Fears of fuel crisis as dealers hoard expecting huge profits

Fuel tankers parked outside Kenya Pipeline Company depot in Nakuru. [Kipsang Joseph, Standard]

Fuel prices shot up by Sh5.25 a litre in the pricing review that took effect at midnight. This marks a tidy profit considering the daily consumption is about 10 million litres.

With the higher prices which also mean huge profits for traders holding and significantly cheaper stocks, supply is expected to normalise averting an impending crisis ahead of the Easter holidays.

It was clear that the prices would climb considering all pointers, including rising global prices which is the biggest single determinant.

While major oil marketers had sufficient stocks of fuel products, several smaller players suffered rationing or were completely starved, especially in Lamu.

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Incidents of retailers getting less fuel than their respective orders were reported even in Nairobi, in a possible fraudulent activities by dealers ahead of expected price hike.

People involved in importation and distribution of petroleum pointed out malpractices that included independent petrol stations buying the commodity at inflated prices.

Higher than specified prices only translates to thinner profit margins for retailers who have no way of passing on the extra costs to consumers.

This is despite the pricing guidelines that are issued by the Energy Regulation Commission, which dictate the maximum price at every stage along the supply chain.

Officials, whose work involves eyeing the country’s petroleum reserves, had by Friday raised the alarm over what was initially thought of as a looming shortage.

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It started with the bigger players turning away requests from the independent petrol stations (the ones not operating as franchises of the multinational firms).

Then the prices would be increased with many opting to pay more if only to just keep their businesses going rather than turning away their customers.

“The result of this is that some filling stations have stock outs with nowhere to buy products at wholesalers’ price for reselling,” said a highly-placed official who is however not authorised to speak for any of the State entities involved.

Kenya Pipeline Corporation and the Kenya Revenue Authority are heavily involved in transport and storage and importation and trading owing to taxation, respectively.

Given their place in monitoring the trade, officials such as our source would tell exactly who is holding which petroleum stocks, and the price at which any transactions are concluded.  

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Andrew Kamau, principal secretary for Petroleum, said hoarding was a possibility in the present circumstances but indicated that he was yet to receive any complaint.

He added that the stock out reported in Lamu may have little to do with irregular trade practices but more of the logistical challenges of delivering the commodity to the largely remote county.

Before the hoarding concerns were confirmed yesterday, panic was slowly rising on fears that there could a complete fuel crisis before Saturday when the next imports arrive at the Mombasa Port.

Available petrol stocks from the system were 21 million tonnes by Friday, which is only sufficient for less than a week, considering daily consumption at 3.6 million tonnes.

A vessel carrying 25 million tonnes will start offloading on April 19, before another bigger one carrying an estimated 80 million tonnes docks Tuesday next week.

Dominance

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A consortium of Vivo Energy, trading as Shell, and KenolKobil are the current importers after winning the bid to buy on behalf of the industry.

Abuse of dominance in the market by the big firms is helped by the structure where, often, the bigger ones import for the industry every month.

Such big firms operate on a franchise model, selling their products mostly through privately-owned but branded outlets.

Besides the usual margins realised from selling the fuel at wholesale prices to the retail outlets, the branded outlets also periodically pay a fee to be affiliated to the multinationals.

French-owned Total and Dutch-British firm Shell are the biggest oil marketers in Kenya, collectively controlling nearly half of the industry.

In the arrangement, the huge companies have the money to stock up sufficiently for own and the franchised petrol stations.

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Fuel pricesEnergy Regulation Commission