The Kenyan government is planning to hand over more than 100 National Oil Corporation of Kenya fuel stations to a private investor as part of a rescue deal aimed at preventing the collapse of the state-owned oil marketing company.
As part of a restructuring process, National Oil, a State-owned parastatal will be split into three subsidiaries, with the downstream market entity responsible for the fuel stations being run profitably by the private investor. The government will then hold onto the strategic assets through two subsidiaries.
The earnings generated by the entity will subsequently be divided with the well-financed investor, sourced from licensed oil marketers both domestically and internationally.
Kenya privatization process has been exceedingly slow over the years, despite the previous regime earmarking 26 parastatals to be privatized in 2016, none was achieved. However, the new Kenya Kwanza regime has been keen on fast tracking the process as part of its fiscal consolidation measures.
National Oil Corporation of Kenya, founded in 1984, initially focused on exploration before expanding into downstream activities. However, in recent years, it has struggled to maintain market share, with its share of local sales volumes falling below 0.7 percent at the end of 2022.
In a phone interview, Energy Cabinet Secretary Davis Chirchir told the Business Daily that the move comes as Nock is struggling with a debt of Sh8.3 billion and a negative balance sheet. The company cannot currently pay salaries or obtain new loans, and without intervention, it will not survive. The aim of the rescue deal is to inject working capital into Nock, improve branding, and ensure the availability of fuel products at its stations.
“Currently, it is impossible for National Oil to compete in the open tender system. The strategic non-equity investor will inject working capital and deal with branding to make the brand more visible in the market. Then profits will be shared at the end. National Oil has more than 100 fuel stations and at times you will find that more than 20 do not have the product. We are looking at this like a supermarket where one brings their product, and it is sold at the stations.” Chirchir added.
Under the plan, the government will retain ownership of strategic assets through its two subsidiaries, while the profits from the fuel stations will be shared with the private investor. The investor will not, however, own shares in the company.
The Cabinet has approved the conversion of Nock into a group holding company with three distinct subsidiaries: NOC Upstream Limited for exploration and production activities, NOC Trading Limited for import and export of petroleum products, and NOC Downstream Limited for marketing and distribution.
In October 2022, the new administration announced plans to privatize 6 to 10 of State-Owned Enterprises (SOEs) in the agricultural, energy and financial sectors, within 12 months. As a result, a new Privatization Bill 2023 was introduced, and if approved by the parliament, it will replace the Privatization Act 2005. The bill is set to address the long ambiguous process of privatization stipulated in the privatization act 2005 by eliminating the multi-level approvals.
The Bill gives power to the National Treasury to identify and determine which public enterprises will be privatized, without the approvals of Parliament. The Privatization Commission will be turned into a parastatal called the Privatization Authority, domiciled at the Treasury, responsible for the implementation of the sale.
The objective of the restructuring is to enhance Kenya’s socio-economic foundation and rejuvenate state-owned enterprises within the agriculture, petroleum, and energy domains. The Treasury, holding a predominant stake in Nock, is anticipated to facilitate talks with lenders concerning the resolution of outstanding debts.
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