A group of oil dealers has asked the court to rescue them from being expelled from the industry for disagreeing with changes to the country's petroleum import tender guidelines. The Oil Marketers Association (OMA) has challenged some proposed changes to the open tender system and now says the Energy and Petroleum ministry has threatened its members with expulsion if they do not agree with the new rules. Under the open tender system, oil marketers bid to import all the petroleum that Kenya will use for an entire month. The winning bidder then sells the petroleum to other market players at the same price after taxes and other costs have been factored in. Companies can either bid alone or under a consortium. In the proposed changes, companies buying petroleum from the winning bidder will be penalised for delayed payments, a move the OMA now says is blanket and unfair. Companies that buy petroleum from the open tender system winners will be fined $20 (Sh2,210) per tonne if payment is made later than five days after delivery. A grace period of two days will be given, after which the fine can be imposed. The fine will double for companies that delay payment by more than 30 days. The lobby further claims that only sellers will be punished for delays, while the company that imports oil has been shielded from any penalties in the event of payment delays.
The committee reviewing the rules was tasked with further discussing penalties on the part of the tender winners who delay delivery of oil to companies after it lands in Kenya. A proposal had been made to fine such tender winners between $10 (Sh1,105) and $20 (Sh2,210) per tonne of the delayed consignment. The ministry has been working with industry players since 2018 to amend the tender rules to cushion both the winners and oil marketing companies that buy petroleum for sale in their petrol stations. After global petroleum prices slumped in 2018, some industry players stopped buying some products that were being imported under the open tender system. This left some companies with dead stock, which eventually led to losses running into millions of shillings. To cushion OTS winners from such losses while also protecting buyers, the ministry started consulting with industry players on how to effect changes that would benefit everyone. The changes, if implemented, will see companies with a history of any kind of default in payment for petroleum from tender winners barred from bidding for the lucrative deal. On average, Kenya consumes 4.1 million tonnes of oil every year with demand always rising, which makes petroleum a lucrative product. OMA adds that the proposed changes were not taken through adequate public participation, and now wants the High Court to stop implementation as it could hurt several of the smaller players in the oil industry. Petroleum Principal Secretary Andrew Kamau, in response to the suit, argues that OMA's members have been part of several consultative meetings since 2018 and cannot claim to have been left out of the process.
He adds that majority of the industry players were involved in meetings and email correspondences that narrowed down on what needs to be done to safeguard everyone involved in the open tender system. OMA is also unhappy with the involvement of SupplyCor in the amendments, arguing that the institution is also a market player. SupplyCor is a company incorporated by oil marketing companies in Kenya to ensure security in the supply of fuel in East Africa. OMA argues that some of the SupplyCor members are biased and should not have been allowed to sit in the committee that came up with the new rules. "The above facts have been confirmed by a letter dated August 10, 2021 by the CS Ministry of Petroleum and Mining who, through the letter, acknowledges the need to bring all stakeholders on board to provide an opportunity for the various views to be considered. Unfortunately, the said letter does not expressly stay the signing of the irregular deed of adherence which, if implemented on August 15, 2021 will be punitive to all members of the applicant," OMA Chairman Abdi Ali Salad says in court papers. "By reason of failure to comply and sign the illegal, and unprocedural deed of adherence, the applicant's members stand to suffer irreparable loss and harm for reasons that they will not be allowed to participate in the tender as buyers, they will be barred from the oil trading business, they will be forced to wind up their businesses and as such, be forced to lay off thousands of their employees," Mr Salad adds. Mr Kamau holds that OMA constitutes less than 10 per cent of oil marketers licensed to partake in the tendering, and that it was not a guarantee that the lobby's views would pass as law. He adds that no other oil marketing company has objected to the new rules. "During the August 9, 2021 virtual meeting to discuss OMA's issues, OMA was duly represented by its members. The issues raised by OMA were deliberated upon and agreed on by the OTS review committee. From the foregoing it is evident that sufficient stakeholder engagement was fully undertaken with representatives from all players, including OMA," Mr Kamau says in his replying affidavit.