A weak shilling, high cost of crude oil globally and delays by government to refund oil marketing companies their margins for keeping fuel prices stable has hit Total Energies Kenya, which has reported a 55 per cent drop in net profit.
The oil marketer Wednesday said its profit after tax over the half year to June 30 reduced to Sh798.59 million from Sh1.79 billion over a similar half in 2021.
This was despite an increase in revenues, with gross sales growing 26.28 per cent to Sh65.44 billion over the half year compared to Sh51.82 billion last year, which Total attributed to high revenues from diversified revenue streams.
The government has been subsiding fuel prices since April last year whereby oil marketers forego their margins at the pump to keep prices low.
The margins are later compensated by the National Treasury, a process that has been marked with delays and in turn seen marketers having to look for alternative financing to meet daily expenses.
The high cost of crude oil, the firm said, has also caused a strain on its finances.
In the absence of speedy refunds from the government and the higher crude oil prices, Total said it had to borrow more over the six months to fund its operations, resulting in a spike in its finance costs that rose to Sh149 million from Sh6 million in 2021.
“During the period, international oil and gas prices, while being volatile, have continued to rise due to market disruptions lined to geopolitical conflicts,” said Total accompanying its half-year results on Wednesday.
“These have exacerbated the upward trend of fuel prices in the country as well as the working capital requirements of the company.”
Crude oil prices rose to an average of $109.68 (Sh13,151 at current exchange rate) in July from $82.03 (Sh9,844) per barrel in January and $63.35 (Sh7,602) in June last year.
“The increase in working capital requirements emanating from increase in oil prices and compensation from the government fuel stabilisation programme led to increased financing costs in the review period.”
Foreign exchange losses also grew on account of the shilling weakening against the US dollar. The shilling traded at 118.53 to the dollar in June this year, compared to 113.58 in January 2022 and 107.82 in June last year.
“Foreign exchange loss increased to Sh48 million (compared to Sh3 million in 2021) mainly due to the sharp depreciation of the Kenya shilling against the US dollar in the period,” said Total Energies.
The company said the 26.28 per cent increase in revenues was largely due to sales performance and increased fuel prices but profit fell “mainly due to lag in price adjustment arising from a sharp increase in fuel prices”.
Owing to the regulated pricing of petroleum products, oil marketers cannot adjust prices immediately they start feeling the heat from higher global prices and have to wait for the Energy and Petroleum Regulatory Authority to publish maximum prices every month.
At times, the retail pricing is also affected by the contracts that importers of petroleum products have with suppliers, which might tie them to a certain price for a couple of months.
Total said it registered an increase in sales from diversified revenue sources.
“However, revenues from diversified investments in shops, food and services and income from partnerships with third parties increased in the period compared to 2021,” said the company.
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