Press Center | Freight Shipping Logistics News

Can you explain the nature of the dispute around the importation of oil by Nock?
Q: Can you explain the nature of the dispute around the importation of oil by Nock?

A: The dispute is essentially with respect to the pricing reference for the oil. The bids for the OTS (open tender system) are done on the basis of freight (cost of bringing the product to Kenya) and premium (the profit the bidder wants to make).

The winning bid is the one with the lowest freight and premium. The price for the oil itself is based on ‘Platts’, which is a global pricing reference for oil.

The Open Tender System provides that the applicable oil price will be the Platts average for the month when the product was loaded.

Our freight and premium did not change from the one we bid in the tender. However, whereas the marketers want us to price the oil on the average of Platts for February, our supplier is charging us the average of Platts for March as the cargo was loaded in March, hence we are charging the market the average of March prices.

What exactly caused the delay in Nock’s diesel imports?

As we approached the delivery date, our initial supplier indicated he was having some logistical challenges with the refinery where the petroleum was being refined.

This was therefore going to result in a delay in the delivery of the cargo. The supplier could not confirm the timely delivery of a smaller bridging vessel and therefore, to ensure adequate petroleum supplies in the country we decided to procure another supplier.

We had been given a delivery date range of February 17-19 . Under the OTS rules, a supplier is given 14 days after the last date range to deliver the cargo after which it is regarded as a default.

We had to deliver the cargo by March 5 to avoid being in default. The new supplier delivered the cargo on March 1.

Your competitors have been asking to increase retail prices, is this justified?

The current formula prices petroleum products on the basis of the last three months. For instance, the pricing for March is based on the petroleum imports brought in December, January and February.

The geopolitical situation in producing countries and the appreciation of the dollar against the shilling have meant that since December 2010, each import has been more expensive than the last.

Marketers have had to borrow more to finance each purchase of petroleum yet under the formula they can only recover the amount in the subsequent month.

Continued increase in global petroleum prices has put intense pressure on working capital hence the marketers have been asking for the formula to be amended to take this, among other things like financing costs, into consideration.

You publicly accused Shell of sabotaging an earlier import.

We have since come to an understanding on the misunderstanding.

Which company did Nock hire to supply the oil and what process was used to hire it?

We undertook a procurement process and the company with the most competitive bid won the tender to supply the oil.

It has been suggested that some of the ships you cited as carrying your oil did not exist. Can you explain?

Before a vessel can berth at the port, the importer has to notify the various authorities and the industry of the name of the vessel to enable them to schedule berthing.

Our supplier had indicated the names of the main vessel and the smaller one for berthing purposes both of which we communicated to the relevant authorities, including the industry. We had no reason to doubt the existence of any of the ships.

What has been the problem with the shipment of oil?

Some of the challenges include infrastructure constraints such as ullage. The additional investments being done by KPC, including constructing a new line to western Kenya will ease this situation.

Also, Kenya has only one  jetty at Kipevu for discharge of petroleum. The second jetty, which will be a floating jetty being constructed by National Oil will greatly help.

You put out a statement last Friday that the cargo in question was already taken. Has the ullage been cleared?

A significant part of the ullage has been cleared as marketers evacuate their products.

Why are the other oil firms refusing to buy your import? Is this normal and fair?

Many of the marketers have bought the oil. However, some have declined on the basis of the pricing reference being March rather than February.

What has been the impact on Nock’s finances?

There has been no adverse impact on our finances. The industry practice is that oil imports are financed under a collateral arrangement with the financier and this is the same arrangement we have used.

Will Nock be ready to participate in the OTS in future?


Why does the rest of the market appear to be against Nock?

When the government mandated us to import 30 per cent of the country’s diesel, jet and crude oil requirements last year, there was a lot of opposition from sections of the market who saw this as an attempt to intrude upon areas where they previously were essentially in control of.

Any other comment?

Globally, national oil companies have moved to the forefront of petroleum operations, both upstream and downstream not only in their home countries but some like Petronas (Malaysia) and Petrobras (Brazil).

This is in cognisance of the strategic role played by national oil companies, many of whom have stabilisation mandates unlike private companies that primarily have profit mandates.

The National Oil Company of Kenya has a unique mandate not shared by any other oil company of stabilising the market while at the same time delivering reasonable returns to its shareholder.

We have developed an ambitious strategic plan geared towards growth and development. This five-year (2008-2013) strategic plan is poised to see us achieve a 15 per cent market share by 2013.

Over the last 6 years, our stations have grown from six to the current 70, our market share has grown from 2 per cent to 7.3 per cent, sales volumes increased from 33 million litres to 300 million litres, and operating profit from Sh100 million to Sh500 million.

We are well positioned and have adequate resources both human, financial and operational to deliver on our mandate.