The Standard | Online Edition :: Triton scam scares banks off financing oil imports (2024)

Published on 05/05/2009

By James Anyanzwa

Fears are slowly creeping into the oil industry as commercial banks reconsider their financial contracts with oil marketers barely six months after the Triton rip-off.

The unfolding development, which threatens to disrupt the oil import financing system, comes after the scam exposed both local and international financiers to a massive loss of Sh7.6 billion.

"It is becoming expensive to access credit because banks are becoming reluctant to lend because of the Triton issue," says Issa Sheikh Mohammed, Group Chief Executive, Hass Petroleum.

"When you are operating in an environment where finance is not comfortable then you have a bit of problem."

The Triton swindle did a major blow to the integrity of the Kenya Pipeline Corporation (KPC)’s collateral financing agreements, which were introduced in July 2004 to help small players who cannot import large quantities to participate in oil marketing.

The agreements have helped oil companies raise letters of credit to their overseas suppliers for large oil imports.

Nevertheless several financial institutions are shelving new businesses and reviewing their existing contracts in an attempt to reduce further exposure to risks.

"The banking industry both locally and internationally was overexposed. The banks have now stepped up risk assessment processes and many of them especially the international banks have put on hold new businesses. This is happening across the entire oil industry for people who have banking relationships," says Issa.

"Of course banks give credit financing where they think their funds will be secure through third party securities."

small entities

The Kenya Bankers Association (KBA) agreed its members have become more cautious in financing oil marketers and mostly the little known entities whose market share is extremely negligible.

"We are taking extra caution because circ*mstances demand that you really open up your eyes and carry out proper risk assessment," says John Wanyela, the association’s Executive Director.

While worries over the emerging financing stalemate continues to deepen a cross section of oil marketers including the Government officials allayed fears of a possible fuel shortage in the event of a break down in the financing system.

"I’m not aware that banks have refused to lend money. That is not true," Mr Charles Keter, the assistant minister for Energy told The Financial Journal.

The Central Bank had previously warned the Triton oil saga could negatively impact on the country’s economic recovery depending on how foreign financiers reacted to the Triton scam.

"The level of imports still show confidence in the economy and so long as foreign financiers do not undermine Kenya’s growth momentum, the committee believes there is good reason to see adequate growth to June 2009," Prof Njuguna Ndung’u, the banks Governor was quoted saying in February. In January 2009 Triton Petroleum folded its operations in Kenya leaving three foreign and a local financier at the risk of losing over Sh7.6 billion. These are Kenya Commercial Bank (Sh1.8 billion), Glencore of UK (Sh2.3 billion), Fortis of France (Sh906 million) and Emirates National Oil Company (Sh2.5 billion).

The loss was partly attributed to fraud on part of the government-owned Kenya Pipeline Company, which released oil that had anchored the debt without the financier’s authority, contrary to the rules. Prime Minister Raila Odinga has however defended the Government saying the scam was purely masterminded and executed by a private firm.

Industry experts warned the oil scandal could see financiers shy away from lending to Kenyan oil importers forcing them to source oil from the international market using cash as security, as opposed to Kenya Pipeline guarantees.

"For Shell I’m not aware of any problem," said Mwaura Ngari, Shell’s External relations manager.

shockwaves

The KPC is critical to operations of oil industries in Kenya, Uganda, Rwanda, Burundi and eastern Congo.

Concerns are, however, spreading that the Triton saga, which has sent shock waves across the oil imports financing system could lead to reduced credit lines, higher lending rates and fuel crisis in the form shortages and high pricing.

It is argued that the government cannot afford to drag its feet on this issue since its credibility, as a contracting party is in question.

"What Banks are looking for is what steps have been taken by KPC and the Government to restore confidence in the market," says Issa.