allAfrica.com: Kenya: Kimunya’s Challenge to Shell BP Goes Before Tribunal

The East African (Nairobi)

July 31, 2006
Posted to the web July 31, 2006

Staff Writer, the Eastafrican
Nairobi

Following the naming of new members of the Monopolies and Price Control Tribunal, the stage has been set for a battle between Shell BP and Finance Minister Amos Kimunya over his decision to block plans by British Petroleum Africa (BP) to sell shares in its local subsidiary, Shell BP Ltd, to its long term partner in Kenya, Shell Petroleum Company of the Netherlands.

In May last year, Mr Kimunya, purporting to act in accordance with anti-monopoly laws, published a gazette notice rejecting the proposed acquisition.

Shell consequently lodged an application before the Monopolies Tribunal challenging the minister’s order.

But with the tenure of the five-member tribunal chaired by Sheila Mbijjiwe having expired, the matter could not be concluded.

The minister has now appointed a new tribunal, to be chaired by a Nairobi lawyer and a former member of the Public Procurement Appeals Tribunal, Mwaniki Gachoka.

The other members are Adam Marjan, John Peter Kinuthia and Alice Mwololo – who will sit as secretary.

Under the law, the tribunal can either rescind the decision of the minister, uphold it or send everything back to him without a decision.

Shell will be arguing that Shell BP has been operating as one company for many years and that the acquisition cannot possibly break monopoly laws because the status quo will not have changed after the acquisition.

The company will also be citing a government decision in 2000 that allowed it to acquire the assets of Agip Ltd. In that case, then finance minister Chris Obure allowed Shell to purchase the assets of Agip Kenya under conditions that were clearly spelt out in a gazette noticed the minister had published.

Shell BP’s competitive position has changed drastically since 2000, especially after the company sold its marketing outlets in Western Kenya.

At present, the combined Shell BP business has a market share of a mere 20 per cent, a position from which it is unlikely to exercise monopolistic powers.

On its part, the Monopolies and Price Commission, which will be defending Mr Kimunya in the proceedings, has said in papers filed before the tribunal that it will be relying on the fact that more than 85 per cent of the oil market in Kenya is controlled by four companies, including Shell BP.

The monopolies commissioner has argued that the oil industry as presently structured is in breach of monopoly laws.

Incidentally, one of the main documents it will be using to defend its post is the report of the inter-ministerial task force on “cartel-like behaviour” by major oil companies (See story, Page 2).

The case promises to be a cause celebre as it presents a test of the independence of the tribunal.

Indeed, what happens at the tribunal will be a reflection of the state of regulation of competition in the country.

Created following the dismantling of the Office of the Price Controller in 1993, its competence came into question in 1998 when it attempted to throw a spanner in the works of a plan by local offices of audit firms Price Waterhouse and Coopers & Lybrand to merge in Kenya.

The two firms had decided to merge their global operations and it was clear that the commission’s bid to stop the merger locally only served a nuisance value.

If the tribunal upholds Mr Kimunya’s decision, the two multinationals will still have the choice of circumventing the minister by structuring an offshore deal that will allow them to continue trading in Kenya under the Shell BP brand.

Last week, the multinational put a notice in the local newspapers announcing to shareholders in the group’s local subsidiary that the shareholding of the company had changed hands in a deal the parties transacted in Europe.

The newspaper notice was placed as a matter of courtesy. Neither the approval of the Capital Markets Authority nor that of the Monopolies Commission was sought.

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