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37

Total is Top Bidder for Business in Kenya

French oil giant Total are the top bidder for business in Kenya

Hopes that the Government would soon build the muscles it needs to become the price setter in the petroleum market have come a cropper following the emergence of French oil giant Total as the top bidder for Chevron’s business in Kenya.

Chevron, the American oil giant that has been planning to exit the Kenyan market since last year, last week announced that Total had emerged as the top contender for its assets in Kenya and Uganda that it had put up for sale jointly.

People familiar with the matter said Total’s winning bid was worth $200 million - having valued the Kenyan assets at $150 million and the Ugandan operations at $50 million.

The Government, which had wanted to acquire the Chevron assets to broaden the presence of State-owned National Oil Corporation of Kenya (Nock) is said to have placed a bid of between $125 million and $135 million for the Kenyan business losing by a small margin to the winner.

Recent turbulence in the pricing of petroleum products and the growing concern that oil marketers have formed a cartel that denies consumers the full benefits of price changes has forced the government to pay more attention to the dynamics of the petroleum dealership.

Its plan has been to build Nock’s market share to a level where it can serve as a price setter and break the dominance of the multinational oil firms the Kenyan petroleum market.

To build such clout the Government had viewed the acquisition of the assets of exiting international marketers as a near-certain opportunity to expand Nock’s network of retail outlets.

Chevron, which trades in Kenya as Caltex, has 86 retail outlets and was seen as offering the best opportunity to grow Nock’s network.

As recently as Friday, Treasury officials said plans were being prepared to support Nock’s market share and break the distribution cartel.

“We will empower Nock to be the price setter in the oil industry,” said John Michuki, the acting Finance minister. The State-owned firm currently runs 67 service stations giving it a market share of 3.6 per cent.

The government’s interest in the Chevron business is supported by the fact that it had hired PricewaterhouseCoopers, an international advisory services firm, to help prepare its bid for the assets.

It has in the past failed to secure the assets of five other international companies to have exited the Kenyan market in recent times.

Total’s winning of the bid could see the French company gain control of some 35 per cent of Kenyan oil industry assets, way above the required 25 per cent limit.

Kenyan petroleum market competition rules do not allow any one player to own more than a quarter of the industry’s assets, making a series of small Nock-on deals near to certain, as Chevron and Total dispose of assets to get the deal below the competition thresh hold.

In Kenya, Chevron’s exit is set to bring major re-alignments in a market of about 33 players. A flurry of re-branding is expected besides the possibility of Total being forced to sell some of its outlets to meet the regulatory requirements.

After outbidding its rivals to the Chevron assets, Total is now expected to get down to the task of overcoming the regulatory and operational hurdles to close the deal.

This phase of the acquisition is expected to be particularly difficult for Total in Kenya given the huge interest that the government had in the deal.

The French firm must now face up to the Price and Monopolies Commission, a department of the Ministry of Finance, that could be used to strong arm Total into ceding some of the assets it will acquire from Chevron to Nock.

Analysts say the commission may use the same tactics it used to deal with the exit of another international player Agip, in 1998.

In that deal, Agip sold all its Kenya assets to BP &Shell pushing the combined market share of the two past the required 33 per cent threshold. But the Commissioner of Monopolies allowed BP to acquire the assets, but on condition that it would draw up a timetable to dispose of some of it to comply with the monopolies regulations.

This requirement that BP sells some of its assets to comply with the law afforded the petroleum giant an opportunity to craft a new strategic plan for its business in Kenya.

The company got rid of all its under-performing outlets in Western Kenya to concentrate on the more vibrant stations in Nairobi, Mombasa and Central Kenya.

Having beaten government-backed Nock to the deal, Total is expected to get much tighter conditions for it’s after market cutback plan.

Petroleum industry observers are convinced that the government will see the commission as its last chance of grabbing a piece of the Chevron stable in Kenya to shore up the market share for Nock.

The expectation is that as opposed to BP which was given the freedom to choose which assets to set to bring its marketshare within the 33 per cent requirement, Total may walk away with a detailed plan that specifies which stations it must sell and in which parts of the country.

Nock is said to be particularly keen on acquiring Caltex stations in Nairobi and Mombasa — the two markets that account for nearly 60 per cent of the country’s petroleum consumption.

“The options before the French firm are few,” said a source familiar with the transaction.

“They either have to agree to these terms and have the newly acquired business up and running immediately or play tough and delay closure of the deal.”

Caltex has 86 petrol stations, liquefied petroleum gas plants in Nairobi and Mombasa, a lubricant blending plant in Mombasa and Jet-A1 terminals at the Jomo Kenyatta International Airport and the Moi International Airport in Mombasa.

Total is also now buying from Chevron 66 Ugandan petrol stations for $50 million.

Chevron, which first entered Kenya in the 1930s, is in the process of exiting from all its African operations, excepting Egypt and South Africa, in a sell-off being handled by French investment bank BNP Paribas.

But Total, which has itself struggled to maintain profitability under the Kenyan oil industry rules, has in the last two years recorded some sharp

Total is also a co-owner of the joint oil storage terminal at Kipevu and the joint depot in Nairobi’s industrial Area.

Its other assets include depots in Nakuru, Kisumu and Eldoret-all of which have, however, not been operational. In Uganda, the French oil giant has taken over some 66 retail stations at a cost of $50 million.

French investment bank BNP Paribas handled the tendering and sale of all Chevron assets and businesses in Africa except Egypt and South Africa where it will continue to operate.

Author: Jo Amey