Category Archives: Kenol

Urban Inflation Index: September 2011

One year after the euphoria of a new constitution, the direction of the economy is uncertain as seen in the weakening Kenya shilling, tangles in implementation of the constitution, and rising food prices. It has been a year of some price controls in the fuel, and possibly in the food sector whose parliamentary price control bill was signed into law last week by the President.

Comparing prices to six months ago and last year. On to the index

Gotten Cheaper: Nothing really.

About the same:

Communication: All Kenya’s mobile phone companies have call rates of about Kshs 3 shillings ($0.03) per minute to call across networks. It is unclear what will happen with call rates, as the smallest company in the market, Yu, launched free daytime phone calls, Airtel Kenya lost a CEO, and Safaricom has indicated that they may raise their call rates, as has happened in Uganda with MTN . The real battle is in data, where prices have not really dropped but companies are offering more speeds for less. The market here is divided between the companies with 3G (Orange & Safaricom) who compete on speed, and those without 3G(Airtel & Yu) who offer cheap internet rates of about Kshs 50 (~$0.5) per day for unlimited use.

Another communication developments that, in a way, lower the cost of business include the launch last week at G-Kenya of GKBO, which encompasses free website creation tool, domain registration, and site hosting for small companies by Google in Kenya.

Utilities: The bill on pre-paid electricity is still at about Kshs 2,000 ($21) per month, and getting about 30 – 35 units per buy via M-Pesa. However that is expected to go up after notice was issued for rates to go up 22% per kwh unit. So what alternatives are there? In a somewhat timely move, Samsung launched the NC215, a solar powered netbook laptop last week. It gives 1 hour of power for every 2 hours of charge in the sun, has a 15-hour battery life, and is able to charge other devices by USB even when it is off.

Also got a gift of a solar phone charger (T2126 Hemera from Hirsch) that works quite well; it takes about 12 hours to charge in the Sun or 2 hours via USB, has a flash light and can charge a variety of phone models.

But when you look at the rapid advances in laptop batteries and cell phone batteries over the lasts decade, you get the feeling that there has been a lag in the pace of solar devices, and that more solar based solutions and advances should be emphasized.

More Expensive

Fuel: A litre of petrol fuel, which is regulated by the Government, now costs 117.75 (~$5.6 per gallon) in Nairobi. Regulated fuel has proven to be more expensive than unregulated fuel, and while this can be attributed to the weaker shilling and fluctuating oil prices, the formula used to arrive at the price remains vague, and the limit on margins (stipulated buying and selling price of petrol, diesel, kerosene in each town) appears to have hurt small oil industry companies, more than large ones. However, among the listed companies, Kenol appears to have weathered the regulatory regime better than Total, by having diverse operations in other countries in East and Central Africa that remain unregulated.

Staple Food: Maize flour, which is used to make Ugali that is eaten by a majority of Kenyans daily. A 2kg bag which cost Kshs. 80 six months ago, and Kshs 65 a year ago, is now Kshs 119, the highest it has been in the short history of this index.

Other food item: Sugar : A 2 kg. Mumias pack which has hovered at about Kshs 200 for the last years, now costs Kshs. 385 (90% more than last year) and . The sugar sector has really gone full circle causing many to questions its relevance, recurring shortages shortage (why all factories close at the same month for maintenance), why sugar is grown in a food producing area and how many items we can consume without having to use sugar as a sweetener e.g. tea without sugar, or use of honey as a substitute.

Foreign Exchange: 1 US$ equals Kshs 95.6 compared (now 96.8) to Kshs 80.8 a year ago (and 83 in June 2011) – a loss of almost 20% in a year. It’s unclear of this has been a concern to the Central Bank which has made other confusing policy moves as related to interest rates at a time of mounting government debt and their laxity has enabled banks to spot and take advantage of an arbitrage opportunities to trade with government money.

Beer/Entertainment: A bottle of Tusker beer is Kshs 180 ($1.9) (at a local pub) a slight increase from compared to Kshs. 170 a year ago. However beer has become out of reach for many poorer Kenyan who have resorted to drinking unsafe local brews, which in some unfortunate cases have resulted in blindness or even death.

Motoring Moment: Thika Road, Commuter Trains

Discovering Thika road: Took a road trip up Thika Road to hang with the Kuweni Serious crew last weekend. Chinese contractors are converting the road into a super highway and the dramatic transformation (follow Thika Road blog ) has plenty of soil hills, deep valleys, closed roads, missing roundabouts etc. It was a fun trip, but as it is said every day, don’t drive on Thika Road if you’re a stranger, or it’s dark, or the road is wet.

The journey is made more dangerous by Matatu’s and some road regulars who make their way anywhere they see fit – by driving in the wrong land, making U-turns in traffic, over-lapping patient motorists etc.

The highway defies belief, and when it’s done it will probably need other roads to be closed off or expanded. e.g Outer Ring Road and a bypass to Mombasa Road. The large volumes of traffic need to enter and exit cleanly and without delay otherwise there will be more situations like the one at Riverside Drive and (current) Museum Hill Roundabout where traffic waiting to enter these smaller roads spills over backwards onto the large highway causing more jams.

The on-going rains make it more difficult and with all the un-drained water, some cars are probably washed daily only to end up covered in red mud. For users of public vehicles, the rains mean added journey times and increased fares on Matauts.

More Commuter Trains: However there is some relief for commuters who live along Thika Road since Rift Valley Railways (RVR) has upped the number of daily consumer trains in Nairobi from 8 to 18 which collectively serve Kahawa, Dandora, Embakasi, Ruiru, Kikuyu, and Kitengela/Athi River

The addition of the early morning trains has slashed some commuters’ fares by almost 2/3 e.g. some Embakasi residents who take the train paying Kshs 30/- per trip compared to the previous Kshs 70 – 100 per trip by Matatu. Also, the train is more dependable, and takes 25 minutes to complete the journey, unlike driving in a car or matatu, which usually takes over an hour in ‘rush hour’.

Ultimately having dependable train travel may lessen the burden on the roads (fewer Vitz card) and while there is talk of having a train to Jomo Kenyatta Airport, it is not a government priority or feasible in the short to medium term.

Commuter trains aside, the reason that the concessionaire, Egypt’s Citadel (operating as Kenya Uganda Railway Holdings) invested was for cargo and the train transport while significantly cheaper than the Kshs 120,000 ($1,500) to transport a container by lorry from Mombasa to Nairobi ($3,600 for Mombasa to Kampala) needs to emphasize this aspect and demonstrate more reliability to business owners. This will relieve the burden on the roads.

Oil Shipment: As the international price of oil is expected to go up owing to instability in the Middle East, in Kenya there is a small dispute between oil companies led by Shell and Kenol pitted against NOCK – National Oil Corporation (NOCK), a Kenya government state agency that imported the latest shipment of diesel on behalf of all the oil companies. After some postponed arrival delays, and tales of missing phantom ships [MT Volga, MT Adden, MT Ratna Sheruti, MT Ratan Namrata], which resulted in a partial cancelation by Shell, a shipment finally arrived on March 1.

However that did not put the matter to rest since NOCK has announced that they would bill the oil companies using the higher March prices instead of the February price. And where is the diesel? NOCK says it has all been sold, but the other oil companies say they have not bought it, and won’t be buying it owing to the higher price being demanded.

Fuel Relief: Some slight relief for motorists comes from Kenol who have discounted the price of petrol and diesel by 2 shillings on Tuesdays and Fridays – so petrol today costs about Kshs 100 (~$5.30/gallon) under Deal Poa promotion, and for holders of Kenol corporate fuel cards, they enjoy a 2 shilling discount every day, which doubles to Kshs 4 on Tuesday and Friday

In Car Beverage: My current in-car beverage is Nestea iced tea that you can make in a supermarket. How? (i) Buy a Kshs 20 Nestea satchet (ii) Buy a one litre bottled water for Kshs 40 – 60 (any brand) (iii) pour the sachet contents in the bottle & shake (iv) you have a litre of iced tea for less than $1.

Too Big to Fail?

Embattled market leaders Kenol and Safaricom got some reprieves last week.

In the case of Safaricom, it was signaled in the form of a public complaint from rival Zain Kenya CEO (and which he followed up in a letter to the President) alleging that the communications industry regulator altered its new rules to shield Safaricom.

At Kenol, the Permanent Secretary for Energy announced a settlement of the dispute between Kenol and the Ministry (Kenya Pipeline Company, Kenya Pipeline Refineries), which Kenol echoed that with a cautious statement.

Kenol, Safaricom, and probably Kenya Airways and Equity Bank (with 5 million bank account holders) have reached a status of being too big to fail. They are huge tax-payers (Safaricom, Kenol), models of privatization (Kenya Airways), critical to the country and region (Uganda was affected by the Kenol shutoff) or source of international pride (Safaricom’s M-pesa)

The government goes out of its way to listen to these companies and protectthem and make rules that will assist them in their growth. In the case of Safaricom, cracking down on them does not guarantee that Zain or Orange will fill the gap in the near term. The price war started by Zain has been called unsustainable by the Safaricom CEO and that language is also creeping into government circles

Urban Inflation Index September 2010

Tracking changes from three months ago – in June and one year ago

Quarterly ReviewYoung population: The results of the Kenya’s national census done in 2009 were released last month and the results are still being interpreted. Politicians obsess on tribal numbers, economists caution on birth rates, while businesses can look to demographics like the number of mobile phone owners, the number of youth in the country, along with other intriguing findings such as the population of Kibera (largest slum in Africa) being 1/3 of previous claims, and remote Mandera is the 4th most populated constituency in Kenya (after Embakasi, Kasarani and Juja which are all in Nairobi environs). It confirms other findings like the Safaricom 2010 A/R which notes that “…with the North Eastern
region’s economy growing by over 200%, owing to improved security & enhanced economic activities, the area is no longer ‘served’ from Nairobi.”

Price control: A price control bill was rejected by the President who referred it back to Parliament for amendments.

Costly Health Insurance: The National Hospital Insurance Fund set in motion a plan to roll out a rather expensive health plan by increasing mandatory deductions from 320 per month to up to Kshs 2,000 ($25) for anyone earning over 100,000 ($1,200) per month. The matter has been challenged in court and the agency has been accused of not consulting widely with other health sector players and employers in a bid to revive earlier health bill

On to the index

Gotten CheaperStaple Food: Maize flour, which is used to make Ugali that is eaten by a majority of Kenyans daily. A 2 kg. Unga pack at Uchumi today costs Kshs 65 compared to Kshs. 71 three months ago and 84 a year ago.

Communications: All Kenya’s mobile phone companies have call rates of about Kshs 3 shillings per minute to call across networks. Exactly a year ago Safaricom has launched super ongea tariff, which promised rates of as low as 0.8 shillings, but from a base of Kshs. 8 within network. What has changed? The arrival of airtel in Kenya who will pursue a low cost high volume model though outsourcing of services among other measures. i.e. today it was announced in India that they will sell their African mobile base stations to a subsidiary company (Bharti Infratel) that will re-sell them to private equity funds.

Even as Kenyans have celebrated the new chap call rates, Airtel have ruffled many feathers in the last month, forcing Safaricom and the other smaller mobile companies to match the very low tariffs, and this has been called unsustainable by some, a dis-incentive to investors by others, and even a situation which may result in a mobile operator closing shop. Two years ago, Safaricom had launched ‘ongea tariff’ which was a Kshs 10/= rate

About the same Utilities: Latest electricity bill is Kshs 1,700 ($21 for a month) up from Kshs 1,450 on June, but better than 1,900 a year ago when there was drought in the country.

Other food item: Sugar : A 2 kg. Mumias pack is Kshs 200, unchanged over the last year. Two years ago, it cost 145, a price we may see next year when the COMESA regional sugar quotas are done away with. Already, leading sugar company Mumias has diversified into electricity co-generation, bottled water, and soon, ethanol production.

Foreign Exchange: 1 US$ equals Kshs 80.8 compared to 80.6 in June. BUT, Two years ago it was Kshs 67.

Beer/Entertainment: A bottle of Tusker beer is Kshs 170 ($2.1) (at a local pub) compared to Kshs. 160 three months ago. However it is tough to find a perennial location to keep track in Nairobi’s fast changing pub scene, where even Nairobi’s favorite sports pub Hooters closed last month. What needs to happen is a combination of Murua’s Tusker Index with this interactive beer map from the Czech Republic!

More ExpensiveFuel: A litre of petrol fuel (at local petrol station) is now Kshs 94.5 ($5.25 gallon) up from Kshs 90.9 per litre in June. The back and forth petrol war continues between leading oil distributor Kenol and the Ministry of Energy officials who include the Kenya pipeline company, the Kenya oil refinery and the energy regulatory commission about the issue of preferential allocation of space and who owes who more. On their side Kenol can count on some political muscle, the fact that they blew the whistle on Triton Oil before it collapsed, they are the country largest corporate taxpayers. High prices at the pump are not unusual, as two years ago petrol was retailing at Kshs 101

Total 2010 AGM

The annual general meeting of Total Kenya was held on June 2 at KICC Nairobi. (Excerpts from shareholder Q&A)

Hot Button issue was the Low Divided
– Board said DPS of 1/= ($0.12) per share down from traditional 2.50/= ($0.03) per share is the best they can do
– Why are you not paying dividend as high as rival Kenol? If rival Kenol is paying more, it is because they have not invested like Total (Note: today was also the day Kenol effected their second ever share split, giving their shareholders 10 new shares, for every one they owned)
– Buyout of Chevron by creation of new shares has diluted ordinary shareholder stake and dividend? true but this information was disclosed before the deal was approved and completed

Preference shares: – Since parent owns 83% why not re-classify minority shareholders as preference shareholders? the preference shares only participate in dividends and are non-voting
– When will class A shareholders who have been locked in be released to trade their shares? CMA finally granted approval and they have been free to trade from May 17 2010

Will Total bid for Shell assets? No they will not bid – various reasons cited include, its an international deal that covers 20 countries, they (and Shell) are already at about 30% market share in Kenya and can’t go higher (also cost)

High Working Capital: one shareholder noted the company traditionally carried high debtor levels, high stocks and high borrowings and called on the Board to be vigilant in collections, reduce stocks, and perhaps do a rights issue to rectify this. Chairman said they are vigilant with credit sales, and that inventory was currently higher as it was for the two individual companies (Chevron & Total), and that they will review the rights issue to see if it is relevant

Chevron stations: Which were bought in 2009 – and those not being sold onwards (as directed by Kenyan Government) will be-rebranded by year end, and there will be no loss of staff at either company

Goodies: umbrella, tote bag, t-shirt, lunch box (1/4 chicken, sausage, spring roll, beef sandwich, soda, and water

Past AGM’s in 2008 and 2009