Court records reveal finer details of the G-to-G oil imports deal
National
By
Kamau Muthoni and Fred Kagonye
| Dec 03, 2023
The Saturday Standard yesterday lifted the veil of an intriguing court battle between Ann Njeri and Galana Energies Limited over the ="https://www.standardmedia.co.ke/business/article/2001486513/galana-puts-up-case-against-njeris-claim-to-sh17b-diesel-import">Sh17 billion oil import saga<.
Today, we lay bare more details about the government-to-government oil deal, also contained in the same court documents.
The deal raised a storm with former Prime Minister Raila Odinga calling for the resignation and prosecution of Energy and Petroleum Cabinet Secretary ="https://www.standardmedia.co.ke/business/business/article/2001481559/there-is-nothing-we-can-do-energy-cs-chirchir-says-on-high-fuel-prices">Davis Chirchir< and his National Treasury counterpart ="https://www.standardmedia.co.ke/business/business/article/2001486358/treasury-ditches-eurobond-for-imf-world-bank-loans-amid-high-credit-cost">Njuguna Ndungu<.
On the other hand, Busia Senator Okiya Omtatah claimed that the government had withdrawn Sh17.22 billion from the Consolidated Fund in June 2023 to fund a 'private enterprise.'
Both Raila and Omtatah claimed the private enterprise was Njeri.
However, according to the court documents, the government was a facilitator and not a purchaser of oil products.
When ="https://www.standardmedia.co.ke/politics/article/2001485590/ruto-dismisses-railas-g-to-g-oil-dossier">President William Ruto< announced that the government had inked a deal with Saudi Arabia to ease dollar pressure on the shilling, Kenyans thought it was the government buying the oil in Kenya shillings.
Court documents filed before the Mombasa High Court, seen by The Sunday Standard, give insights into the Kenya government's deal.
It emerges that the deal was about the government giving goodwill for oil marketers to pay for the oil beyond the strict timelines set by oil producers.
Initially, Oil Marketing Companies (OMCs) had a five-day window to hunt for dollars to pay for the oil upon the vessels docking in Mombasa.
The grace period under the new system however was extended to at least 180 days.
In the deal, three international companies - Emirates National Oil Company (ENOC), Abu Dhabi National Oil Company and Aramco Trading Fujairah (Aramco) - were appointed to supply oil to Kenya.
Following the appointment, the trio nominated Gulf Energy Limited, Galana Energies Limited and Oryx Energies Kenya Limited to import petroleum on their behalf.
="https://www.standardmedia.co.ke/business/business/article/2001480363/government-cagey-on-ending-fuel-deal-with-gulf-countries">Aramco< nominated Galana.
The ministry of Energy and Petroleum wrote to Galana on September 7, 2023 confirming the nomination.
The letter was addressed to Oryx Energies Kenya Limited Managing Director Angeline Maangi and Anthony Munyasya.
The author was Mohamed Liban, the Principal Secretary, and it was copied to the Energy Cabinet Secretary David Chirchir, Treasury CS Njuguna Ndung'u.
Others copied in the letter are Solicitor General Shadrack Mose, Kenya Pipeline MD Jose Sang, Central Bank Governor Kamau Thuge, Kenya Revenue Authority (KRA) Commissioner General Humphrey Wattanga, Kenya Bankers Association chairman John Gachora and Aramco's MD Abdullah Aldossary.
From the letter, the government signed a Master Framework Agreement (MFA) with Aramco for the supply of Automotive Gas Oil (AGO). The term of the agreement was 270 days.
The arrangement was that the supplier provides two cargoes of AGO per month for both local and transit consumption.
"The quantities of AGO to be delivered is a minimum of 160,000 metric tons to a maximum 180,000 metric tons. The quality of AGO to be delivered is as per ="https://www.standardmedia.co.ke/article/2001485354/kra-kpa-kebs-asked-to-join-e-citizen-platform-by-dec-15">Kenya Bureau of Standards (KEBS)< specifications and the requirements of the receiving terminals as per the MFA," wrote Liban.
According to the PS, the local quantities ought to be paid in Kenya shillings and which would later be converted into the United States Dollars (USD) to meet the letter of credit obligations.
"In this regard and pursuant to the provision of the MFA, the supplier has nominated Oryx Energies Limited and Galana Oil Kenya Limited as their counterparty. I.e. Nominated Oil Marketing Company (OMC) to handle the importation logistics," the letter continues to read.
In the deal, the OMCs were required to open a 180-day letter of credit, and have an escrow account, which would be used by the buyers to pay for the products.
The MFA also required the government to share with the supplier the schedule of the cargoes.
The first consignment, according to Liban was AGO KG22/2023 that was to be delivered between October 17 to 19, 2023. The government expected at least 85,000 metric tons.
The same amount of AGO - KG24/2-23 was to be supplied between November 3 and 5 last month.
Liban, however, stated that the delivery dates could be varied but subject to the cargo being received within the delivery dates.
In another letter, Aramco indicated that the consignment would be 85,000 metric tons plus or minus 10 percent.
It indicated that the agreement price is in US dollars.
According to the document, the buyer ought to pay to its account in JPMorgan Chase Bank, based in London.
"The buyer shall deliver to the seller at least 10 days prior to the first day of the loading date an irrevocable documentary letter of credit (lc) issued and confirmed by a bank acceptable to the seller with lc wording as per Aramco trading format in accordance with Aramco Trading GT&C lc confirming costs on buyer's account," Aramco's letter continued.
Inspection was to be split 50:50 between both the buyer and the seller.
Other conditions in the letters were that in case of any dispute, it would be resolved using English law and arbitrated in London under the London Maritime Arbitrators Association (LMAA) rules.
At the same time, the buyer was required to pay all taxes and customs and the OMC had to stick to the MFA.
"Aramco Trading FZE (ATF) will not be held responsible for the delays and no claim for demurrage shall be entered if email claim does not reach...," the document addressed to Galana Energies by Aramco's Hessa Aluos also read.
The other agreement was between Galana and Kenya Pipeline Company (KPC). This was a deal for transportation, storage and delivery of 93,460 Metric tons of AGO.
The deal was between KPC, Galana and KCB.
In the agreement, the OMC agreed that KPC would hold the consignment in trust for KCB and the product would be disposed in accordance to the written instructions of the financier.
"KPC shall charge the OMC and administration fee of US dollars 2000 per month excluding Value Added Tax payable in advance. An additional 0.01 percent will be charged for the products handled or stored during the quarter in excess of hydrocarbon value of USD 1 million," the agreement reads.
At the same time, the trio agreed that KPC ought to be reimbursed any costs or expenses incurred because of carrying out its obligations under the agreement. This ought to be footed by Galana.
On the other hand, KPC guaranteed that it would advise KCB in writing about the grade and quantity of the petroleum products and the give an accurate stock balance. At the same time, it committed to release the product as per the instructions of the financier.
It also agreed to insure any liability on its part with a reputable insurance company.
"KPC agrees and covenants with the financier that in the event that a claim becomes payable under any such policies for loss or damage to financed petroleum products, the financier shall be paid first for any loss suffered by the financier," KPC committed.
On the part of the OMC, it was agreed that I would pay all costs and charges due to KPC for the transactions and services rendered by the corporation. At the same time, Galana committed to indemnify KCB from any costs and fees due to KPC.
It was also to maintain its own insurance with a reputable firm in the event of loss of the petroleum products and for any liability in the event of any default. It was also to indemnify the financier from loss or damage of the petroleum products due to an act of third parties.
KCB, on the other hand, was required to indemnify KPC from all loss, damage or liability (either civil or criminal) suffered and legal fees and costs incurred by KPC in the event there was a breach of the agreement by the financier among other conditions.
Also before court was an irrevocable guarantee by the Kenya Commercial Bank. The receiver was The Standard Chartered Bank, in Dubai.
The amount USD 95 million (Sh14.53 billion) for the 93,460 MT. The deferred payment details provided in the document was 180 days from the bill of lading.
According to the KCB's document, the cargo could be loaded from any port in the United Arab Emirates (UAE) or Saudi Arabia but the port of discharge ought to be Mombasa.