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Illicit fuel trade catches on, leaking billions in tax revenue

By Macharia Kamau | April 6th 2020
Fuel tankers parked outside Petroleum Depot at Kivepu in Mombasa County. [Maarufu Mohamed/Standard]

Cases of unscrupulous petroleum dealers diverting fuel products on transit to neighbouring countries are on the rise.

This is denying the government billions of shillings in taxes.

Regular reports on illegal practices by players in the petroleum industry and the penalties meted by the Energy and Petroleum Regulatory Authority (EPRA) show a shift over time, with what is commonly referred to as “dumping” becoming a major headache for authorities.

Previously, adulteration of super petrol and diesel using kerosene was the biggest concern, according to recent reports by the regulator.

But a raft of measures by EPRA since 2018, including the hiking of taxes levied on kerosene and pushing its price to be at par with that of diesel, appears to have eliminated the problem. The focus has now shifted to fuel dumping.

For instance, in its report for the quarter to March 31, this year, EPRA reported a number of cases of fuel dumping and none for adulteration.

Over a similar quarter in 2018, just before it went on an all-out war with players that used kerosene to shore up volumes of petrol and diesel, the regulator had reported all manner of offences relating to adulteration.

According to the Petroleum Institute of East Africa, adulteration of petrol and diesel with kerosene loses the country an estimated Sh34 billion in tax revenues annually.

Fuel dumping is equally costly in that when products meant for export end up in local petrol stations, the players do not pay taxes in Kenya, as they are supposed to pay the same in their home countries.

The government currently takes 43 per cent of the money that consumers pay for fuel, which translates to about Sh47.17 per litre of petrol, Sh37.23 for diesel and Sh36.49 per litre of kerosene.

Most of the fuel for export is destined for the landlocked DR Congo, Uganda and Rwanda markets.The regulator noted that the cases of fuel dumping were not widespread, but were still an issue of concern.

EPRA Director General Pavel Oimeke said the regulator had over the last two years closed down about 30 petrol stations and revoked several licences as part of the measures to fight fuel dumping.

“It is not widespread, but there are snippets of dumping in the market still occurring. We undertake monitoring with our contracted service providers as well as EPRA staff. With combined with product marking, we are sure that if a product is diverted into the local market, we are going to find them at the stations,” he said.

“We have closed about 30 stations, which were found with export products.”

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