Revealed: How three Kenyan companies were exclusively awarded multi-billion shilling tenders in new oil deal

A coordinated series of events and actions by the government led the country to the first ever government-to-government oil deal that now puts three oil marketing companies at the helm of the multibillion-shilling business.

Those actions may have just led to the abandonment of a seven-year policy of open-tendering system driven by the private sector.

Since the commencement of President William Ruto’s regime, the new administration has been keen on containing the shocks in the oil business that had been hit by global pricing shifts and the rising price of the dollar, the primary international currency.

In January this year, Energy and Petroleum Cabinet Secretary Davis Chirchir published new regulations for petroleum importation under legal notice number 3 of 2023; this effectively repealed the earlier regulations of 2012.

The new regulations created a new mode of procurement of oil for Kenya, under a government-to-government arrangement. Still, the regulations required that importation of petroleum products be through the open tendering system.

And to regularize that, regulation 4, sub-regulation 3, provides that “importation of petroleum products through a government-to-government arrangement shall be deemed to have occurred through the open tendering system.”

Before the new regulations, oil marketing companies would competitively bid for oil importation tenders every month; the winning bidder or bidders were required to procure on behalf of all other marketing companies in the country.

On March 1, 2023, the government-to-government deals were signed. On March 3, invitations to tender for the supply of various petroleum products were closed.

Successful bidders were to be informed in two days, meaning March 5; details as to that process are not clear.

But on March 16, the ministry of Energy and Petroleum Development wrote to three local oil marketing companies informing them that they had been nominated by some three international oil companies in Saudi Arabia and the United Arab Emirates, to be their local trading counterparts.

The ministry informed Gulf Energy Limited that it had been nominated by the UAE-based Emirates National Oil Company (ENOC) for the supply of premium motor spirit meaning petrol; their allocated quantity being between 250,000 and 350,000 metric tons every month for nine months.

The ministry informed that Saudi Aramco from Saudi Arabia had settled for Oryx Energies Limited and Galana Oil Kenya Limited for the supply of automotive gas oil, meaning diesel, of between 160,000 and 180,000 metric tons every months for nine months.

Abu Dhabi National Oil Company also settled for Gulf Energy to receive and distribute upto 200,000 metric tonnes of diesel and 80,000 metric tons of jet fuel every month, for nine months.

Parliamentarians in the Public Investments Committee in the energy sector questioned the reason behind settling on just three companies to the exclusion of six others.

Energy and Petroleum Regulatory Authority (EPRA) Director General Daniel Kiptoo said: “On average, there are 9 importers for the last two years. I can confirm, three of those nine have been nominated by the IOCs. As to whether there is space for the others to be nominated, the answer is Yes but it is not within our mandate, best answered by the ministry.”

Even though the regulations deem the government-to-government arrangement to be an open tender system, the identification of the local players appears to have nothing competitive.

“As per the contract, it was left to the IOCs to nominate their partners. From the Kenyan standpoint, the requirement was to deliver CIF at Kipevu,” added Mr. Kiptoo.

The new arrangement now raises questions over how Kenyan agencies can oversight the deal.

The Public Procurement and Assets Disposal Act expressly exempts bilateral agreements from the Act that governs all public procurement ventures.

The MPs expressed concern whether the Kenyan companies had been unfairly left out in the arrangement that will now last at least nine months, during which they will bring petroleum products to the country on credit, guaranteed by the government of Kenya, a lucrative business opportunity now limited to the three local companies.

“In terms of whether they have been disenfranchised, the answer is No because there are two fundamental shifts, today there is obligation by OMCs under OTS to pay within five days in USD. The OMCs approach the market to get the dollar so that the product can be released to them,” stated the EPRA boss.

So far, the desire to contain the US dollar on the Kenyan economy has been cited as the main reason of the policy shift.