Small oil marketing companies are agonizing over the additional investments they will have to make to sustain stocks at their petrol stations


The imposition of Value Added Tax (VAT) on petroleum products has meant that independent dealers pay an extra Sh14 for a litre of super petrol due to their non-affiliation to big petroleum brands.

Depending on the capacity of the tanks at their outlets, this has translated into hundreds of thousands and even millions of shillings.

This was one of the key concerns that saw a lobby for small oil marketers, the  Kenya Independent Petroleum Dealers Association (Kipeda) stage protests, blocking access to petroleum depots in various towns across the country.

They say an outlet with capacity for 10,000 litres of petroleum products would need to over Sh140,000 to fill up the tanks.

At 10,000 litres, such a small outlet typically operating one or two pumps, and its product would not be enough to fill up an average sized tanker.

Kipeda Chairman Joseph Karanja said the new tax has seen the cost of acquiring petroleum products for their outlets go up substantially.

“If you are stocking 10,000 litres, which is the minimum amount that you can buy, you will have to invest an additional Sh160,000,” said Karanja.

“Many of marketers have much bigger capacities at their outlets, which means filling their tanks at their petrol stations would require them to raise hundreds of thousands and even millions of shillings to invest in new stock,” he said.

Frequent promises

The additional investments needed are despite what the marketers feel is a stagnation in the margins they get.

This is despite what they say are frequent promises by the regulator to review their margins.

Currently, wholesalers get Sh7 per litre and Sh3.89 at the retail level.

This was last reviewed in early 2014 after the refinery quit operations, necessitating an increase in the margins to cushion the marketers from losses as all the products had to be imported in refined form.

There has been the talk of increasing retail margins to Sh4.80.

An upward review of the margins for the oil marketing companies by the Energy Regulatory Commission would crush the consumer and industry, who are already reeling from high costs of petroleum.

“The issue for marketers is how it (VAT) affects retailers in terms of capital,” said an independent dealer.

“My normal load for super petrol is 20,000 litres, so that means my costs for acquiring this product alone will go up by Sh320,000. You also have to consider additional investments for kerosene and diesel,” said the dealer.

“All this while my margins stay at the same levels. It was supposed to go up to Sh4.8 from Sh3.89 but this has not happened.”

The VAT on petroleum products was effected on September 1, this year has been a hotly contested issue.

The Government has insisted that it needs the money to meet budgetary requirements but Kenyans feel that petroleum is highly taxed, with levies attracting about Sh54 per litre of super petrol or 43 per cent of the current pump price of Sh125.59.

It is, however, a lucrative way for the government to raise revenues.

In the last two weeks that VAT on fuel has been in effect, the Government could have raised in excess of Sh3 billion from the three petroleum products of super petrol, diesel and kerosene.

Consumption patterns

This is considering the daily consumption patterns, whereby the country consumed 450 million litres of the three products in the month of June according to the latest data from the Kenya National Bureau of Statistics.

This translated to 15 million litres daily and a total VAT charge of over Sh200 million. A daily consumption of 8.3 million litres of diesel, which moves the largest volumes due to demand from private motorist, transporters and industry, would net in Sh108 million per day in VAT at Sh13.04 per litre.

Super petrol, whose consumption stands at 5.2 million litres daily, would bring in Sh74.9 million a day, at a VAT rate of Sh14.41 per litre while kerosene at 1.5 million litres would net in Sh19.6 million a day at a vat rate of Sh13.08.

Over the 16 days that the levy has been in place, the total revenue to the taxman from the VAT on fuel would stand at Sh3.2 billion, payable to Kenya Revenue Authority by oil dealers by October 20.

The total amount has however been compromised by the supply shocks resulting from protests by the independent dealers over taxes early in the month. The blockage of entrances to depots across the country hampered the uptake of fuel and led to the shortage and a dip in consumption.

During the four days when the dealers blocked access to the depots, uptake of petroleum products was below the daily averages, at times dipping to below half of what would be picked on an ordinary day.

Daily uptake

While on average the firms load seven million litres of products at the Kenya Pipeline Company’s Nairobi depot, they picked just 71,000 litres or enough to fill just two tankers on September 5.

The situation was the same in other major towns across the country, resulting in the average daily uptake of petroleum in Nairobi, Kisumu, Eldoret and Nakuru going down 50 per cent to 10 million litres on Wednesday form a daily average of 19 million litres.

Of the 19 million litres, Kenyan consumption is about 15 million litres while the balance is re-exported to neighbouring countries by road.

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Value Added Taxpetroleum productsPetroleum Dealers AssociationKenya Independent Petroleum Dealers AssociationKipeda ChairmanJoseph KaranjaEnergy Regulatory CommissionKenya National Bureau of St