Ideas & Debate

When oil firms asked Njonjo to act on prices


Recently we have witnessed heightened interactions between the oil marketers and the government as the two react to impacts of high oil prices on the economy, consumers, and marketers cashflow sustainability.

However, what is happening is nowhere comparable with the oil crisis of 1981 which resulted in a prolonged global recession, and a near collapse of Kenya’s socioeconomic support systems.

In 1981, global oil prices had suddenly climbed from about $ 15 per barrel to $37 after the Iranian revolution, and the subsequent Iran/Iraq war.

In Kenya, a high oil import bill (30per cent of total imports ) diminished dollar reserves, while high diesel prices negatively impacted agriculture, the economic lifeline of Kenya.

Political disquiet was also building up in Kenya, with the government becoming increasingly sensitive, defensive and evasive.

Certainly not the right atmosphere for oil marketers to push for oil price adjustments, which the Treasury (responsible for price controls ) had without genuine reasons delayed in granting, leaving oil marketers with untenable cash flows to replenish stocks.

At the time I was the supply planning manager of Esso Oil Company, while also serving as the oil industry price coordinator with the authorities.

As the marketers cashflow crisis mounted, and with no imminent price increase, the industry CEOs sought support from very unlikely powerful persons, as it became apparent that no price increase would be effected without cabinet approval.

It was a matter of corporate survival as marketers’ oversea principals threatened not to supply any crude oil until price increases were granted.

Shell crude cargo was first in import schedule followed by Esso cargo, putting the two companies on the government radar should they fail to deliver crude oil and thus cripple the country. Threats by the principals were genuine and we understood the gravity of the implications.

An emergency CEO meeting designated Esso (my CEO and myself) to lobby Charles Njonjo, who was the minister for Constitutional Affairs and the second most powerful person in Kenya after President Moi.

Caltex was assigned to see Jeremiah Kiereini, while Shell was to make a final attempt with Treasury permanent secretary.

Njonjo granted Esso an audience and after listening to the CEO narrative, he asked me in Kikuyu language “Wachira, why do you think Mwai does not understand and act on your case which appears very straightforward?”

I had to think very smartly because this appeared a politically loaded question. There was an ongoing political “cold war” of supremacy between Kibaki (Vice President and Minister for Finance) and Njonjo.

I replied that it is possible that the numerous ongoing transfers of senior personnel in the Treasury are affecting the effective flow of critical information to the Minister for Finance.

I felt I had indeed made a good score. But he was not finished with me. He asked my opinion on an article in The Standard of that day written by a columnist called Adadja, and which was definitely written to demean Kibaki. Luckily, I had read the column that morning and I replied wisely.

Back to the oil prices, Njonjo summed up our case as strong and deserving and promised to raise the matter in the cabinet that Thursday. We had met Njonjo on a Tuesday, and on Friday that week the Treasury awarded the oil industry a reasonable price increase.

Crude oil was loaded, and a supply crisis was avoided. But not without a barb from President Moi, who in a roadside speech the following week castigated the Shell CEO (the late Nick Muriuki ) for being an unpatriotic Kenyan, a very unfair and devastating allegation for a very principled and effective career executive.

Immediately, an executive order followed establishing National Oil Company of Kenya (NOCK) with a mandate to supply 30 per cent of Kenya oil demands, with expressed intention of breaking multinationals stranglehold on oil supplies. Petroleum pricing was also transferred from Treasury to the newly formed Ministry of Energy.

The week after the price increase, I got a letter personally addressed to me by Njonjo, requesting me to ask Esso to financially assist Kikuyu Constituency Development Fund. Since Esso had a very strict policy on “political” contributions, I did not even mention it to my CEO.

Instead, I sent Njonjo a Sh3,500 personal cheque as a personal contribution to the Fund, with a cover letter explaining that Esso had exhausted its budget for social programmes for that year. He politely wrote back to acknowledge receipt of the donation and thanked me.

With ongoing geopolitical maneuverings across the world, we have not seen the last of similar oil crisis.