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Give National Oil extra roles in rescue

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A National Oil filling station. FILE PHOTO | NMG

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Summary

  • According to documents tabled in Parliament recently, the State-owned company owes KCB a massive Sh 3.7 billion.
  • It also owes Stanbic Bank Sh 1.29 billion and suppliers Sh628 million.
  • The company has requested Sh3 billion from the government by way of a capital injection.

News has it that the National Oil Corporation (Nock) is teetering towards insolvency and death. Yet hardly two years ago, the government announced plans to dual-list Nock at both the London and Nairobi exchanges. Clearly, it was a blatant lie because Nock’s credentials do not qualify it for listing.

According to documents tabled in Parliament recently, the State-owned company owes KCB #ticker:KCB a massive Sh 3.7 billion. It also owes Stanbic Bank Sh 1.29 billion and suppliers Sh628 million. The company has requested Sh3 billion from the government by way of a capital injection.

With the government facing crippling cash-flow issues, I doubt whether bailing out Nock ranks high in the current expenditure priorities of the government. The pertinent question we should be asking in the current circumstances is the following: Do we really need a national oil corporation?

In my view, yes, we do. Indeed, many countries own and keep this type of company that they use strategically for policy intervention in the oil industry.

In terms of success and best practice, the national oil company that immediately pops up in my mind is Petronas of Malaysia. The Malaysians have over the years successfully used Petronas to develop a thriving domestic private industry and to steward and midwife entry into the oil business of their big local champions.

The point here is that it is not enough just to have a national oil company. The reason the Malaysians are better than we is that they carefully thought through why they needed a national oil company. They had a long-term vision for their national oil company.

It seems to me that we got it all wrong right from the design stage. We created a national oil company whose role is largely restricted to the oil trading and marketing business.

And, we set up the company against efficient and nimbler private sector multinationals —the oil majors. Competition is stiff, margins are thin while the financial exposure is just too high. Indeed, oil trading is a high-risk business.

To operate Nock has had to borrow billions of shillings from a syndicate of commercial banks for working capital and to finance oil imports.

In retrospect, the biggest mistake we made was to allow Nock to be run like any other parastatal and to allow the political elite to stuff its management and board with political appointees. Under the much-touted Mwongozo Code of Governance and Leadership, the size of parastatal boards is set at a maximum of nine. Yet in the case of the Nock, the board is composed of 12 directors. There are just too many ex-officio members who represent ministries sitting on that board. Clearly, the predicament Nock finds itself right now is what you should expect when you put such a high-risk business to be overseen and managed by cronies of the political elite.

Nock was supposed to be our strategic lever to be used in stabilisation of petroleum prices. We failed to make it one. If I were the one making decisions today, I would transfer the running and management of the so called industry Open Tendering System arrangement from the Ministry of Energy to Nock.

If we wanted Nock to be a strategic player in the industry with the influence and clout to stabilise prices, even the Kipevu Oil Terminal currently managed by the Ministry of Energy, should have been under Nock.

In other countries, oil exploration companies coming into the country seeking licences for exploration have to partner with their national oil companies. It does not happen here.

Even in our current plans to export oil from the Turkana fields, Nock is nowhere. The plan is that the 821km pipeline that will be transporting crude from Lokichar to Lamu will be jointly and equally owned by the government, Tullow Africa Oil and Mersk (Total).

Thus, both the oil wells in Turkana and the pipeline will be a single consolidated asset. Where is Nock in this equation?

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