Fear of fuel crisis as dollar shortage bites

Attendant fulling a car at a petrol station along Koinange Street, Nairobi. The fuel shortage experienced on Tuesday built up over the weekend. [Elvis Ogina, Standard] Morning commute for motorists in some parts of Nairobi was punctuated by queues at petrol stations on Tuesday, as many sought to buy fuel to no avail. The situation appeared to worsen as the day progressed, with more petrol stations reporting dry pumps, echoing a scenario in late March last year that developed into a crisis. Even as petrol station attendants turned away motorists, behind-the-scenes oil marketing companies had spent sleepless nights as they held late-night meetings to resolve the situation. The shortage had been building up since last week as the marketers sought to access fuel stored at the Kenya Pipeline Company's (KPC) depots across the country. According to industry sources, the crisis has escalated over the last four months with fuel marketers unable to secure sufficient US dollars to pay for fuel and gain access to their stocks at the KPC depots. Under the Open Tender System, one marketer imports petroleum products on behalf of the industry. The fuel, however, cannot be released from KPC's facilities before the owners of the fuel make payments to the importer. The payments are made in US dollars, currently in short supply. Industry insiders say they have been unable to buy adequate dollars from commercial banks and other sources for the last one week. The industry says it spends an average of $24 million (Sh3.1 billion) per day to buy and stock fuel to various outlets across the country. Over the last five days marketers were only able to secure $31 million (Sh3.97 billion) against a demand for $120 million (Sh15.36 billion) "In a situation where we can only access $12 million (Sh1.54 billion) to $ 15 million (Sh1.9 billion) a day, you ration fuel across the different petrol stations in the network to avoid stock outs," a source said. "But in the last five days we were getting as low as $6.2 million (Sh794 million) a day and as a result, no single petrol station has been fully stocked so they all want supply every day or two as opposed to every five days a week." "The fuel shortage experienced on Tuesday built up over the weekend when more motorists fuel their vehicles for travel out of the city and for the week ahead," said the source. "Given that banks are closed over the weekend we could not buy dollars to replenish and come Monday morning no dollars were available to fully restock stations." The shortage sparked an emergency meeting between the marketing companies and commercial banks, chaired by the Central Bank of Kenya in the morning. Kenya has been experiencing a dollar shortage that has persisted for months. [iStockphoto] Sources privy to the discussions that ran from 11am to noon said the parties struck a deal that saw the marketers allocated two days' worth of dollars, or $48 million, to meet the short-term demand and avert a national stockout. "There is enough fuel in the country, the only challenge is accessing as we do not have the dollars to buy the fuel. We hold a meeting every Friday with the CBK and commercial banks to address access to dollars, but we are yet to find a longer term solution," the source said. The situation is, however, getting dire for fuel marketers who say the scarcity of dollars is leading to losses that could soon cripple the industry. According to our sources, they last bought $1 million at a rate of Sh139.20 per dollar, which is Sh1.50 higher than the market rate. This means that they made a forex loss of Sh1.5 million in a single transaction. Kenya has been experiencing a dollar shortage that has persisted for months. Last year, manufacturers had also complained that a dollar shortage was forcing them to buy the greenback at a premium to the CBK's official average exchange rate. Retail dollar buyers are paying up to Sh139 per unit in Kenyan banking halls as the demand for the dollar continues to surge. This is as the margin between the US dollar's printed rate by the CBK and the market rate for customers quoted by banks and foreign exchange bureaus continues to widen. The official shilling-dollar exchange rate published by the CBK stood at 128 units on March 7, 2023. Firms are hedging against further weakening by stocking up on dollars or holding on tightly to their dollar reserves. "As an industry we continue to incur forex losses on a near daily basis, this is not sustainable and can have a negative impact on the business long term," our source said. "We buy the commodity in dollars, sell it in shillings and make a conversion loss to buy the next batch and we have no way of recouping these losses as the fuel price is cast in stone by law. The ministry of Energy and Petroleum is today expected to hold meet the marketers to put in place measures that will avert a fuel stockout at the pumps. In the last year's crisis, the marketers were protesting delays by the government to reimburse them their margins that they would skip at the pump in a bid to keep retail prices low, but would later be compensated by the National Treasury. The shortages lasted for a number of weeks, with 10 chief executives of the major oil firms recording statements with the DCI as the government started probing the industry for sabotaging the economy. Other than the claims of hoarding petroleum products to arm-twist the government to pay, the firms were said to be re-exporting to neighbouring countries fuel meant for the local market.

Fear of fuel crisis as dollar shortage bites

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