Inside Sh5b NOC-Rubis deal to revamp cash-strapped oil marketer

Rubis petrol station along Koinange Street, Nairobi. [Boniface Okendo, Standard]

National Oil Corporation (NOC) could soon turn out as one of the biggest profitmaking State corporations after an injection of Sh5 billion by Rubis Kenya as a non-equity strategic partner.

In the revitalisation plan that got Cabinet approval in August last year giving the State-run oil marketer a go-ahead to shop for a strategic investor, NOC will be seeking to take control of a third of the 5.13 metric tonnes of Kenya’s total fuel consumption, according to official data.

The strategic partner is expected to pump in Sh2 billion to rebrand and renovate all the 100 NOC pump stations across the country and another Sh3 billion for fuel stocks in the deal that has the blessings of President William Ruto following negotiations with French President Emmanuel Macron last year.

Rubis hopes to benefit from the comparative advantage that NOC has but has been unable to utilise because of its stock of debt owed to local banks.

A sweetener in the deal is NOC’s rights to import a third of all fuel products into the country as per circular Legal Notice No 96 of June 2010 and the Petroleum (Importation) ( Quota Allocation) Regulations, 2022 that gave Nock a 30 per cent petroleum products quota for diesel, super petrol, kerosene and cooking gas.

“Rubis will come in on a profit-sharing basis and will not seek any shares in the 100 per cent government-owned corporation but will agree with NOC on the sharing of the proceeds,” NOC Chief Executive Leparan Morintat told Financial Standard.

Late last year, the National Treasury gave Nock the okay to a single source for a strategic non-equity partner in a process that eventually bagged Rubis.

It followed Cabinet approval of a joint memorandum on the revival and commercialisation of NOC, including a non-equity strategic partner on a profit-sharing basis in August, a resolution which has also been ratified by the board.

The circular Legal Notice No 96 of June 2010 was meant to ensure that NOC became stable in the fluid fuel business and ensure that, for security reasons, at no given time, the private sector has absolute control of the country’s petroleum needs.

“The petroleum products quota allocation shall be imported by NOC,” said the Energy and Petroleum Ministry in a gazette notice dated February 16, 2022.

The proposal also requires NOC to give priority to independent oil marketers, mostly small and medium-sized firms that do not have affiliation with oil majors, when discharging products.

in 2021, private oil firms staged a go-slow, putting the country in an awkward position with reduced volumes of fuel threatening the economy.

Early in the year, in a National Assembly Budget committee meeting, it emerged that strategic stocks are a major security issue for the country, but reviving the oil marketer to carry out the role would help avert shortages of the commodities mainly due to disruptions globally.

Once it has access to 30 per cent of the petroleum products, the government with all its institutions, State corporations and parastatals would be expected to procure petroleum products from NOC and Rubis.

In 2015, the then-Head of Public Service Circular Joseph Kinyua directed all government departments and State corporations to procure their petroleum product requirements from NOC, an advantage it has not fully enjoyed because of a debilitating cash crunch.

Government ministries, State corporations and parastatals are the biggest consumers of fuel in the country and if the regulation is fully implemented, it would turn NOC into one of the biggest profit-making State corporations.

In 2021, Mr Morintat signed a fuel supply deal with Geothermal Development Company (GDC), which will see NOC supply the energy firm with more than 10 million litres of fuel products.

He termed the partnership a great example of fruitful and productive partnerships between government agencies.

“Once we have the 30 per cent fuel products and with the government and its institutions acquiring it from NOC and its non-equity strategic partner, we will turn it around to be one of the richest State corporations, which will benefit the Exchequer and, in turn, the Kenyan taxpayer,” said Mr Morintat.

Rubis in its joining hands with NOC also hopes to benefit from Legal Notice No 43 of 2008, which issued regulations guiding the establishment of the strategic petroleum reserves that required NOC to establish and manage strategic petroleum reserves equivalent to 90 days of consumption for the country.

To make the fuel cheaper, the NOC boss said that they would work with other national oil companies from oil-producing countries to source for products directly and, therefore, at relatively cheaper rates.

In a bid to restructure NOC, the Cabinet last year approved the reconfiguration of the State corporation, which will see it split into three subsidiaries under one holding company.

These are NOC Upstream Ltd, which will cover upstream oil and gas exploration; NOC Downstream Ltd to handle marketing and distribution roles; and NOC Trading Ltd, which will hold strategic stocks of petroleum products for import and export.

It is expected that after the revamp, NOC Upstream will intensify oil and gas exploration in the country.

NOC operates its exploration acreage in Block 14T, which is located within the southern Tertiary Rift Basin.

“NOC has great potential. We want to take it to the level of other national oil companies of the world which are the key cogs in the engines of their countries’ development,” said Mr Morintat.