National Oil is now in a healthy cash flow position: CEO MaryJane Mwangi

National Oil Corporation CEO MaryJane Mwangi

National Oil Corporation of Kenya (NOC) recently announced plans to list on the Nairobi and London stock exchanges, which could raise up to Sh100 billion for the firm’s upstream activities.

This audacious plan is a far cry from the State firm’s past that raised numerous queries on its financial management.

The Auditor General’s report for the 2015/2016 financial year, for instance, indicated that the huge losses incurred by the corporation were a threat to its sustainability.

However, a new board and chief executive appointed in 2016 are starting to turn the company around, first cutting a loss of Sh808 million reported in 2015/2016 to Sh67 million by close of the 2016/2017 financial year, and then making a pre-tax profit of nearly Sh400 million midway through the 2017/2018 financial year.

Chief Executive MaryJane Mwangi spoke to Weekend Business on the recovery and future plans for the oil firm.

You have been at the helm of National Oil Corporation for nearly two years now and the results have been impressive. What were some of the problems the organisation faced?

Because much has been said about the problems the corporation was facing before I took over, I will summarise the three key challenges. First was the hemorrhaging of cash occasioned by poor inventory management which would see us hold huge stock for lengthy periods. I took over at a time when global oil prices were crashing.

This meant that after monthly price reviews, we would be forced to sell our products at a lower price even when the holding inventory had been purchased at a higher cost. Second was the high cost of meeting our loan obligations. National Oil has historically been under-capitalised; we therefore fund all our downstream business through bank loans.

The weaknesses in cashflow management compounded the company’s cash position, which meant the company had to keep borrowing to sustain the business. Further, imprudent use of short-term facilities to fund long-term business such as the acquisition of retail petrol stations and construction hurt the business.

The third key challenge was internal inefficiencies as well as slow execution which impacted on our competitiveness and contributed to low staff morale.

How did you turn around the corporation from over Sh800 million loss to a profitable venture in a span of less than two years?

The board set very clear targets on how to achieve the turnaround. We set out to address the three key challenges I have highlighted. First we embarked on reducing our inventory holding from upwards of an average 30 days to the minimum prescribed by the Energy Regulatory Commission of 14 days, by ensuring that our purchasing cycle mirrored very closely our sales.

We also embarked on growing our sales and reduced our overheads which have come down by 25 per cent. This allowed us to generate a healthy cash flow position of about Sh1 billion within a span of one year to sustain our business and begin settling some of our outstanding obligations with banks.

What is the outlook for National Oil?

For the downstream business, an ambitious target has been set to double market share to 10 per cent within the next two-and-a-half years.

First is growing our retail station footprint from the current 115 stations to 300 stations; primarily through partnerships with Kenyans under a franchising model.

A wide network is key and will assist the corporation to bring quality and affordable petroleum products closer to the mwananchi particularly in areas that are currently underserved.

Another area of focus is scaling up the specialties business; primarily Liquefied Petroleum Gas and lubricants. With LPG penetration currently standing at only 10 per cent, this presents an opportunity for growth for the Corporation.

On lubricants, National Oil has lagged behind its competitors in the supply of lubricants because it lacks its own blending plant, forcing us to rely on the same competitors for blending. To address this challenge, we have signed a blending partnership with an international company which will improve our supply.

The other area of focus is aviation, particularly the supply of jet fuel. National Oil has not been active in this sector. We are now focusing on entering the business and growing our footprint to become a major player over the next three years.

With increasing competition from private oil and gas companies in Kenya, is NOC’s objective to achieve its mandate under threat?

The role of a national oil company is distinct from other oil and gas companies in the market. Out of the top 25 oil and gas companies globally, 18 are national.

This is in sharp contrast to the situation a few decades ago when the global oil and gas industry was dominated by a handful of international oil companies famously referred to as the Seven Sisters; namely Esso, Mobil, Shell, BP, Chevron, Gulf and Texaco.

The impact that these national oil companies have played in the development of their respective economies is immense.

NOC’s potential to generate economic growth is, therefore, immense - from creating employment, skills transfer, petroleum resource extraction and value creation, as well as stability and security of petroleum supply. This will increase opportunities for wealth creation for Kenyans.