ROW AS KS 106 BILLION IRANIAN OIL DEAL IS REJECTED

DAILY NATION
NAIROBI, KENYA
By BERNARD NAMUNANE
Monday, March 2 2009

Kenya appears torn between old allies and rich new suitors
4 million tonnes of oil, Sh400m grant, Sh400m credit line, Purchase of more local tea, 20 scholarships, Dam and road projects

A dispute has broken out after the government appeared to reject Sh106 billion worth of crude oil said to have been offered by Iranian President Mahmoud Ahmadinejad to Kenya.

Allegations were flying around on Monday that the government had rejected discounted Iranian oil, which could have saved the economy hundreds of millions of shillings.

But Energy permanent secretary Patrick Nyoike said Iranian oil was no good because after refining, half of it is useless residue.

During negotiations, Kenya had requested Iran for oil on soft terms — 120-day credit on government-to-government concessionary prices.

A memorandum of agreement was signed granting 90-day credit, but mysteriously said nothing about cheaper prices, according to an industry source, who declined to be named for fear of antagonising the government.

“We signed a deal that allows National Oil Corporation or any other company to get in touch with the Iranian Oil Corporation to get oil. We agreed on a figure of four million metric tonnes a year,” Mr Nyoike said.

According to a usually reliable government source, some Energy ministry officials did not appear to favour the deal.

But another government source, who did not wish to be named discussing the controversial agreement, claimed price negotiations were going on.

Mr Ahmadinejad came visiting bearing goodies: A Sh400 million development grant, Sh400 million credit line, and an offer to build a factory to package Kenyan tea for re-export into Asia, among others.

“That is what we (government) have been trying to strike for a long time because it could ease problems related with oil,” said the government source, who accused two officials of the Energy ministry of turning down cheap oil.

“There were two officials from the Ministry of Energy who made it clear that oil from Iran is bad. They were supported by a representative from the National Oil Corporation,” he said.

The source claimed Mr Ahmadinejad had offered to supply two million barrels of oil a month at 10 per cent discount on the going market rate.

The Iranians had also offered to help build reservoirs to store up to a year of oil supply, the source said.

Stabilise market

But an oil expert who refused to be named for fear of endangering his position at work said Iranian oil was “good” and can be processed at the refinery in Mombasa.

“Iran has two types of crude oil — heavy and light — which we process at the refinery,” said the official. Already, 30 per cent of oil products used in the country originate from Iran.

Going by the current crude oil price of Sh3,552 ($44.40) a barrel, the government could have saved Sh8.8 million a month.

Such a deal also had the potential to stabilise the markets, where shortages and price increases have become frequent.
Rejecting the cheap oil deal, even if it were difficult to refine, makes no sense, according to the industry source. Kenya used to sell Nigerian oil given under the same terms and buy more suitable crude.

In any case, now that the country allows more refined petroleum products, Kenya could buy these from Iran or sell the cheap Iran oil and buy finished products.

The oil sector is still reeling under the impact of the Triton Petroleum scandal in which Sh7.6 billion worth of oil stocks were irregularly pumped out of the Kenya Pipeline Company.

Energy minister Kiraitu Murungi was on Monday questioned by the Kenya Anti-Corruption Commission over the matter, while KPC managing director George Okungu and four senior managers were sacked.

On plans to package and re-export tea at Tehrans’s Chahabar Free Zone, an Iranian business proposal said: “We are pleased to cooperate actively in re-export and transit of Kenyan tea to Afghanistan, Pakistan, CIS countries and inside Iran.”

“The auction area at the Tehran’s free port will comprise of sufficient space for Kenyan business people, a warehouse, an export terminal and other facilities. It will employ Kenyan workers and specialists for processing and packaging Kenyan tea inside Chabahar Free Zone,” the proposal.

Such an arrangement, however, would see Kenya turn to producing a type of tea — called orthodox tea — which sells for twice the price of regular tea but which is not used in traditional markets.

The Iranians agreed to help the government put up a system to monitor shipping in the 200km off shore, an area threatened by piracy.

Build factory

President Ahmadinejad also offered 20 scholarships for Kenyan students to study medicine and engineering in Iran. His country also agreed to build a factory in Kenya to manufacture drugs.

The Kenya Bureau of Standards was urged to expedite registration of Iranian drugs and the biggest beneficiaries will be people living with HIV.

Already, companies such as Zynmat Healthcare have taken up the venture to establish pharmaceutical outlets in most towns in the country to retail Iranian drugs.

It was also agreed that Iranian Development Bank will enter the Kenyan market. The idea is to make Kenya the business hub of Iran in Eastern Africa.

Among other pacts signed was a Sh2.48 billion grant to tarmac Rumuruti-Maralal and Nanyuki-Nyahururu roads.

Two dams — Ngaa in Ukambani and Nyakoncho in Western Kenya — at Sh480 million ($6 million) and Sh2.4 billion ($80 million) respectively are also to be built by Iran.

The Ministry of Foreign Affairs said cosy relations with Iran would not push Western countries to view Kenya negatively.

Political Affairs director Ben Ogutu said: “We relate with the United States as an individual nation and the European Union as a group and its member states individually.”