Economy
Story of cheap cargo, PS letters and fresh Sh1.7bn fuel scandal
Friday August 25 2023
GRAPHIC | CHRISPUS BARGORETT | NMG
Fuel consumers stand to lose an estimated Sh1.7 billion after the government allowed one supplier to sell the product at prices that have been inflated by 17 percent, in a fresh scandal that has split players in the industry.
At the centre of the dispute is Oryx Energies Limited which was picked alongside Galana Oil Kenya by Saudi Aramco as the supplier of diesel to other oil marketing companies (OMCs) in the country for a period of 270 days or about nine months.
Read: Kenya strikes cheaper oil deal with Gulf firms
Oryx was contracted to ship in 85,000 metric tonnes of automotive gas oil (AGO) commonly referred to as diesel between August 12 and August 14.
However, the company wrote to the Ministry of Energy and Petroleum arguing that because there was a delay in discharging fuel at the jetty, it be allowed to delay delivering the cargo for six more days to avoid demurrage charges.
On August 18, the Petroleum Principal Secretary (PS), Mohamed Liban, wrote to Oryx managing director, Angeline Maangi, allowing the company to instead deliver the cargo between August 19 and August 21 as requested.
“The ministry is cognizant of this situation and approves the new date range. The pricing period shall be August 2023 and the respective participations for this cargo shall remain as advised in our letter,” said the PS.
The problem with this arrangement is that the six-day delay gave ministry officials an excuse to change the pricing for that cargo to August instead of July.
This means that Oryx, which bought the diesel at an average Platts price of $97.88 (Sh14,182) per barrel in July, was now being allowed to sell the same diesel to OMCs at $114.5 (Sh16,585) per barrel, an increase of 17 percent.
The difference between the July and August average Platts prices is $16.62 per barrel or $11.775 million (Sh1.7 billion) for the entire shipment.
This higher amount is likely to be passed on to consumers during the next fuel pricing review unless the State applies price stabilisation.
While Oryx will be able to pay its fuel supplier, that is Saudi Aramco using the July prices they agreed, the company will be selling the same fuel to dealers at the much higher price of August.
This means the firm will pocket this increment yet consumers will pay for it through higher fuel prices.
Highly placed sources in the petroleum industry have raised the flag after they were hit with invoices from Oryx requiring them to pay for diesel using August prices instead of July prices.
“Up until yesterday (Wednesday) we knew that we would pay for our supply using July Platts prices until we were issued with invoices showing August Platts prices,” said an oil marketer.
But to make matters worse, Oryx delivered more cargo than it was contracted to deliver, meaning that Kenyans will be forced to buy more of the diesel with inflated prices.
This week, a ship delivered 93,225.25 metric tonnes of diesel for Oryx – more than the 85,000 metric tonnes it was contracted to supply by 8,225.25 metric tonnes.
Ms Maangi, the Oryx managing director, told the Business Daily she was out of the country and was therefore not in a position to give a timely response to this story.
“Right now is not a good time to discuss such a matter because I am currently out of the country. Let us discuss this tomorrow (Friday) when I come back,” she said.
Energy Cabinet Secretary Davies Chirchir was also unavailable on call and his personal assistant said he was also out of the country. Oryx did not also respond to our official email inquiry on the matter.
Oil marketers, who spoke to the Business Daily on condition of anonymity, said their protests to the Ministry of Energy and Petroleum have fallen on deaf ears and that they have also failed to get an audience with Oryx to address their concerns.
They argue that they had already done their costing using July Platts prices and had already sold their transit cargo destined for other countries in the region using the lower prices for that month.
“For transit cargo, it is impossible for us to now go to our clients and tell them that the prices have changed and that they should now pay us more based on the higher August prices. For domestic cargo, the higher cost will be factored in the next fuel prices review,” said an oil marketer who requested anonymity.
Diesel is currently retailing at Sh179.67 per litre in Nairobi. Oil marketers, however, say that the cargo that has been delivered by Oryx is Sh20 more per litre than the current prices, which have already been stabilised by a margin of Sh3.59 by the Energy and Petroleum Regulatory Authority (Epra).
What this means is that in case the government fails to apply stabilisation, diesel prices could rise by as much as Sh23.59 per litre which would push its costs to a historic high of about Sh203.26 in Nairobi.
Diesel is the most used fuel product in Kenya and has varied uses, including transport, electricity generation, manufacturing and agriculture and is therefore a key driver of the cost of living and doing business.
Another executive at one of the leading oil firms questioned why the ministry opted to change the pricing month, a decision that has gifted an undisclosed beneficiary the Sh1.7 billion at the expense of oil firms who bought the cargo.
Read: Kenya seals deal for cheaper Saudi fuel
“The options for the authorities were to allow a new date range and not revise pricing month. They (authorities) could as well have allowed a few more days for them to claim demurrage,” said the executive.
“Why change the billing month? Would they (authorities) make the same decision especially if the Platts moved in the reverse?”
Demurrage costs are $45,000 per day under the Open Tender System for the biggest tanker (LR2) docking at the Port of Mombasa and $31,000 per day for the second-biggest vessel (LR1).
Additional reporting by John Mutua.
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