State moves to avert another fuel crisis, orders firms to cut exports

In an effort to avert another fuel crisis, the government yesterday forced 60 oil marketing companies to make the commodity available locally.

This is after it emerged that the oil marketers had been diverting petroleum products meant for the local market to neighbouring countries where their profit margins are higher in the wake of the fuel subsidy programme meant to cushion Kenyans from skyrocketing fuel pump prices. 

The companies were ordered to release 34 million litres of super petrol that they had planned to export to markets in the region at the expense of Kenyans by end of the day yesterday. The development may have averted another fuel supply crisis. Petrol stations in North Rift and Western Kenya had since the beginning of the week started reporting shortages.

This caused jitters across other regions, coming just days after another countrywide supply crisis.

Motorists have in the last few days been rushing to fill up their tanks in anticipation of another shortage.

In a letter to chief executives of the oil marketing companies, Petroleum Principal Secretary Andrew Kamau warned the companies to comply with the new directive or face penalties. The companies have failed to adhere to the 60:40 ratio, where the domestic market gets 60 per cent of the fuel, while re-exports to the neighbouring countries make up 40 per cent.

Different firms had diverted varying quantities to the region, the biggest quantity held by a firm called Asharami at 13.19 million litres, which accounts for 38 per cent of the 34 million litres of super petrol that are to be localised.

Tender system

The firm, which has little presence in the local retail market, is among the major players that have won contracts to import fuel under the Open Tender System (OTS), where oil marketers bid to import all the petroleum that will be used in the country for any given month.

Other majors firms facing penalties for failure to adhere to the 60:40 rule include Total Kenya, which will have to release some 2.3 million litres of super petrol for the local market, Lake Oil (2.1 million litres) and Fossil Fuels (1.5 million litres).

“This is, therefore, to ask you to localise your respective volumes to the local market by the close of business today (Tuesday),” said PS Kamau in the letter to the oil marketers.

“Failure (to localise), we shall act as follows - for sellers, any product declared as local in excess of the transit volume of 40 per cent shall not be allowed to participate as a seller in the upcoming tenders. Furthermore, the equivalent of their respective ullage shall be reallocated to those selling to the local market.”

Some of the companies that had met the 60:40 ratio include Rubis Energy, which had surpassed the requirement by two million litres, Vivo Energy (1.3 million litres), Petro Oil Limited (1.1 million litres) and Gapco Kenya (1.1 million litres).

A number of oil marketing companies have in the recent past been diverting fuel meant for local consumption to the region, leaving the local market exposed.

The worst of this was experienced in late March, with fuel shortages that persisted for about three weeks.

The marketer’s preference for the export market has been attributed to, among other factors, Kenya’s fuel stabilisation programme, where the companies have to forego their margins at the pump and wait for compensation from the government.

This is in contrast to other markets in the region where they get their margins upfront.

Other than players diverting products to the region, Kenya Pipeline Company’s (KPC) system is also clogged by transit fuel products.

Ratio rule

Out of the about 80 companies that used KPC’s pipelines and depots to transport diesel to Kenya’s hinterland and the region over the month of March, only 20 had met the 60:40 ratio rule. About 30 of the companies had earmarked their products as 100 per cent transit.

PS Kamau yesterday told The Standard that “there is enough product” in the market, adding that the communication issued earlier in the day would result in the oil marketers reallocating their product such that they would all meet the required ratio. He attributed the shortages in the North Rift and Western Kenya to the differences that oil major companies have had with the small oil marketers on fuel supply but added that they are looking at ways of resolving it.

The regions are largely served by the small marketers, with large firms only being present in major towns.

“The regions are served by independents, which are struggling to get fuel, but they have been in talks with the oil majors and should have reached an agreement on how they are going to get fuel. They should have a meeting tomorrow (Wednesday) and possibly announce how they will go about this,” he said.

The Petroleum Ministry is moving to increase oversight on fuel exports to the region, with the companies now required to seek approval from the ministry and the Kenya Revenue Authority.

In a letter to the chief executives last week, the PS said the government would have to okay the quantity of fuel exported to the region in a bid to tame the oil firms’ growing appetite for the export markets.

“The above ratios must be adhered to for all ships berthing at Kipevu Oil Terminal (KOT). In this regard, therefore, importers are asked to note that all discharge instructions must be approved by both KPC and the ministry before adoption,” said Kamau in the April 19 letter.