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How oil marketers fanned fuel crisis in key regions

FINANCIAL STANDARD
By Macharia Kamau | May 10th 2022 | 3 min read
By Macharia Kamau | May 10th 2022
FINANCIAL STANDARD

 

Motorists line up for fuel in Usenge town, Siaya County. [Isaiah Gwengi, Standard]

 

The major fuel shortage experienced in the country in late March and early April had started in the North Rift and Western regions before spreading to other areas.

Throughout April, the two regions experienced unstable fuel supply, with many of the petrol stations reporting frequent outages.

So why were the regions the epicentre of the fuel supply shocks that shook the country?

A senior official at the Ministry of Petroleum and Mining explained that North Rift and Western Kenya are dominated by independent oil marketing companies.

These small oil marketing companies rely on the major players to sell fuel to them and, in turn, resell it at their retail outlets.

Thus when the major oil firms started withholding fuel from the local market as well as diverting the petroleum products to neighbouring countries, the independents were the first to feel the heat before the situation started affecting the retail outlets branded by the oil majors.

The independents took root in the region after the oil majors withdrew owing to numerous instances of fuel dumping – where unscrupulous players divert products meant for export markets into the local market.

The retail outlets that would receive such fuel had an undue advantage as the petroleum products earmarked for export do not attract taxes locally. The petrol stations can thus undercut their competitors in terms of retail pricing. Unable to break even in the market where some of their competitors got ahead by breaking the rules and appeared to be getting away with it, the oil majors would move away from many of the towns.

This created a vacuum that was filled by more independents. The Petroleum ministry official, however, noted that not all independents engaged in the vice and even then, it was not exclusive to independents, with a few retailers who are franchisees of oil majors also involved.

The Energy and Petroleum Regulatory Authority (Epra) has over the years tried to fight the problem of dumping through market surveillance and fuel marking. Data by the Petroleum ministry tabled in Parliament recently indicates that the independents control more than 60 per cent of the retail market. Out of the 4,270 petrol stations in the country, the independents operate 2,934 stations.

The recent supply shock brought to the fore the key role of the independent players in the fuel retail space.

It also brought to light their hate-love relationship with the oil majors, whom they depend on to import fuel and sell to them at wholesale price.

Other than claiming outright refusal by major marketers to supply fuel to them, the independents also accused the majors of overpricing their products, leaving little or no room for profit.

After the major supply shocks in April, the Petroleum ministry said it would empower the National Oil Corporation of Kenya (Nock) to be able to supply both its retail outlets as well as those of the independents.

This would see Nock play its rightful role in stabilising the local market.

“As a medium-term intervention, the ministry has commenced the process of ensuring that Nock assumes its responsibility of taking up the 30 per cent import quota of petroleum products that was designed to assure continued security of supply,” said the ministry when making an update on the fuel supply situation in the country in April.

“National Oil has been identified as a critical arm of ensuring supply to the independent petroleum dealers, who collectively serve more than 50 per cent of the market.”

The ministry recently published proposals that if passed in their current form in Parliament would see Nock import nearly a third of all petroleum products consumed in the country.

The Draft Petroleum (Importation) ( Quota Allocation) Regulations, 2022 allocate Nock a 30 per cent petroleum products quota for diesel, super petrol, kerosene and cooking gas.

The draft regulations also require Nock to give a priority to independent oil dealers, mostly small and medium-sized oil marketers who do not have affiliation with oil majors.

They have in the past accused the major brands of selling them products at unreasonably high wholesale prices that leave them with little margins at the retail point.

“Priority to purchase petroleum products from the quota holder shall be given to retail stations operated or franchised by the quota holder and operators of independent petroleum retail stations,” said the Petroleum ministry.

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