Kenya Kwanza’s edible oil deal: The making of a scandal

As the Kenya Kwanza administration took over the reins of administration in 2022, the elephant in the room was the high cost of living experienced by Kenyans in the run-up to the general election and that worsened afterwards.

It then was no surprise that in October 2022, the Cabinet released a memo: “To address the cost of living, the Cabinet approved a framework to position the Kenya National Trading Corporation as the anchor of state initiatives to create a price stabilizer for essentials household food items… KNTC will leverage on its infrastructure and capacity to help stabilize price swings of essential items that are abnormal and against the public interest.”

In February 2022, the government, through the Ministry of Investment, Trade and Industry (MITI) using the recently dusted and groomed KNTC, desired it to grow its capacity to import basic commodities among other expectations.

MITI also sought financing for the KNTC to support the agency in the importation of basic commodities including grains, edible oils and fertilizer as well as refurbishing its dilapidated warehouses all over the country.

The ministry said that these moves would be critical in placing the KNTC strategically to assure food security while lowering the cost of living in the country. It envisaged KNTC's active participation in the local and regional trade and said as much.

All set, go and KNTC, backed by bank guarantees and exemptions from the Treasury and Kenya Revenue Authority (KRA) were immediately in business and one of the first orders, apart from grains and fertilizers, was the importation of edible oil.

MANUFACTURERS NO LONGER AT EASE

However, even as these seemingly noble machinations were underway, a jittery manufacturing sector in Kenya became quite uneasy and said as much.

The plan to lower the cost of cooking oil was not sitting well with them and they registered their displeasure with the government saying it would be detrimental to the whole industry and might occasion the loss of many direct and indirect jobs.

The government planned to import 150,000 tons of edible oil against an annual demand of 600, 000 tons, all done to attempt to bring down the price of edible oil locally.

Cooking oil prices, due to the recent disruptions in the market, COVID-19, then followed closely by the war between Russia and Ukraine, hit the roof last year and into 2023, was edging beyond the reach of many families.

In Kenya, edible oil imports attract a 35 per cent import duty which the KNTC consignments would not be subject to, as ordered by the government.

This incensed the Kenya Association of Manufacturers (KAM) so much as the landed cost of the consignment would be significantly lower than the market cost and it was going to spark off a price war.

It would spell doom for the edible oil industry which would be left with no alternative but to exit processing oil for human consumption.

The manufacturers maintained that this strange policy shift was a significant departure from the ‘Buy Kenya Build Kenya’ policy that aims to nurture local industries.

The manufacturing sector wondered how this was going to help its contribution to Kenya’s gross domestic product (GDP) rise to twenty per cent from the current seven per cent.

‘EDIBLE OIL PROCESSORS IN KENYA ARE A CARTEL'

Responding to the manufacturers’ concerns, then-MITI Cabinet Secretary Moses Kuria confirmed the incoming cargo but clarified that the importer was the State-owned Kenya National Trading Corporation (KNTC), which turned out not to be entirely true.

There were ten firms which bought the edible oil and delivered it to KNTC at a cost. CS Moses Kuria went on to state that those complaining about the edible oil deal were part of the cartels that had operated under Uhuru Kenyatta’s administration and they had occasioned the high cooking oil prices which were partly to blame for the high cost of living.

The CS even went ahead to dispute claims that there were local industries processing edible oil. He said they probably bring in refined oil and repackage the product with their particular branding, before releasing it to retail outlets for sale.

He claimed that the local manufacturers were occasioning the government huge revenue losses by importing and passing off refined oil as crude palm oil into the country.

Speaking at a function, CS Kuria castigated the oil manufacturers, reminding them that President Ruto had given cartels three options to abide by, in short, “Mambo ni Matatu!” He claimed that there are five rogue firms in the edible oil industry with cartel-like behaviour and they should follow the advice the president gave to the sugar cartels.

CS Kuria reiterated that the government has options and the oil industry firms need to know. Kenya Association Manufacturers (KAM) data shows that the edible oil industry employs 10,000 people directly and another 200,000 indirectly.

It was expected that the market would realize a reduction to at least 20 per cent on the price of edible oil as CS Kuria, confirmed that MITI had allowed KNTC to import in a manner that was approved by the Cabinet in November 2022.

‘WE WILL GROW PALM OIL AT THE COAST’

CS Kuria in an outburst over the situation said that the government was committed to establishing a vertically integrated edible oils industry from the farmers’ level in growing palm oil in the Coast to value addition at the Dongo Kundu Special Economic Zone.

KAM proposed taxes the government could forego to bring down the price of edible oil

Meanwhile KAM, on behalf of the edible oil industry, proposed that the government take a different route towards bringing down the cost of processing oil to realize price reduction for the consumers. 

It asked the Treasury to do away with the two per cent Nuts and Oil Crops Directorate levy. They also proposed that edible oil be exempted from Railway Development Levy as well as Import Declaration Fee.

VAT on edible oil is costed at Ksh.530 for each 20-litre unit. KAM said the cumulative savings to consumers would come to Kshs.667 for every 20-litre unit of edible oil.

However, things would take a sharp turn when CS Kuria went on a war path against a section of the media over press stories casting light on the details of the importation, especially how firms owned by persons with links to high government officials were single-sourced to procure edible oils and deliver to Kenya National Trading Corporation (KNTC).

In June this year, a document filed in the National Assembly and accessed by the press shows that KNTC single-sourced companies contracted to import 125,000 metric tons of edible oil.

KNTC awarded Multi Commerce FCZ and Shehena Company Limited a Ksh.8.12 billion tender and Ksh.1.33 billion tender respectively.

To facilitate the subsequent imports, questionably, the Kenya Revenue Authority (KRA) used the Kenya Gazette notice number. 250, a Gazette Notice issued by the government on the 21st of November 2022 by the President to form the National Steering Committee on Drought Response.

In a subsequent circular, the Treasury indicated the quantities of edible oils to be imported were cumulatively at 125,000 Metric Tons (MT).

On the taxes due from the edible oil importations, a KRA memo said: "The remissions and exemptions office shall facilitate the issuance of an exemption code to exempt 100% import duty, the other taxes, fees, and levies shall be payable as per the applicable laws…”

However, and contrary to expectations, customs department documents revealed that KNTC failed to pay all taxes and levies.

The edible oil importation debacle has benefited from nearly Kshs.10 billion waivers in taxes that the Government granted to KNTC. KRA which is ardently pushing for more revenue stands to lose nearly Ksh.10 billion in revenue.

KRA AND KNTC OFFICIALS QUESTIONED BY DCI

On 28th November 2023, it eventually emerged that the Directorate of Criminal Investigations (DCI) were looking into the possibility that the public lost money in the edible oil scandal that had all along by disputed by the CS Kuria who has since been transferred from MITI.

The DCI is reportedly looking into the irregular KNTC import tenders for edible oils valued at Ksh.16.5 billion. Among those questioned to date are the Managing Director of KNTC and bank officials.

The DCI sleuths are keen to know how the payments for the goods were settled before the commodities were sold, how the banks handled the transaction and why the commodities have not been sold to date.

The Ethics and Anti-Corruption Commission (EACC) is also in pursuit of KNTC accounts, bank accounts for the companies that won and supplied the commodities and the tax exemption letters from the National Treasury and the KRA.

The DCI would also want to know if the tenders were competitive, the firms that won the tenders and the beneficiaries of the said tenders.

The Senate took an interest in the on-goings at KNTC and sought to know if the government imported 12,500 tons of edible oils after a house committee failed to locate the consignment that was intended to arrest the rising cost of living in Kenya.

EDIBLE OIL UNFIT FOR HUMAN CONSUMPTION

As if all the questions over lost revenue for the government and the unbridled profiteering enjoyed by a few individuals close to high-ranking government officials was not enough, the worst came to light this week; the edible oil ostensibly imported by well-healed and highly connected individuals to top government officials was unfit for human consumption.

In a letter from the Kenya Bureau of Standards (KEBS) dated 5th September and addressed to the Managing Director of KNTC, KEBS affirmed that “The consignments have been rejected and the importer is hereby advised to reship them back to the country of origin within 30 days from the date of this letter, failure to which they shall be destroyed at the importer’s cost.”

The results established that the consignments failed to comply with Vitamin A and Insoluble Impurities.

To show how powerful the perpetrators are, the KEBS study into the quality of the imported oil took place in July 2023, it is not clear why all the consignments shipped in before July were not subjected to laboratory tests.

A consignment number 23MBAIM402747001 exported by Multi Commerce FZC registered in Sharjah, UAE was not subjected to tests.

Why KEBS did not proceed to destroy the strange oil as stated in its letter?

The KRA, EACC, The Treasury and all other involved entities have not uttered a word beyond the obvious fact that they are looking into the details of the deal more keenly.

But what is more worrying is that corruption in high places is well and alive even as Kenyans struggle with unprecedented high cost of living and unfettered taxes, fees and levies.

At what point is a government-driven effort to offset high costs of living hijacked by corruption cartels in the corridors of power?

From an economic expert’s point of view, would such an approach be an effective mechanism to tame spiralling edible prices? So many questions and few answers