State announces new plan to avert artificial fuel shortages

Ministry of Energy and Petroleum is making attempts to avert artificial shortages of petroleum products instigated by unscrupulous oil marketers with an eye on making a quick buck when price increases are imminent.

The biting fuel shortage experienced last week has been blamed on speculators hoarding products in the storage and pipeline system shared by all marketers and run by Kenya Pipeline Company. The hoarders had expected the Energy Regulatory Commission (ERC) to increase prices of diesel, super petrol and kerosene in its monthly price capping guide release Thursday.

In a letter to Oil Marketing Companies (OMCs), the Ministry of Energy and Petroleum said storage space would be allocated on the basis of 100 per cent throughput formula, to prevent artificial shortages.

This means that large marketers with capacity to evacuate products from the system fast owing to their established retail networks will be given preference. It is a big win particularly for the top 10 largest marketers that control over 90 per cent of the market, according to data by their lobby group the Petroleum Institute of East Africa.

"In an attempt to address the current constrained product supply to the market as a result of ullage constraints, any OMC that has a throughput volume below 300, 000 litres shall not be entitled to any allocation," Principal Secretary Joseph Njoroge said in a letter to oil companies dated May 13, 2015.

"There was consensus that this move is in the interest of the country as it would encourage OMCs to evacuate products within the stipulated period in an effort to increase their through-put volume," he said.

This is a departure from the current scenario where importers are allowed to deliver 105 per cent of the tender award quantity and allocate 100 per cent to buyers keeping the difference for themselves.

Retail outlets

In the letter, Njoroge noted that the 5 per cent retained clogs Kenya Pipeline Company (KPC) system leaving other oil marketers with retail outlets exposed to stock outs.

The letter marked urgent and copied to key stakeholders further notes that the move will increase the marketers' the amount of products available in the market.

In another letter dated May 14, Njoroge has instructed importers to forthwith allocate all the quantity delivered to oil OMCs prorata their respective participations. Last week several filling stations ran out of stock despite the fact that KPC had at least 101 million litres.

In a workshop held in Mombasa recently, stakeholders agreed that the total capacity allocation for the local market shall be 70 per cent and that for transit shall be 30 per cent.