The State has made a U-turn regarding the controversial pricing of a diesel cargo that had allowed Oryx Energies to make an extra Sh1.7 billion through inflated prices, a decision that had split the oil marketers.
Energy Cabinet Secretary Davies Chirchir said on Monday the decision by PS Mohamed Liban allowing Oryx to invoice other oil firms at prices inflated by 17 percent based on the current month’s Platts pricing instead of last month’s will be dropped amid an industry uproar.
The move will save consumers from more pain at the pump given that Oryx’s cargo is Sh20 more per litre than the current prices, which have already been stabilised by a margin of Sh3.59.
Prices of diesel— the main driver of the Kenyan economy—could have jumped by as much as Sh23.59 per litre, which would push its costs to a historic high of about Sh203.26 in Nairobi.
“We are consulting with our suppliers so that we can make a final decision on whether the cargo will be under the July or August pricing cycle. But you can be sure that I will be pitching for the cargo to be put under July,” said Mr Chirchir on Monday.
The decision comes days after revelations of a communique from the Ministry of Energy to Oryx Energies, approving the marketer’s request to delay delivery of 85,000 metric tonnes of automotive gas oil by six days.
But the approval of the new delivery dates of the cargo saw the ministry shock oil marketers that the Platts pricing for this month would apply instead of those for July, triggering an industry uproar.
Oryx Energies was to deliver the cargo between August 12 and August 14 but requested to bring in the cargo between August 19 and August 21 following delays in discharging fuel at the Kenya Pipeline Company’s jetty.
Invoices that Oryx Energies had issued to oil marketers based on this month’s pricing will also be quashed, with Mr Chirchir, saying this decision should be officially communicated by Wednesday.
“If we succeed in renegotiating the prices downwards to July pricing then there should be no problem in issuance of new invoices to local OMCs who had bought the stock,” Mr Chirchir added.
Oryx Energies had bought the diesel at an average Platts price of $97.88 (Sh14,182) per barrel in July and was now being allowed to sell the same diesel to oil marketing companies at $114.5 (Sh16,585) per barrel, an increase of 17 percent.
The difference between the July and August average Platts prices is $16.62 per barrel or $11.775 million (Sh1.7 billion) for the entire shipment.
Executives who sought anonymity had questioned the rationale behind changing the pricing month instead of allowing the ships more days to claim demurrage.
Demurrage costs are $45,000 per day under the Open Tender System for the biggest tanker (LR2) docking at the Mombasa port and $31,000 per day for the second-biggest vessel (LR1).
Under the Master Framework that the government signed with the three Gulf oil majors for supply of the fuel on a 180-day credit period, cargo that arrives between the first and 14th day of the month is priced based on the Platts prices for the previous month.
Fuel cargo that is delivered from the 15th day is priced based on that month’s Platts pricing, according to Section 4.5 (C) of the agreement signed in March.
The marketers had protested already done their costing using July Platts prices and had already sold their transit cargo destined for other countries in the region using the lower prices for that month.
The ministry was on Monday holed up in a lengthy meeting with oil marketers to resolve the industry uproar.
Oryx Energies was picked alongside Galana Oil Kenya by Saudi Aramco as the supplier of diesel to other oil marketing companies in the country for 270 days.
