Oil firms warn of supply cuts as Treasury delays Sh65b refunds

Business
Boda boda operators form long queues in search of fuel following a shortage of the commodity at the National oil filling station in Kakamega town on April 28, 2022. [Benjamin Sakwa, Standard]

Oil marketing companies are staring at a crisis as the government holds on to Sh65 billion it owes them for keeping pump prices stable over three pricing cycles.

The government has for more than a year now been taking away oil marketers’ margin at the pump to keep prices stable in a bid to cushion consumers, but refunded the oil firms later.

However, the companies have not been paid since June, with some struggling to meet obligations to suppliers, including paying for fresh petroleum imports.

The Petroleum Outlets Association of Kenya (Poak) said the industry is owed Sh65 billion and warned that this could spiral into a crisis as players might not be able to pay for fuel imports.

“This is a sizeable percentage of the industry market capitalisation, large enough to cause a supply disruption,” said the association in a social media post. Its members control 45 per cent of the Kenyan oil retail market.

The association’s chief executive and national coordinator John Njogu said the oil marketing companies had not been paid their margins for three pricing cycles starting June-July.

The amount the government pays the marketers has grown every cycle as crude oil prices went up.

Over the current August-September cycle, the government is expected to pay Sh26 billion, with the balance of Sh39 billion being the money owed for the June-July and July-August pricing cycles.

“In the past, the industry has been paid on or around the 10th of every month and had expected at least a partial or full repayment for the previous cycles this month. But this did not happen,” Mr Njogu said.

“The impact of this has been tying up the working capital for the players and they may not be able to meet their supplier obligations. There are ships delivering products every week and the suppliers expect to be paid and the penalties for non-payment are usually high,” he said.

The government has in the past said it was necessary to verify the money claimed by oil marketers, which usually delays payments but by a matter of weeks after the close of a cycle.

There have been delays in the past. There were claims that major fuel shortages experienced in March and April were a kind of protest by oil marketers for delays by government to pay their margins.

Then, the industry said it was owed Sh32 billion by the State.

The Sh26 billion outstanding for August-September is the highest monthly subsidy that the government will pay since it started subsidising pump prices in April last year.

The high monthly bill was after fuel prices crept up, but the government opted to retain pump prices at the same levels during the July-August cycle, which meant that National Treasury would pay more per litre in subsidies.

This month, the government will spend the highest subsidy amount on kerosene at Sh74 per per litre over the current cycle, up from Sh54 a litre last month.

The fuel, largely used by poor households for lighting and cooking, was held at Sh127.94 per litre in Nairobi. Without the subsidy, it would have retailed at Sh202.11.

Super petrol was retained at Sh159.12 per litre, with the government subsidising it at Sh54.91 per litre.

This is also higher than the Sh50 per litre that was the subsidy for petrol over the July-August cycle. Without the subsidy, motorists would have paid Sh214.03 per litre.

Diesel is retailing at Sh140 per litre, benefiting from a subsidy of Sh66.17 per litre, also higher than Sh54 that was the subsidy over the last cycle. It would have retailed at Sh2016.17 per litre in Nairobi without the subsidy.

The government has said fuel subsidy is unsustainable and it plans to end it.

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