By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

25 January 2015

Are oil companies fleecing Kenyans and making supernormal profits? Some people believe so, but I will use real figures to help you decide for yourself. Two of the largest players in the market (Total Kenya Ltd and KenolKobil Ltd) are listed in the Nairobi Securities Exchange and therefore their financial reports are public knowledge.

The two companies operate under the scrutiny of the Exchange as well as the Capital Markets Authority. They have many shareholders a good number of whom are very well informed on money matters. Therefore, the contents of their published reports can be trusted to be a true and fair representation their financial position.

According to the Petroleum Institute of East Africa, these two companies commanded 35 per cent of the market between January and September 2014 – Total Kenya was the overall leader with 21.1 per cent while KenolKobil came took third position with 13.9 per cent. So, their financial performance is a fairy representation of the whole market.

The most recent audited financial statements are for the year ended 31st December 2013. In that period, Total Kenya Ltd made a profit of Sh2.085 billion while KenolKobil made Sh564 million.

Those numbers alone are meaningless unless they are put into proper perspective. The Sh2 billion profit of Total Kenya Ltd came from a turnover of Sh141.7bn. The products that were sold in order to generate this revenue had cost the company Sh135.4bn. Therefore, the gross profit (before operating expenses) was Sh6.3bn.

Billions of shillings can be scary! So, let us drop the “billion” tag in order to make sense of the figures. That is, we ask ourselves: is it fair for some one to buy a product at Sh135.40 and then sell it at Sh141.70 to make a profit of Sh6.30? This is a gross margin of 4.7 per cent.

Is it also fair that, after deducting operating expenses, this person is left with Sh2 (or 1.4 per cent of sales)? In fact, is it good business? I will leave you to judge for yourself.

In the meantime, here are the corresponding figures for KenoKobil: turnover = Sh109.7bn; cost of sold products = Sh104.7bn; gross profit (before operating expenses) = Sh5bn (4.5 per cent); profit before tax = Sh564 million (0.5 per cent).

If you think that those profits are supernormal, don’t just grumble; join the party! Since these are listed companies, anyone can buy the shares. So, contact any stock broker and start buying. But I must caution that I am NOT giving investment advice; I am only stating a fact!

One share in Total Kenya Limited is currently going for Sh27 while that of KenolKobil is Sh9.20. Since it is easier to place orders in blocks of 100 shares, you will need Sh2,700 to get into Total Kenya and only Sh920 to join KenolKobil.

It turns out that you don’t have to be well-connected multimillionaire to become a player in the oil industry!