fruits (I recall passiflora but too dry for my tastes)
- Oranges
- Mango (Has anyone tried?)
- Pineapples (I used to brew a weak version)
- Sugarcane (Rum)

I buy the local Kenya Gold (instead of the imported Baileys) & the local Smirnoff (vs imported vodkas).

And the above is a small sample of the imports. We could 'save' at least $100,000,000 in forex annually if we looked inwards. Add the jobs Kenya could create & the Global Financial Crisis would look less daunting.

Family firms out-perform 'public' firms

2009-02-20T16:33:00.001-06:00

Very interesting article from the ECONOMIST.

Also brings to mind Chandaria Industries (Comcraft Group) of Kenya. The 3rd generation is at work. And it remains private.

NSSF (Kenya) vs Temasek (Singapore)

2009-02-20T16:06:00.003-06:00

I admire Lee Kuan Yew (the former PM of Singapore) for the discipline he installed in Singapore.

As has been many times before, economically Kenya & Singapore were at 'similar' levels in 1963 except Kenya has much more 'potential'.

Singapore had LKY. Kenya had crooked wa ngengi (aka jomo 'land grabbing' kenyatta) & then dan 'uber-thief' moi.

Singapore has a Sovereign Wealth Fund called Temasek. Acknowledging deficiencies in managing the SWF, Singapore has hired heavy hitters who happen to be expats.

Kenya has NSSF. The same corrupt board is 're-hired' even after losing billions in scandals.

Sigh.

Fertilizer Imports have started - Scams come next

2009-02-20T01:05:00.004-06:00

The Fertilizer scam to start soon as government imports trickle in...

kibaki said - I paraphrase - 'Do not look for others to blame for the scams'. Shouldn't he have said 'The buck stops with me'?

Anyway, as I predicted in my earlier blogpost, it is a matter of time.

Sameer Africa posts better results - Not really

2009-02-19T02:28:00.005-06:00

Year End 31 Dec.

Sales down 13% yoy.
Gross Profit down 6% yoy.

Other Operating Profit up 197% yoy. Ahhh... no details on what this is. Sale of assets?

PAT up by 26% yoy BUT see "Other Operating Profit".

Sameer Africa was affected by the PEV in 2008 & the subsequent knock-on effect on sales later in the year. Anyway, that is history.

How will 2009 be?

IMHO, it will be much tougher. Why?

- Costs of production in Kenya remains high including interest costs, electricity & transport costs.
- The depreciation of the KShs vs US$ will hurt import input costs. Imported might be pricier if imported from non-US$ countries e.g. India
- Competition from multiple brands e.g. Pirelli, Michelin, Apollo, etc

Firestone used to be the first choice for Kenyans but I think there has been a major shift since it became Yana. Nakumatt sells 5+ brands & this shows a change in preferences. Yana tyres are NOT the cheapest in the market. Yana needs to sell the 'quality' of their brand to succeed.

2010 - The business park should be reaady but I do not trust naushad merali. I wonder how much SA will benefit from the business park vs merali. I think merali will suck the majority of the profits/gains from the business park.

Anyway, let's wait for the Annual Report.

Coming soon to Kenya - The Grand Fertilizer Scam

2009-02-17T16:49:00.004-06:00

I, Coldtusker, GUARANTEE that the decision by the government of Kenya to import, subsidise & distribute fertilizer will be beset by multiple scams involving one or more of the following:

A - The 'wrong' (type, grades, mixes, combinations) fertilizer will be imported/distributed to the areas.

B - Politically connected firms & individuals (e.g. jackson kibor & maize) will buy the subsidised fertilizer & sell it at higher prices.

C - In many cases the fertilizer will reach the farmers AFTER the planting season is over. Or reach them when it is not as effective/ideal.

D - Gov't will ultimately deliver fertilizer at prices higher than what private firms can. If not for subsidies, the price of government fertilizer will be higher than private firms!

E - In some cases, the fertilizer will be left to 'spoil' & will be disposed off as 'junk' or 'obsolete' or 'ineffective'.

PLEASE quote me if any if the above does not happen IF the government goes ahead with the foolhardy idea of importing & distributing fertilizer through the NCPB.

Tidbits - just for you!

2009-02-17T02:25:00.006-06:00

Japan's Finance Minister resigns coz he appeared to be drunk at a conference. He claims it was a combination of jet lag & cold medicine.

Kenya's current FM, uhuru kenyatta, looks drunk. All the time. Just joking. I hope he does better than most of the jokers Kenya has had in the past especially the george 'goldenberg' saitoti.
We all know Kenya's former FM (guess who???) is a former drunk. Kudos to him on kicking the habit but not the lethargy.

Now for the serious part: Kenyan ministers NEVER resign for any sort of foible or corruption. Starting with paul ngei to william ruto. And so many in between!!!

African legislators are crooks. No matter where.

KPC in more trouble. Again!!! Kenol-Kobil plays tough with KPC.

BBK's group results PBT up 13% but PAT up 12.5% (EPS of 4.10), BBK is trading at a historic P/E of 10.

Rwanda - The New Hope of Africa Part 2

2009-02-17T00:25:00.002-06:00

Unlike Kenya, Rwanda (under Paul Kagame) is taking a serious stand against corruption.

When I spoke to folks doing business in Rwanda, they say corruption tends to be low-level but structures are in place to deal with serious corruption.

Paul Kagame wants to make Rwanda the Singapore of Africa. Paul is a 'benevolent dictator' on a similar plane as Lee Kuan Yew & he is reportedly as clean as it gets.

Paul - unlike most African rulers (thieves) gave up his ancestral land since he did not need it!!!
In Kenya, jomo kenyatta & dan moi were unabashed kleptocrats!

Kenya Airport Authority - Corrupt & Inept

2009-02-15T12:28:00.002-06:00

The idiots at Kenya Airport Authority are it again!

The corrupt & inept (yep, both) could not 'control' the electricity outage situation at the Mombasa 'International' Airport.

Shouldn't MIA have an emergency electricity generator that powers basic functions so the airport can continue running albeit at a 'slower' pace?

What about a contingency plan to provide chairs, shade or water to passengers stuck at the airport?

I have railed against the corrupt & inept idiots running KAA & how they sabotage Kenya's tourism industry.

This a mere sample... there are dozens of horror stories of KAA's ineptness!
July 2007 - Landing lights out
Oct 2008 - No generators at the airport

I feel sorry for the passengers, tourists, KQ & other airlines operating in Kenya.

I want me a BarackBerry

2009-02-04T05:00:00.004-06:00

It turns out that Obama does not use a BlackBerry but a BarackBerry...

The BlackBerry can't hold a candle to the Sectera Edge - not your father's Palm Treo - that BHO uses!

I wonder if one of the games on the Sectera is 'Nuke'em Iran?

Anyway, I want one... am I asking too much?

BTW, the Business Daily Africa claims BHO uses a BlackBerry but we know better!

Is South Africa really part of Sub-Saharan Africa?

2009-02-04T04:30:00.006-06:00

Gautrain is a world-class train system being built in S.Africa. Amazing.

In the meantime, the Kenyan government is hosting a 'Kenya We Want' conference. What bullshit. A little common sense would be much cheaper!

My Solutions:

kibaki should fire ALL his corrupt & inept ministers (incl saitoti, kimunya, etc) & a huge chunk of our problems would be solved.

kibaki should reveal WHY the libyans (among other groups) are being favoured. And STOP the favouritism & nepotism.

Kenyans want to know if the libyans contributed funds towards kibaki's re-election campaign in exchange for sweetheart deals. No more sweetheart deals.

If the GoK privatised KPC among other government institutions, then we would not need silly conferences.

Raila should drop his opposition to PRIVATE investments. This is not the communist Soviet republic. We need COMPETITION.

All MPs & ministers should pay taxes on their entire salaries & perks! And their pay should be linked to performance!

Common sense is not so common. Or is the conference simply another way to siphon government funds & provide PR?

roocy kibaki blames saitoti for molo deaths

2009-02-02T09:09:00.005-06:00

roocy kibaki blames george saitoti for the Molo deaths!

If this was not tragic, this is a dark comedy.

roocy's hubby, the Kenyan prez (if you believe sam 'cant count' kivuitu) has been in the government since 1963 as Finance Minister, VP or Prez. And Kenyans have been raped by the politicians since 1963.

Land-grabbing by kenyatta's regime. All sorts of other scandals during moi's regime. Anglo-fleecing, KPC-Triton & maize scams during his regime.

She says that MPs should use their humongous salaries to pay for starving constituents. Well, what about her horrendous large salary & office expenses for doing jackshit? And her hubby who gets paid more than MOST presidents or prime ministers in DEVELOPED countries!

How does she blame saitoti (I hold no torch that thief & incompetent either) for not providing 'civic' education?
Don't schools teach - or common sense - that petrol is FLAMMABLE & dangerous?

So is Saitoti on the way out?

News Break: One day after the Molo Fuel Fire, a railcar derailed near Naivasha with 100,000 litres of UNPROCESSED COOKING OIL. And the thieves were at it again. Oblivious of the danger. Using this oil as 'food' can kill due to impurities. All I can say is expect a few more sick people. Or a few more dead.

KQ announces profit warning

2009-02-02T03:45:00.005-06:00

I screwed up - in my defense, I tried my darnedest to find the ACTUAL announcement but was stymied by lack of information from KQ or the NSE.

Anyway, DN posted this article that claimed KQ's profits made a HUGE jump. I was unable to confirm the real story until much later... and it turned out that the story was not as rosy! In fact, it was not rosy at all!

KQ's 3Q 2008-9 ASKs were up 7% but DN claimed it was their PBT that was up 7% over 3Q 2007-8.

I have voiced my intense displeasure at the poor business reporting by Kenya's media houses BUT unless companies provide this information directly to us through posting it on their websites, how will we ever know or compare or verify?

To my readers, sorry for the faux pas. To KQ (among other listed firms), please post this information on your websites simulatneouly with the release to the media or NSE.

KQ has very profitable 3Q 2008-9

2009-01-30T16:47:00.007-06:00

KQ's 9-month 2008-9 PBT was +7% vs PY... BUT the real story is that...

KQ made 2x in 3Q (Kes 3.035bn PBT) compared to entire 1H (Kes 1.05 PBT)...
Due to the post-election violence, KQ's pax numbers were very low in 1Q (Apr-Jun 2008). The 2Q (May-Sep 2008) was merely catch-up but the after-effects still lingered.

Then came 3Q with (much) lower oil prices as well as the strong US$... but since KQ prices most tix in US$, the overall effect has been a surge in Kes profits...

KQ faces challenges in 4Q coz of the GFC but the most profitable business remains the African business... they should continue expanding in Africa even if it the destinations make losses at first... KQ should start agrressively targetting S. African markets & beat up SAA while they are down!

Oil prices should be lower than 2008 though we have seen jet fuel shortages in Kenya coz of the thieves at KPC.

BOTTOMLINE: I expect EPS of 7.50 for 2008-9. By my estimates the NAV is over 62/- So its trading at P/B of 0.4 and forward PER of 3.5... this is a steal!

And there is the Obama business... perhaps time expedite the expansion of the Kisumu airport... Obama is a-coming at some point!

Prior posts on KQ or related subjects...

http://coldtusker.blogspot.com/2008/10/kq-has-profitable-1h-2008-9.html
http://coldtusker.blogspot.com/2008/11/jkia-is-dump.html
http://coldtusker.blogspot.com/2008/11/how-kenyan-government-sabotages-success.html

Uganda Banking Sector

2009-01-28T01:23:00.004-06:00

I have been following the Ugandan banking sector & though there are structural challenges, it seems there are ripe pickings - even better than Kenya but beware currency movements.

Uganda will start 'producing' oil - primarily sour, heavy & waxy (the lowest quality!) - in 2010.
Ugandans should not expect 'cheap' petrol but it will definitely help reducing the cost of heavy diesel for Ugandan industry & energy production. There are plans to build a refinery as well. Maybe even export the products to S.Sudan, Rwanda & DRC.

Since oil production has been 'privatised' I expect production to start more or less on schedule. I do not know the break-even cost for this oil BUT Uganda will have an additional source of energy except hydro at Jinja.

The Bujangali Dam being built by/under AKFED will also boost Uganda's economy. I like AKFED. They do good work in African countries by building capacity. AKFED firms include Diamond Trust, Jubilee, Nation Media & TPSEA.

KES 1 = UGX 25
USD 1 = UGX 1990

Here's a look at listed banks

Bank of Baroda (Uganda) - Unlike BoB(Kenya), they are public (20% float). They even released unaudited 2008 numbers by 16 Jan 2009. Imagine that! Anyway, they last traded at UGX 405. The 2008 EPS estimated at 37. Very conservative bank thus low NPAs & great ratios for capital adequacy. Also owns prime property in the middle of Kampala's CBD. Low 2008 PE = 11. They have never had an unprofitable year since they listed.

DFCU - Controlled by Actis (former CDC). New CEO appointed in 2008. Major scandal & losses hit DFCU in 2007. Trying to be the Equity Bank of Uganda.

Equity Bank (parent listed in Kenya)- Purchased UML with 30 branches. Rebranding to EBL. It will shake up the sector. Competitors are already on edge!

KCB (cross-listed) - They came in the market with a bang but concentration seems on cross-border business.

Stanbic Uganda - Huge over-subscription during the IPO thanks to Kenyans. Seems priced well on a P/E basis but not as entrepreneurial as DFCU nor conservative as BoBU nor aggressive as DTB. Controls a huge chunk of the market thanks to its purchase of Uganda Commercial Bank - Uganda's then largest bank. Expect severe competition from DFCU & Equity Bank for the mass market. Corporate & SME business under threat from DTB & Crane Bank. Cross-border business under pressure from DTB & KCB. Standard Chartered & Barclays (bought out Nile Bank) are also in the market.

Diamond Trust Bank (parent listed in Kenya) - SME market & aggressive. AKFED investments in Uganda will boost DTB's profile. Also aims for the corporate market.

Conclusion: Get in before its too late!

Corruption at KPC continues unabated - Higher fuel prices

2009-01-26T01:07:00.004-06:00

Kenyans will see higher fuel prices. Why?

1) Banks will not lend to many oil firms OR will do so at much higher costs.

2) Ullage allocation favoritism at KPC's KOSF.

3) Demurrage charges to add to fuel costs.

4) Government corruption unabated even after Triton collapsed. High-level corruption?

5) Inefficient government owned Oil Marketer to be favoured over others. More corruption?

Discredited ECK employees to get 500 million

2009-01-25T12:04:00.005-06:00

WTF?

kivuitu is slated to get KShs 25 million. The government claims there is no money for development or for teachers but wants to pay sam 'I cannot count' kivuitu KShs 25,000,000/-. People are dying of starvation & the govt refuses to pay farmers a fair price for their maize.

Is kibaki trying to pay off kivuitu for his silence on election irregularities?

If ECK thinks it is being shortchanged, then go to court. Do NOT pay them!

BUT what do you expect from Kenya's morally bereft politicians?

How can the Kenyan prez and/or PM make more than the prez/PM of countries far more prosperous?

kibz makes more than Obama. The USA has an economy at least 800x larger than Kenya’s!
raila makes more than Gordon Brown. The UK’s economy is at least 100x larger than Kenya’s!

And then they go to BEG for food aid!!! If I were a donor, I would say go to hell for more aid. You draw obscene salaries & are bloody corrupt. Let your people starve coz then they may see the need to change the government!