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State in new attempt to set up strategic fuel reserves

By Macharia Kamau | January 14th 2021


Products to be stored in strategic reserves will include super petrol, diesel, kerosene, jet fuel and cooking gas. [File]

The Government is in yet another attempt to secure the supply of petroleum products in the country through strategic reserves of commonly used fuels.

The strategic petroleum stocks are expected to cushion the country from supply hiccups. Such hiccups have in the past caused supply disruptions including countrywide fuel outages that have been costly to Kenya’s economy.

It is, however, not the first time that the Government has tried to establish fuel strategic reserves.

Previous attempts appear to have fizzled out not long after the plans were unveiled. The Petroleum and Mining Ministry recently published the draft Petroleum (Strategic Stocks) Regulations, 2020, that provide a plan on the setting up of the reserves.

The proposed subsidiary law currently up for public participation aims at ensuring the country has adequate petroleum products that can last for up to 15 days in the case of disruptions.

This is in addition to the minimum operational stocks that oil marketers are required to maintain, currently set at 30 days of sales for kerosene, 25 days for diesel and 20 days for super petrol.

Petroleum products that will be stored in strategic reserves are super petrol, diesel, kerosene, jet fuel and cooking gas.

“The Cabinet Secretary (CS) shall, through a competitive tendering process, select an oil marketing company (OMC) to supply petroleum products for the establishment and maintenance of strategic stocks,” reads the draft regulations published by Petroleum and Mining CS John Munyes.

Recruiting an oil marketing company competitively will take away the mandate from the National Oil Corporation of Kenya, which is currently tasked with the job but failed to deliver.

The fuel products in the strategic reserves can only be tapped into after authorisation by the CS, who the new regulations give him the leeway to declare an emergency in instances there is a major disruption in supply.

A fuel station in Kitui County. [Courtesy]

When releasing the products to the market, oil marketers will pay prevailing market rates but with the Energy Regulatory Commission (Epra), having the final say in how much they pay for the products. The largest oil industry players will however get preference when the ministry releases the strategic stocks to the market.

“The strategic stocks shall be shared on a pro-rata basis among OMCs based on their immediate throughput data as shared by Kenya Pipeline Company less transit volume,” reads the regulations.

While the stocks are largely for use in emergencies, they can be released to the market after “reaching the end of its shelf-life” after which it will be “unfit for use, consumption or sale”.

The Ministry will use funds from the Consolidated Petroleum Fund, created by the Petroleum Act 2019, to finance the acquisition of products that will be stored as strategic stocks.

The Fund will also be getting money allocated in the State’s budget and contributions from the oil industry players.

The kitty will benefit from money and assets recovered from proceeds of crime in the petroleum sector as well as monetary sanctions imposed by Epra on players. A previous attempt to set up a Sh10 billion fuel fund muted.

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