Oil marketing firms seek penalties waiver extension

Kenya’s ageing penalties were introduced in 2017 to encourage faster evacuation for steady supply of petroleum products from importation, discharge, storage to transportation. PHOTO | FILE

Summary

• The push for an extension of the penalty waivers started in October when OMCs under the umbrella of the Supply Co-ordination Committee (SCC) wrote to KPC arguing that the business environment was yet to return to normal.

By NJIRAINI MUCHIRA

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The Kenya Pipeline Company (KPC) is embroiled in a silent war with oil marketing companies (OMCs), who are demanding an extension on waivers of penalties accorded to petroleum products storage.

The penalties waivers were offered by KPC in March in the face of a decline in petroleum products demand due to the Covid-19 pandemic. They expired in September and OMCs are seeking to have them extended to the end of the year.

The fight has roped in the Ministry of Petroleum, which is for an extension, but KPC argues that business has normalised with the reopening of the economy and imports are more predictable as demand for products has stabilised.

“We can’t allow OMCs to clog our facilities and that is why we don’t intend to extend the waivers. If OMCs want to store products, let them invest in storage facilities,” Macharia Irungu, KPC managing director, told The EastAfrican.

Ageing penalties were introduced in 2017 to discourage mostly small oil marketers from using KPC facilities for product storage and encourage faster evacuation with the ultimate objective being steady supply of petroleum products from importation, discharge, storage to transportation.

The penalties on overstayed products have become a cash cow for KPC, with the company raking in $3.3 million (Ksh372.6 million) in 2018 up from $3 million (Ksh342.4 million) in 2017 according to its 2018 financial statement.

The EastAfrican has obtained an ageing analysis report as of Tuesday last week that shows OMCs owe KPC $397,698 (Ksh44 million) in penalties for products that have not been exited from its facilities since October.

The report shows Texas Energy has the biggest debt at $112,000 followed by Gulf with $41,331, Vivo with $39,501, Kenya Petrocity with $30,366, Total with $35,823 and Rubis Energy with $23,529.

The push for an extension of the penalty waivers started in October when OMCs under the umbrella of the Supply Co-ordination Committee (SCC) wrote to KPC arguing that the business environment was yet to return to normal.

“This waiver extension will go a long way in helping OMCs plan for the country and the region’s fuel supply requirements without the penalty constraints as the demand adjusts to normalcy,” said SCC chairman Martin Kimani in a letter addressed to Dr Irungu dated October 14.

Mr Kimani, who is Rubis Energy general manager, added that KPC intends to resume ageing penalties before the ageing clause on the transport and storage agreement is reviewed and the final terms communicated to the industry.

On December 2, Dr Irungu replied declining to extend the waivers on the basis that business was back to normal, including the demand for petroleum products.

“Based on these facts, KPC is kind enough to issue a waiver on September month billing and resume aging from October. Kindly note October and November aging invoices will be issued by December 9,” said Dr Irungu in his response letter.

But in a twist, Petroleum Principal Secretary Andrew Kamau earlier wrote to Dr Irungu pushing the OMCs case for the waivers to be extended.

Mr Kamau also sits on the KPC board, ultimately meaning that his loyalty should be to the state utility company.

“In view of the contribution of the oil industry to this economy, both in terms of revenue generation and production of sanitisers, masks among others and cognisant of the difficult times during the Covid-19 pandemic, we wish to ask your good office to extend the ageing waiver period from October to December,” he said in a letter dated December 14.

The push by Mr Kamau and OMCs for the penalty waiver comes at a time when KPC released a statement that it had paid Ksh2.7 billion ($24 million) to the government for the 2018/2019 financial year in dividends.

This was after the company’s revenues grew by 14 percent to Ksh31.5 billion ($280 million) from Ksh27.7 billion ($246.2 million) in 2018 driven by increase in throughput volumes of 7.4 billion litres of fuel compared with 6.6 billion litres the previous year.

Ironically, the big OMCs that owe KPC huge amounts in penalties were behind the introduction of hefty ageing penalties. Before their introduction, KPC used to charge a paltry $0.3 per cubic metre as the penalty for overstayed products.