Kenya strikes deal for cheaper Saudi fuel
The state-owned National Oil Corporation of Kenya will from August start shipping fuel from Saudi Arabia at prices below world rates as part of the government’s latest drive to cut prices to the pump.
It is through a government-to-government deal that will see state-owned Saudi Aramco supply Nock with refined fuel at prices “exclusively” below global crude costs.
Nock will, under the deal, import 30% of the country’s monthly oil needs from August, which should help lower prices at the pump and ease the burden on consumers. Nock says a memorandum of understanding has already been signed.
“We have already signed the memorandum of understanding and the next phase is to negotiate the terms of the contract, we have been waiting for them since last Sunday,” said Nock general manager Leparan ole Morintat. business daily.
“The plan is to start trials in August, for two months and see the impact of the exclusive pricing that Saudi Aramco will give us. Then we will start fully in October.
The duration of the contract remains undisclosed, Nock is expected to revamp its network across the country.
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Saudi Aramco will finance shipments or provide the product with an extended credit period and Nock will pay within 60 and 90 days.
Imports will also be used to provide strategic stocks for the country and to protect the country from a fuel shortage due to global disruptions.
Saudi Aramco will arrange financing for the cargo with financiers in Dubai under an agreement that will release cheaper credit to Nock for the purchase and shipment of Super, diesel and kerosene.
Saudi Aramco is owned by the Saudi government and is the largest oil company in the world with a huge presence in the Asian, European and North American markets.
The company went public in 2019 with the sale of a 1.7% stake mainly to Saudi state and regional institutions.
Kenya is struggling with record pump prices with a liter of premium and diesel retailing at 159.12 shillings and 140 shillings respectively in Nairobi. Kerosene costs Sh127.94 per liter in the capital.
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The high prices were prompted by the surge in the global cost of crude following supply disruptions from the Russian-Ukrainian war, highlighting Nock’s lack of supply of strategic fuel stocks which are essential to lower prices locally. .
Kenya, for example, was plunged into a fuel shortage in March and April after oil majors increased the share of fuel they sell to neighboring countries to more than 60% from the previous 40% of total imports. to alleviate their cash shortage.
Nock, trained to stabilize and influence fuel prices, was largely forced to follow the dictates of the market controlled by private actors.
The debt-ridden Nock was initially mandated to import 30% of the country’s petroleum products, including cooking gas, but lost its rights when the government opened the import market to private companies in the 1990s.
The deal with Saudi Aramco will give Nock a lifeline at a time when mounting losses have hurt its ability to compete with well-financed multinationals such as Vivo Energy, TotalEnergies and Rubis Energy.
Vivo Energy Kenya controls over a third of the local oil market at 26.52%, followed by TotalEnergies at 17.7% and Rubis Energy (10.73%). Nock holds 2.2% of the market.
Nock at one time had over 100 service stations spread across the country, but was forced to close some outlets and lease others due to underfunding from the National Treasury and competition from well-oiled multinationals and local businesses.
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The deal between Kenya and Saudi Arabia is backed by the draft Petroleum (Import) (Quota Allocations) Regulations 2022, which aims to improve the financial fortunes of the state agency.
The regulations are currently undergoing public scrutiny and will tip the balance in Nock’s favor, helping it regain a competitive edge against the rest of the industry.